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.
Keep in mind that America is 23+% of the entire worlds GDP and if we go so does the rest of the world.
That's just dead wrong and is an example of how misunderstood foreign trade and trade deficits are.
We do not "finance" our trade deficit through foreign borrowing. We pay for our foreign purchases with the profits we've earned in our domestic economy. We're creating wealth, trillions and trillions of it each year. If we spend some of it abroad or all of it here, it makes no difference.
Look, if I buy a 50lb bag of seed and grow it into 200 bushels of corn, then I've created about $500 or $600 of wealth that didn't exist before. Yes, I've got to deduct my expenses, but if spend all that profit abroad (on a new Chinese TV for example), neither I nor the government has had to borrow a single red yuan.
Worrying over the trade deficit is as senseless as fretting about global warming. Boob bait for economic bubbas.
If they are dumping then somebody is buying
You're assuming your logic and reasoning is the same as their's, therefore they would never do such, however, different values and dogma drive different cultures. They may think they have a way around your expected results. They need us but don't forget they hate us and our freedom values. If they thought for a second they could knock us down to their level and not commit total utter economic suicide, they'd do it in a heartbeat. Their logic is not our logic.
The speculation was that Chinese selling of US Treasuries would lead to a spike in US interest rates. In reality, the collapse of subprime has led to that spike. US business now have to pay more to borrow, whereas Treasury rates are trending down. Why is this? Treasury rates were artificially high because domestic and foreign investors disdained Treasuries for higher-yielding mortgage assets or corporate bonds. Once credit issues surfaced, they rushed back into Treasuries. Cash is once again king. This means Treasuries are back in vogue, regardless of what the Chinese do. Say what you will about Treasuries, but they are the only instruments with the taxing power of the United States Federal government behind them. I’ll take that taxing power over the credit rating of any financial firm or industrial behemoth any day of the week.
If you support free trade with Communist China...you are a Communist.
Plain and simple
Time to stop the anti-American nonsense
Ping.
The current state of the Treasury market - with lower rates than just a few months ago - just shows that possession of Treasuries give the Chinese zero leverage. It’s just the best place for them to park their cash. I would love to see them park their cash elsewhere - that would simply be a case of them cutting off their collective noses just to spite their faces.
Before long, they will be quietly invading.
I heard a great interview with an economist about that so-called “nuclear option.” He laughed at the suggestion that China could do any damage at all to the U.S. economy — comparing their threat to a guy who walks into a bank, pulls out a gun, and threatens to blow his brains out if he doesn’t get all the money.
When you're right, you're right.
Everything’s dandy!
Or a war...
We’ve been trading real infrastructure for goods from overseas. The long-term vs. short-term gap is bridged with paper.
More so when you understand economics.
That’s why they call economics “The Happy Science.”
> If they are dumping then somebody is buying
Somebody was buying in 1929 too.
Toddsterrrrrrrr. You go girl!
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