Will China Continue to Buy U.S. Debt? 48 comments
an article to
-
Font Size:
-
Print
- TweetThis
In Shanghai last week, Hillary Clinton urged the Chinese to continue purchasing US issued debt. Last year China became the US’s largest creditor with 696.2 billion dollars of Treasury Bills in December, according to the latest Washington data.
There should be no shortage of merchandise for Mrs. Clinton to peddle to her biggest account. The Treasury Borrowing Advisory Committee (Is there a special committee to think of these names?) estimates 2009 net borrowing needs could reach as high as $2.500bn, and this was before the 800bn government spending plan. Sales of the seven year notes have commenced and the Treasury is considering a monthly auction of the 30 year bond.
On the surface, China seems agreeable to further acquisition of US debt. Lu Feng, an economist at Peking University China Center for Economic Research notes that “Objectively speaking, helping the US economy is good for both China and the US.” But as Bob Dylan observed years ago, “the times they are a changing.”
On a recent trip to my local Wal-Mart (WMT), it seemed exceptionally quiet. Granted, this store is rarely really busy except on weekends and maybe Cinco de Mayo. As our economy contracts, availability of China’s surplus trade funds will be reduced. Further, China seems to have a real economic stimulus plan designed to help Chinese consumers, rather than the latest Washington boondoggle designed to award all the Democrat special interests. So while our financing needs are increasing, the ability of China and others to buy our Treasuries may be diminishing.
Currently, the rate for 5 year paper is around 2%; 10 year notes a little less than 3% and 30 year bonds at about 3.5%. Perhaps there is enough scared money around the world that they will initially seek the perceived safety of US Gov paper, and continue to invest as these prevailing rates. Bond and Forex traders however, should note that as time goes by there will not be an extra 2.5 trillion dollars of global funds available at these rates. As the auctions unfold, traders will need to closely monitor results. Higher rates and an inflow of dollars may support a stronger dollar despite a floundering US economy.
The Chinese investors are confronted with a dilemma. Should they fail to invest, the rates go up even more and the value of their massive portfolio is diminished. If they do invest and expand the Treasury position, they become further exposed to future dollar devaluation.
Two smart lawyers like the Clintons rarely do anything pro bono…..wonder what the commission is for selling 100M bonds? Before long their net worth will approach the Waltons, (Wal-Mart) that other prominent Arkansas family. That is to be expected. Wall Street and Washington insider pay is always better than that on Main Street.
Disclosure: no positions
Related Articles
|
-
The Seeking Alpha 100
See allThe top 100 stock
market authors
selected for publication
Seeking Alpha 100 » -
Fastest Climbers
Authors with the largestSee all
increase in followers
in the last 7 days
Fastest Climbers » -
Top Commenters
Top commenters,See all
as ranked by their peers
Top Commenters » -
Top Instabloggers
The 100 most active
Instabloggers.-
1
David Fry
-
2
TraderMark
-
3
Don Dion
-
4
Cliff Wachtel
-
5
Joseph L. Sha...
Top Instabloggers » -
1
-
Top StockTalkers
TopSee all
StockTalkers.
Top StockTalkers »
One of Asia's "not Interested in gold" economies is Vietnam.
Because the Vietnamese people were scampering into gold as inflation jumped into double digits there, The Vietnamese Government moved to close Gold purchases/sales in that country.
I believe this occurred last year. The Asiatic community is quite familiar with Currency swings. They use gold not only to show prosperty to others within the community but also to protect themselves against plummeting currencies.
Plummeting Currency is something they are quite familiar with. The Asian Contagion, sound familiar?
China will continue funding the US economy.
the gd ended with ww2 in spite of or because of politicians. wonder how long china wants to make tennis shoes for us?
china seems to be using those dollars for real assets as fast as they can.
anyone who thinks the market isn't affected by the dumbasses in washington needs to look at the financial charts for the last week, 2 weeks, 2 months, 2 years, 2 decades.....pick a party any party and watch your assets dwindle.
is anyone else sick of politicians instead of public servants and statesmen?
they hate metals because they can only steal them by outright confiscation. they are stealing your fiat currency savings everyday a little at a time. are the conservatives conserving your liberties? are the liberals giving you more liberty?
maybe if we appease the russians, chinese and muslims it will all be o.k.. maybe if we sacrifice a little more freedom for safety and security.......?
1. Legalize credit swap
2. Borrow from china
3. Let other countries to grow at double-digit rates
4. Sell all American bubble mortgages to the rest of the work
5. Slowly crush all other currencies in the world-print money for the banks and save homeowners from bankruptcies
6. Collapse the US dollar to eliminate all paper dollar dept
7. Gold will the only world currency
8. USA has the most Gold reserve in the world (back in the power)
9. with inflation American home owner will be reach, their existing home will worth 300% higher thanks to inflation
Stop panicking, survive and enjoy the ride....this is a financial war....this is a 21 century way of staying in power.....
Remember: The smartest people of the World are magnetized to the USA and the smatest of the world will rule the world.
Evidently you do care what I think, otherwise you would not have written the rant.
Oh, but wait, I forgot: “nobody cares” …so you are nobody!
On Feb 26 12:05 PM boats.j wrote:
> Oh really? The thought police are here!!!!!! There is this little
> tiny thing called 1st Amendment. I know you corporate/financial types
> don't care about the 1st Amendment except when you try to apply it
> to juristic persons having the right to speech.
>
> In plain language: nobody cares what you think!
Unless the author is a investor and political heavyweight, say Soros, who can influence markets with reasoned views, such political opinions are worthless.
On Feb 26 01:53 PM PainfullyAware wrote:
> Those who do not include "Politics" in their understanding of markets
> will not understand the nuances that drive the heard.
interesting concept. how do you think regular americans will fare? would it be corporate fascism, corporate rule by stealth, serfdom, politics as usual, liberty restored, liberty seized? do you trust what you are told about u.s. gold possession? sometimes those rascals in washington lie to us a little bit.
take it another step to outcome. maybe it would be applicable to oil, ng, and other metals? wealth gives access of course but then you loose the golden edge as you spend the gold.
the golden rule makes sense. he who has the gold makes the rules.
A quote from last year, the president of the national association of realtors under the republican administration.
"Nobody saw this coming"
This quote left me, and still leaves me speachless.
Republican administration leaders (Phil Graham)restructuring the SEC and allowing naked shorting and changing the leverage ratio's for the investment banks.
What an absolute sure recipe for disaster.
I was a republican at one point, but am not any longer. This is not a political forum, but is intrinsically linked to politics, when the politicians and leaders are either this incredibly incompetent or self serving at the expense of the best interest of this country.
Bloomberg Radio has had an extraordinary, 2 hour commercial free coverage of the economic crisis unfolding today. Lehman is going bankrupt, Merrill Lynch is up for sale, Washington Mutual is likely to go under, and AIG is going through a major reorganization.
The most common comparisons are with the stock market crash of 1929.
Many institutions, such as the Glass-Stiegel act and the Federal Reserve were put into place in order to prevent another meltdown on the same scale, also FDIC to prevent bank runs.
Phil Gramm, McCain's top economic adviser, sponsored a bill that made the Glass-Stiegel act much less than it was, by making it possible for large brokerage firms to act like banks, without the Glass-Stiegel regulations, leading to the chaos we have today.
This changed the allowed leverage from 12-1 to 30/40-1. Talk about an absolute recipe for disaster.
Billy, The Chinese are dieing to buy high tech goods and services from the US. It's the US that is opposed to selling because of concerns about further increasing China's competitiveness.
On Feb 26 12:58 PM Billy Gee wrote:
> It is amazing Hillary Clinton and Barak Obama have turned completely
> aside their campaign pledges of confronting China on their illegal
> trade practices. The two and half trillion dollar China Soverign
> Fund is now something to borrowed rather then used to purchase U.S.
> goods and services that we thought like when trade with China was
> sold to us as an amazing opportunity. We have been loyal friends
> and customers to the Chinese BUT now we know that we were probably
> wrong on the assumption that China would reciprocate.
>
> Currency manipulation is vibrant, export credits are abundant, joint
> ventures are a growing conduit for technology transfer, inspections
> for foregin goods are a bottleneck, intellectual property is not
> owned but shared openly on the streets by conterfiters and the populace
> - we are now at a crisis and this activity is getting worse. Their
> dollars are apparently are not going to be used to buy U.S. goods
> and instead U.S. assets and other assets around the world. Are we
> fools?
On Feb 26 09:18 AM The Mad Hedge Fund Trader wrote:
> My old friend, Stephen Roche, chairman of Morgan Stanley Asia, says
> that the current US bubble is four times larger than Japan’s, whose
> market is still down 80% from its 1989 high (no typos here). The
> American consumer, who at the peak accounted for 72% of GDP, has
> been left for dead. Japan’s bubble was caused by a collapse in capital
> spending, which never accounted for more than 17% of GDP. If we make
> China our whipping boy, as the Democratic Congress is historically
> inclined to do, they could come back to bite us in the hand. Treasury
> Secretary Geithner’s recent comment that China is a “currency manipulator”
> hasn’t helped. Our financial markets are now desperately dependent
> on the Middle Kingdom recycling their trade surplus into our bond
> market. A Chinese boycott would trigger a collapse in the dollar,
> and send US interest rates sky high.
China won't do anything so inflammatory of course.
But if you have a look globally, that is what China seems to be moving towards - Using its surplus to buy up useful assets for its future. Eg ... Huge positions in crippled foreign resource companies. Smart move - They can make their own Coca Cola and MacDonalds and Microsoft and Amex if ever they feel to I'd guess? Motorcars don't seem to be beyond them!
But continuing to throw a lot the way of US T Bonds while waiting for foreign asset prices to drop more. Anothert smart move. While not buying into AIG's Asian jewel. The Chinese are definitely NOT stupid.
The difficult thing about following China's lead is that they are SO patient - Been here 2,000 years - Will be here in another 2,000. And fully expect to turn a profit by then. But if they don't, they won't have run themselves into debt in the meantime and the next millenium might be kind to them.
On Feb 26 11:47 PM Adrienne Gonzalez wrote:
> I simply found it interesting that though Mrs. Clinton insisted that
> she would address human rights while on her trip, she cheapened what
> could have been useful and turned it into pimping out the United
> States to China to feed our debt habit.
>
>
>
I guess if the government continue to build the infrastructure, that will be the time when local consumption will begin.
Just a thought.
> some of the folks on here really need to use their NOODLE b4 commenting.
> China and the US are interdependent in many regards. We need their
> cheap labor to produce the consumer goods whose trade helps to keep
> our economy afloat. China needs to buy US debt so that their currency
> remains cheap, be it natural or not, and their people can continue
> to work and eat. The Chinese consumer is much less wasteful and
> careless than the US consumer and they are not ready to support their
> economy as of yet even with the help of Russia and Europe. China
> is hedging some of its bets vs the dollar in commodities and currencies,
> which is the same strategy nearly every investor is emploring right
> now. There is no diabolical Chinese conspiracy to overthrow the
> US as a superpower, in the near term at least. Their overall plan
> is to diversify from the US, keep their people employed and fed (which
> is quite a challenge in itself) and slowly but surely become a more
> localized economy. This is the largest nation in the entire world,
> it's going to take a while for them to implement and benefit from
> any change in macro strategies.
Your time frame may be a little far out though. China will become the world superpower in my lifetime. I've got maybe 15 more years.
On Feb 27 01:00 AM Ned S wrote:
> If I was China I'd really be wanting to ask for hard assets this
> time please - An ancillary US asset like Alaska to start with maybe?
>
> China won't do anything so inflammatory of course.
> But if you have a look globally, that is what China seems to be moving
> towards - Using its surplus to buy up useful assets for its future.
> Eg ... Huge positions in crippled foreign resource companies. Smart
> move - They can make their own Coca Cola and MacDonalds and Microsoft
> and Amex if ever they feel to I'd guess? Motorcars don't seem to
> be beyond them!
> But continuing to throw a lot the way of US T Bonds while waiting
> for foreign asset prices to drop more. Anothert smart move. While
> not buying into AIG's Asian jewel. The Chinese are definitely NOT
> stupid.
> The difficult thing about following China's lead is that they are
> SO patient - Been here 2,000 years - Will be here in another 2,000.
> And fully expect to turn a profit by then. But if they don't, they
> won't have run themselves into debt in the meantime and the next
> millenium might be kind to them.
So - IN JUST 7 YEARS - dollar value has dropped a massive 50%.
So here we have the US government's desperate sell of US Treasuries to keep her debt and economy afloat, and then, on the other side we have China, Japan and other US Treasury purchasing countries wondering whether these longterm US Treasuries will be worth anything at all at maturation in 10, 20 or 30 years.
Who is the US Govt. trying to kid?
On Feb 26 12:50 PM 5142152-337 wrote:
> Can someone enlighten me on why Obama and the DEMS complain so much
> about the CEO's making lucridous salaries? One only has to look
> at Bill Clinton's income tax filing PRIOR to becoming president,
> then look at it when he left office!!! To save you time, his net
> worth was 40 thousand. Now its 800 million!!!!! Can anyone say
> in government say anything to private industry CEO's!!!!
georgewashington2.blog...
Bah da bing bah da boom!
On Feb 26 09:18 AM The Mad Hedge Fund Trader wrote:
> My old friend, Stephen Roche, chairman of Morgan Stanley Asia, says
> that the current US bubble is four times larger than Japan’s, whose
> market is still down 80% from its 1989 high (no typos here). The
> American consumer, who at the peak accounted for 72% of GDP, has
> been left for dead. Japan’s bubble was caused by a collapse in capital
> spending, which never accounted for more than 17% of GDP. If we make
> China our whipping boy, as the Democratic Congress is historically
> inclined to do, they could come back to bite us in the hand. Treasury
> Secretary Geithner’s recent comment that China is a “currency manipulator”
> hasn’t helped. Our financial markets are now desperately dependent
> on the Middle Kingdom recycling their trade surplus into our bond
> market. A Chinese boycott would trigger a collapse in the dollar,
> and send US interest rates sky high.