Posted on 09/05/2007 1:34:50 PM PDT by blam
Is China quietly dumping US Treasuries?
By Ambrose Evans-Pritchard
Last Updated: 6:55pm BST 05/09/2007
A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.
Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.
"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.
"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.
While the greenback has been resilient over recent weeks - even regaining something of a 'safe-haven' role as banks scrambled to buy the currency to cover dollar debts - most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.
David Powell, an economist at IDEAglobal in New York, pointed the finger at Beijing as the main suspect in the sudden bond flight this summer.
In a client note entitled "Has China started to dump US Treasuries?", he said the sales appear to coincide with early moves by Beijing to launch its new $300bn sovereign wealth fund.
The scheme is part of the government's plan to diversify it $1,340bn reserves from bonds (mostly in the US) to a broader portfolio of investments and a better yield.
If so, the switch comes at a very delicate time, just as tempers flair on both sides of the Pacific over China's policy of holding down yuan by currency intervention. A bill in Congress calls for punitive tariff sanctions of 27.5pc against Chinese imports, and there has been a growing outcry over contaminated pet food and lead-tainted toys.
Two top advisers to the Chinese government gave strong hints in August that Beijing should use its estimated $900bn holdings of US Treasuries and agency bonds as a "bargaining chip", words taken as an implicit threat to trigger as US bond crash if provoked.
The Chinese government has since put out an official statement clarifying that it has no intention in taking such an irresponsible step, which would in any case backfire by devaluing China's remaining holding.
Mr Powell said the switch out of Treasuires was a purely commercial decision. "If if turns out that the Chinese are behind this, it is merely an attempt to increase returns on investment. It has nothing to do with settling protectionist scores," he said.
Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world's biggest pool of resrves, followed by Japan.
Robin Bhar, a metals analyst at UBS, said there was little evidence yet that Asian central banks were switching heavily into gold. Most of the recent buying of gold has been on the COMEX futures markets, the playground of hedge funds.
Central banks tend to buy their bullion in London at the AM and PM fixings, leaving a footprint that is visible to experts. They seem to have been largely absent from the market so far.
It’s no secret. They threatened to take our currency down the tubes, in an article reported several week ago, if we didn’t start playing nice with them and stop all this folderol about whining when we find a little poison in their foods, and lead paint in their toys, etc. It was a very clear threat, albeit veiled by using some little non-important minister of somethingerother to issue the statement.
There is no long term thinking, pro-America lobby in Washington DC. Bush is actually worse than Clinton in this regard.
Everyone should have a diverse portfolio.
Nice to know the ChiComs are prudently investing for retirement.
Or whatever they have in mind.
Yep, if China is selling it’s not hurting the market any.
I thought the Phillipines used the dollar.
“Mr Powell said the switch out of Treasuires was a purely commercial decision. “If if turns out that the Chinese are behind this, it is merely an attempt to increase returns on investment. It has nothing to do with settling protectionist scores,” he said.”
Liberal or conservative WSJournal type, hard to discern. China does not practice “free trade” and is strategically “protectionist” to its great success. If America take an action to protect itself China’s reaction is merely...a reaction to American flaws, ie it is “settling” the score, rather than acting in its interest in a long strategy of selective pro-Chinese trade actions.
US bond dealers: "For you? Nada."
Maybe the dollar should crash. It would be tough for awhile but it would bust the chins and many others that deserve it..
For the last 15 years, pundits from both political parties have been ranting about China acquiring US Treasuries, so I would think this development ought to make them happy.
Why am I telling you? You posted the previous article. LOL! Doh!
I also believe China and India are quietly buying up gold. A couple of European banks dumped a few hundred tons of gold on the market a month ago and the action did nothing to bring down the price. The price of gold is back where it was a month ago.
Goldman Sachs got caught with its shorts down.
American English is the official language. Maybe that's where you're confused.
Great. The Chinese are doing nothing to hurt us; they are protecting their interests. It is the US POLITICIANS who fail to balance the budget, bring back an “Honest Dollar” (R.Reagan) and permit unchecked imports, export of jobs and illegal immigration. In the absence of any worthwhile measures by US Politicians, the sooner the better to wake up the Pols.
Or, does China foresee something in our future?
Or it could come from the fact of the fragility of our economy and that our government is borrowing over $3 billion a day from China to float useless domestic programs and even more misguided foreign policy. Not to mention retribution for Republican 'conservatives' who are hawking their 'fair trade' (protectionist) policies
The “sellers” are paid proxies for the ChiComs. They do the deed for a percentage as middle-men. This ruse is as old as national economies and currency...
They do have a monopoly on fortune cookies.....
They do have a monopoly on fortune cookies.....
Once upon a time, there was a near-panic over insufficient liquidity in a world economy. It was triggered by an alarming rate of default on high-risk mortgage debt (or so the markets decreed). It was exacerbated by the chilling realization that the value of derivative instruments based in some fashion on this high-risk debt simply could not be determined.
Despite the fact that this panic was attributed to problems in US financial markets, where did capital flee? To US TREASURIES. That’s right. US TREASURIES. The same ones supposedly being dumped as risky and “worthless” by the Chinese.
Not just US capital, but capital from across the world got parked in good old US TREASURIES to sit out the panic.
My, how soon we forget... that was all of TWO WEEKS AGO!
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