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Thursday, May 28, 2009
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  • China won't torpedo the economy by dumping our bonds: "To see China's holdings as a threat is to misjudge the goals of the Chinese government. China believes that its affluence is best guaranteed by economic interdependence with the world's most dynamic economy."
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This news story has 19 comments:

  •  
    It is noteworthy that China has been transitioning from holding long term debt to short term.

    And while China likely won't torpedo the economy by dumping our bonds (the Fed would buy them anyway under the guise of "Quantitative Easing") , the question now is, "will China continue to buy US debt at the rate they've been doing so?"

    I think not.....
    May 28 05:09 PM | Link | Reply
  •  
    Sell bonds, print money to buy them back, use the money as stimulus eh
    Thats a plan!
    Will it work?
    May 28 05:14 PM | Link | Reply
  •  
    Obviously they don't want to trigger a dollar panic by outright dumping. But there is a whole spectrum of exit strategies available for China to limit their evenual losses, many of which are being pursued even now. And as HiSpeed pointed out much of their current Treasury exposure is in short term bonds. All they have to do is let these mature, then redeem them from the US for cash at face value.
    May 28 05:19 PM | Link | Reply
  •  
    "China believes that its affluence is best guaranteed by economic interdependence with the world's most dynamic economy."

    Until they have sucked us completely dry anyway.

    Then the bond dump comes.
    May 28 05:23 PM | Link | Reply
  •  
    This whole idea of China and America being a unified economy doesn't make sense.

    Whatever China's long term plan is, it surely isn't to become the a nation that exists to make stuff for the US consumer that it gets paid for on an ever increasing line of credit.

    This is a battle for global dominance over resources and the amassing of vast dollar reserves is merely the initial stage. It's not about what China can do with the reserves, it's about what the US can not do with such debts.
    May 28 05:27 PM | Link | Reply
  •  
    Dude this is true... they don't want to be the slave labor for us while we ride high on the hog with their goods bought on printed money

    They want to make US work for THEM & they have prosperity & clean streets, nice homes, better health care...

    Why do Americans think we are entitled to be the world super power & the rest of the world should be our slave labor to make us plastic forks at Dollar Tree?

    Seriously walk into a high school & see how many kids would even accept a factory job... thats beneath us. Why? And why does China want to continue to work their citizens to death in factories to serve us?

    On May 28 05:27 PM nobby73 wrote:

    > This whole idea of China and America being a unified economy doesn't
    > make sense.
    >
    > Whatever China's long term plan is, it surely isn't to become the
    > a nation that exists to make stuff for the US consumer that it gets
    > paid for on an ever increasing line of credit.
    >
    > This is a battle for global dominance over resources and the amassing
    > of vast dollar reserves is merely the initial stage. It's not about
    > what China can do with the reserves, it's about what the US can not
    > do with such debts.
    May 28 05:37 PM | Link | Reply
  •  
    If the CHINESE were smart, they would start converting those dollars into ownership of hard assets including major companies such as IBM, Pfizer, JPMorgan, ADM, etc. and also real estate around the world.

    Instead they sit there getting their arm pulled deeper and deeper into the cesspool of U.S. debt, which doesn't have a happy ending in sight.

    I'm sure they have been advised to diversify, big time, but have not done so.

    This is very curious.
    May 28 05:39 PM | Link | Reply
  •  
    Agree again, why buy bonds as the government inflates assets vs buying American companies that benefit from the stimulus. If you were China you would do this... you wouldn't buy bonds & under perform inflation.


    On May 28 05:39 PM Tom Colangelo wrote:

    > If the CHINESE were smart, they would start converting those dollars
    > into ownership of hard assets including major companies such as IBM,
    > Pfizer, JPMorgan, ADM, etc. and also real estate around the world.
    >
    >
    > Instead they sit there getting their arm pulled deeper and deeper
    > into the cesspool of U.S. debt, which doesn't have a happy ending
    > in sight.
    >
    > I'm sure they have been advised to diversify, big time, but have
    > not done so.
    >
    > This is very curious.
    May 28 05:59 PM | Link | Reply
  •  
    Actually they are buying assets..from copper to iron ore..oil and oil reserves... companies.....to GOLD......beware of the Chinese..and don't believe what they say
    May 28 06:30 PM | Link | Reply
  •  
    The Chinese leaders are smart – the only major risk they worry about is for them to be able to keep their capitalist dictatorship afloat by creating more millions of wealthy comrades who are happy to defend a system that allows them to live well, never mind amputated liberties and rampant corruption.

    As for US Treasuries – and as somebody wrote it here before, if I remember correctly - they own them, on paper and as kudos to Uncle Sam, but pledged against massive mining, land, hydrocarbon assets in Africa, for example, raw material stockpiles, precious metals and all sorts of investments via screen companies and with the help of the very western banks that hold their Treasury papers as collateral.

    So if they decide to default (probably not) or the Dollar depreciates further (probably yes) they ll end up with the real goodies and the worth less US debt papers are back where they came from.

    Have a good day
    May 28 06:41 PM | Link | Reply
  •  
    So OK, then they are stuck with MORE US dollars. China is in a box. They are in the dollar zone still. No matter what "exit" strategy they attempt to employ, they will be the loser. Perhaps just not as big a loser as the USA. Buy natural resources with their dollars? They end up chasing their own pricing! So far, that is a very small portion of their dollar reserves going in that direction. I fail to see ANY way out with this possible exception: all of those ships coming to these shores full of nifty stuff all of these years and then leaving empty? Well, those ship come here empty and then leave full as the Chinese buy up everything in this country they can carry out. Paid for with US dollars! Hyper-inflation washes across this country even without the Federal Reserve! The repo man cometh and his name is Han. Anybody see any other way out of the box for the Chinese?


    On May 28 05:19 PM Richard K wrote:

    > Obviously they don't want to trigger a dollar panic by outright dumping.
    > But there is a whole spectrum of exit strategies available for China
    > to limit their evenual losses, many of which are being pursued even
    > now. And as HiSpeed pointed out much of their current Treasury exposure
    > is in short term bonds. All they have to do is let these mature,
    > then redeem them from the US for cash at face value.
    May 28 07:16 PM | Link | Reply
  •  
    General Wesley Clark, a Rhodes Scholar, in an editorial of the NYT last year, advocated the preservation of our auto industry as part of the pillars for our national security. While I applaud the eminent general for his diligent foresight, I could not help but point out that national security, in my layman's mind, would take many forms.

    A broken border to the south, swamped by floods of illegals, and now skyrocketing debts held by foreign countries. In the case of China, in my humble opinion, our two countries are still "technically speaking at war".
    May 28 07:17 PM | Link | Reply
  •  
    Spend some time in the P.R.C. and these statements will make you lauph outloud! These officials are just buying time as well as our future. Where as our officials are just are buying time and selling our future. There is a big difference and it comes down to the mentality of savings vs. debt. Our country became great by hard work, savings, liberty, and manufacturing, among other things. The Chinese already have 3 out of 4, we have how many now?
    May 28 08:10 PM | Link | Reply
  •  
    Anyone know how the interest is paid on the bonds China buys, is it paid monthly,quarterly or at the end of the term? It would be interesting to know how much the U.S. pays to service the debt held by China.
    May 28 08:16 PM | Link | Reply
  •  
    China's new interdependence with the US is exactly where China wants to be. The Chinese government can cause all kinds of mischief and the US has to sit back and let it happen. On the one hand China is openly criticising N. Korea for its nuclear ambitions yet on the other hand China is aiding N. Korea in this mischief. What can we do about it? Absolutely nothing!
    May 28 08:25 PM | Link | Reply
  •  


    balois:

    It seems like we have a capitalist democracy (?) where the government is creating more millions of wealthy comrades who are happy to defend a system that allows them to live well, never mind amputated liberties and rampant corruption. The only difference is that our wealthy comrades will not have a future.
    May 28 09:17 PM | Link | Reply
  •  
    we need to remember that it is "changes at the margin" which can have a significant impact.....it rarely needs to be all of anything. Changes at the margin are subtle and insidious....in many cases you dont realize the impact until its too late. This is likely the case here.
    May 28 09:44 PM | Link | Reply
  •  
    It's probably a good idea not to depend upon a combination of hope, luck, and the belief that your debtholder will behave in a logical, predictable, self-interested manner. The last time the West had a major trade imbalance with China, it took an Opium war and a humiliating peace to restore a trade balance.

    While neither desirable nor ethical, the US needs to figure out some way of restoring trade balance, whether through exports, inflation, or a war that results in cancelled debts.
    May 28 11:57 PM | Link | Reply
  •  
    Ryan, how about "Jubilee" a concept nobody talks about. Called finishing the bankruptcy started by Nixon in August of 1971 when he de-pegged from gold. Declare all debt public and private to be null and void. Why not? The Russians have done it twice. China did it in 1949 and Argentina does it every decade or so whether they need to or not. THAT problem is then over. Radical solution but preferable to "printing" it out of existence.
    May 29 10:24 AM | Link | Reply
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