Is China Quietly Dumping US Treasuries?

The Telegraph (UK) ^ | 9-5-2007 | Ambrose Evans-Pritchard

[old-ager]

> And they got some great bargains

Absolutely.

[old-ager]

> And they got some great bargains

BTW - I always find myself short on dollars, so I'm fine with the whole thing :-)

[Finalapproach29er]

This is a message from China to get us to stop bothering them about their lead-filled products.

The squeeze has begun.

We should tell them to “Flip” off. imo

[Eagles Talon IV]

"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."

Certain things are not open to emotion. Treasuries are a commodity and as such their value is determined by the laws of supply and demand. Simply put if China begins a wholesale dumping of our treasuries then the supply in the market place would dramatically increase and the price would drop precipitously causing the yields to sharply rise. This has not happened despite what this article has insinuated. In fact Treasury yields are at 4-5 month lows.

If, on the other hand there are ample buyers for these treasuries then the price will hold up and no damage is done. It really doesn't matter who owns the Treasuries and in fact it is far better they be in the hands of a large number of holders rather then concentrated in the hands of only a few.

"They may think they have a way around your expected results."

As I explained above, there is no way around the fact that tanking our currency will devastate them as much or more then it will us. If all the goods we buy from around the world, and we buy far, far more then any other nation, where to suddenly become much more expensive do to the dramatic drop in the dollars value, then our imports would then dry up causing the nations we buy so much from, such as China, to slide into recession, or worse. It would spread around the world since we are as a nation responsible for almost a quarter of the total GDP of the entire world. Simply put, if we stop consuming the now vibrant emerging markets would crumble as they no longer have anyone buying enough what they are manufacturing.

It's not about emotion, as you claim, but simple economics 101 and the Chinese are not prone to rashness as we have seen by their history but rather take a far longer view of their actions and consequences thereof then we in the West do. The better explanation for there selling, if they are the ones selling is that they want to diversify their reserves into a basket of currencies and not be so dependent on the fortunes of one only. This is a good thing and will benefit them as well as us.

[OB1kNOb]

ET4 - I never mentioned "emotions". I referenced logic, reasoning, and cultural differences. Worlds apart. Our/your logic and reasoning, may not be their logic and reasoning. Just take Iran for example. Their leaders are willing to risk total annihilation of their entire population if it will also bring the Great Satan down to defeat. That's insanity to us, but to them it is well reasoning logic and calculated conviction.

Don't assume that the Chinese think like we do. I have Chinese in my extended family and I know that their ways, in many ways, are far different than what drives westernized Americans. We expose our nation to the greatest amount of danger when we believe that other cutures and nations are driven by the same things as us, even if we think it's basic and natural.

[Diana in Wisconsin]

What’s your opinion on what President Nixon did in the 70’s? Remember his month-long trip where he visited many foreign nations?

Wasn’t he setting us up way back then? He promised those nations that we would send them our manufacturing and in turn we would buy all that “junk” back from them. (China, Korea, Japan, etc.)

I believe it was his attempt to “raise all boats” but it seems to have come back to bite us. I’m not bashing Nixon, I’m just asking, because I’m not much of a student when it comes to World Economics. Did that have anything to do with weakening our dollar over the years?

However...my portfolio has gotten quite a bit fatter under President Bush, and my silver holdings are doing well. Maybe I’ve just been lucky? (The harder I work, the luckier I get!) :)

[Broker]

Any catastrophe would be mega-bullish for bonds. China’s supposed sales of T-Bonds is primarily a currency play in the short term and anticipatory move against inflation.

When chaos returns, they will come back.

[OB1kNOb]

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.

Methinks it's vain pride like that which will lead to our nation's downfall. It really upsets me to hear folks like this spouting off that America is god-like as a nation, and can't be touched/harmed by others. God has a long history of correcting nation attitudes like that. I don't want America to join that list.

[Eagles Talon IV]

I believe that comparing the religiously fanatical ragheads and their 70 virgin horsebleep to the secular Chinese is a huge mistake. I agree they do not think as we do but that difference does not make them more prone to self destruction but probably less.

[null and void]

Any catastrophe would be mega-bullish for bonds.

I was thinking more along the lines of war with us. They wouldn't want to be stuck with bonds we could cancel.

[Alberta's Child]

That statement wasn’t “vain pride” at all. The economist on that show was simply pointing out that the U.S. is China’s biggest trading partner by a wide margin. Destabilizing the currency of your biggest trading partner is preposterous.

[OB1kNOb]

Destabilizing the currency of your biggest trading partner is preposterous.

By our way of thinking, perhaps. Do we really know what drives China?

[Alberta's Child]

Maybe not. I do know that they’ve been perfectly content to function as this country’s massive slave colony for the last couple of decades — which is something nobody in his right mind in the U.S. would ever do.

[Toddsterpatriot]

Do we really know what drives China?

Fear of armies of the unemployed ending their regime. That's what would happen if they couldn't sell their $300 billion in goods to the US.

[LeGrande]

And every year that nothing is done about it, the problem grows by $2 trillion to $3 trillion (yes, that's with a "t"). It doesn't take a genius to recognize that an economic upheaval is in the making.

Ahh, the gloom and doomers don't understand economics at all. If they even read what they wrote they would see that it is nonsense.

The trade deficit only includes half of the transaction. Figure in the other half (the Monetary part) and there is no trade deficit. I bet the gloom and doomers can't even balance their checkbooks, that is why they like the gold standard so much :)

[Toddsterpatriot]

David M. Walker, Comptroller General of the United States

My favorite Clinton appointee. He's funny!

[1Old Pro]

The dollar loses more in buying power each year

Yep, we fight inflation at home but in a global economy a weakening dollar buys much less as well.

[ex-Texan]

statered -- They know something the U.S. will not mention.

Before long, they will be quietly invading.

Chinese have been invading secretly for the past 10 years. Or longer. Beijing believes it owns the country. In point of fact, the Chinese may have bought hundreds of billions in mortgages over the past 5 years. They are simply trading their treasuries for hard assets: infrastructure, factories, equipment, commercial properties, high tech hardware, counterfeiting presses and housing developments.

[WoofDog123]

so 2.5 months later, gold up 22%, the Euro (vs. USD) up 9%, 30-year bond prices down roughly 50 basis points.....the big winner indeed is gold.

[WoofDog123]

I should add the treasury move is contrary to what one would expect from chinese dumping, but as others have noted the move to treasuries from other credit instruments has had a huge impact on the market, possibly overriding any central bank selling of treasuries.