China’s Shot Across our Bow
June 25th, 2009This is all over the internet this morning. This is very scary stuff in my thinking, but what do I know. This is not from the Chinese government but the head of the economic research division of the Communist party.
It’s the second time the Chinese have insinuated they are not going to buy more of our debt. Our government’s fiscal policies are making them very nervous. If they stop buying our treasuries, it’s game over.
Our debt is increasing daily and selling the treasuries is the way the government pays for all the spending they are doing. The Fed is already buying a portion of the treasuries because there are not enough buyers apparently. Not sure how that works. It’s sort of like me writing myself a check.
China is our largest creditor, they are the “largest single holder of US Treasuries, with $763.5 billion at the end of April, according to US Treasury data.”
In looking around at the posting of this article, I noticed that the US print versions leave out the comments the economist gives for his thinking. Mainly the quote listed below the link.
LINK: Chinese Economist Urges Beijing to Buy More Gold
“Should we buy gold or US Treasuries?†Li asked. “The US is printing dollars on a massive scale, and in view of that trend, according to the laws of economics, there is no doubt that the dollar will fall. So gold should be a better choice.â€
There is no suggestion that Li, even though he is a senior researcher, was enunciating an agreed party line.
However, a debate is swirling in China about how the country can reduce its exposure to the dollar and to US assets in case America’s ultra-loose fiscal and monetary policy rekindles inflation and erodes the value of the dollar and US Treasuries.
This is a MarketWatch version of the article with hundreds of comments:
China is posturing and can afford not to buy our debt. they are stuck between a rock and a hard place. They are right about our fiscal policies butthey also need us to buy from them to keep their economy going. If they don’ tbuy our debt we will not be able to buy their products.
China is not the only one that is getting nervous
China knows that they are depending on the American dollar also, that is why it is smart for them to help the american economy to keep on moving, otherwise it will be game over, like you mentioned
They may be kind of “stucco” but the fact is they are buying less and less of our debt and the US needs to sell more and more every day.
That certainly makes me nervous.