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March 13th, 2009

China’s concerned over US debt

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Some interesting remarks today from the Chinese government regarding US debt :

Chinese Premier Wen Jiabao said Friday that he is “worried” about the country’s vast $1 trillion holdings in U.S. Treasuries and that China will pursue a policy of diversification when comes to its future foreign exchange holdings.

Wen’s remarks, which were made at the close of the annual National People’s Congress meeting in Beijing, echoed those that have been made by other high-ranking policymakers and bankers over the past year since the subprime crisis devastated the value of the mortgage-backed securities that made up a large chunk of China’s U.S. holdings.

“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” Wen said. …

Wen called on the Obama administration to “maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”

He’s right to be concerned; as the article points out, China is the number-one overseas holder of Treasuries (Japan is now second). A trillion dollars is probably understating the extent of Chinese-held US debt. And China began selling off its Fannie Mae and Freddie Mac stock last summer.

The Money & Co blog

The Chinese may be legitimately worried about record U.S. borrowing this year to fund the Obama’s administration’s rescues for the economy and the financial system. Government stimulus spending is expected to be a key discussion point at this weekend’s meeting of finance ministers of the Group of 20 nations.

If investors begin to balk at Treasury debt, forcing yields up dramatically, that would devalue China’s holdings of older, lower-yielding Treasuries.

The Chinese aren’t alone in that regard. Still, there’s little danger of China selling off its US debt:

“Except for US Treasuries, what can you hold?” [Luo Ping, a director-general at the China Banking Regulatory Commission] asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

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2 Responses to “China’s concerned over US debt”

  1. AmericanEagle50 Says: March 14th, 2009 at 3:10 am

    Hello everyone,
    Although it was our folks on capital hill that went running off doing something again without consulting us, there’s something I would like to say about the chinese!
    After closing their markets to U.S. goods made by our workers before their foot gets stuck in their mouth try to remember these three little words…..”The Flying Tigers”.
    Where would you folks have been if not for these brave souls. Also how many pilots did we lose over the “ALUMINUM TRAIL”. Let’s put things in perspective here and add up the total cost for this endeaver!
    Take Care out there & God Bless!

  2. Ron Says: March 14th, 2009 at 10:48 am

    China should be worried about their dangerous over investment in US Treasury obligations. Washington ’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

    Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

    The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: http://www.facebook.com/group.php?gid=67594690498&ref=ts
    Thanks,
    Ron

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Tim Manni is the Managing Editor of HSH.com and the author of their daily blog, which concentrates on the latest developments in the mortgage and housing markets.

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