China reduces holdings in US debt

BBC ^

[Kartographer]

China reduced its holdings of US government debt by the largest margin in nearly nine years in June, according to data from the US Treasury.

[Kartographer]

The writing on the wall maybe in english but even the Chinese can read it!

[AngelesCrestHighway]

I wandered what was holding up the stock market.....

[MNJohnnie]

Hard to blame them.

[Retired Greyhound]

The Chinese have a better grasp of free market economics than we do now.

[divine_moment_of_facts]

I don’t get it either. They like something that’s going on, but what? Everything feels so fake and manipulated.

[milwguy]

Nothing to fear here. The Fed has replaced the Chinese as the largest purchaser of debt in the latest auctions.

Oh wait, where is the Fed getting the ‘money’ to buy these treasuries? Oh yeah, the produce it out of thin air and claim it is backed by the ‘full faith and credit’ of the US gov’t,

No wonder the Chinese are bailing, they have realized the ‘full faith and credit’ of the US gov’t is not worth the paper it is printed on.

Can you say Zimbabwe? Chinese are bailing or treasuries and buying all the hard assets they can from companies and countries who will still accept USD$. That is why oil is spiking even with record supplies and lower demand.

[Eagle Bomba]

I agree. The market’s being pushed up today by the news of existing-home sales up 7.4% year over year, but you’d think this here would be a bigger story, and certainly more important in the “big picture”

[JasonC]

Um, their holdings are down for one month - but are $200 billion higher than this time a year ago. Reports of change in Chinese financial practices are always violently exaggerated. Meanwhile, the US savings rate increase since this time last year replaces Chinese buying of treasuries three times over, and change.

[JasonC]

Hardly, see post 8.

[JasonC]

The actual "big picture" on the headline subject -

Foreign holdings of US treasuries over the last year

[AngelesCrestHighway]

It must be foreign investors holding our market up. When the market crashed in 1978, economic conditions were no where near as bad as now....It must be all manipulation.

[AngelesCrestHighway]

If foreign investors were to withdraw from our market, I’m assuming the game would be over for us.....

[rbg81]

Good for them and good for us. In the long run, they’re doing us a favor. Much like a pusher is really doing a junkie a favor by cutting them off.

[JasonC]

The Fed's balance sheet is 10% smaller today than it was in April. All the short term loans they made at the peak of the crisis are being repaid to them. The amounts exceed their treasury purchases by a factor of about 3, and their total purchases of treasuries agencies and mortgages by a smaller margin. Short loans repaid since April come to $700 billion, long term securities purchased to a little under $500 billion. The money supply is not growing, and prices are down year over year.

Of all the net new bonds issued by the treasury in the past 2 years, meanwhile, 65% were taken by domestic private sector investors, and 11% by China. The Fed, no net change.

The Fed ran down its treasury positions in 2008 to fund loans to the banks, and has run it back up to the former position size as those are repaid. The only big net new item on its sheet is a big slug of mortgage bonds, plus its remaining loans to the banking system, about half the size those were at its April sheet-size peak.

All of this is readily found with a few minutes of investigation, it is printed weekly on the web and in the back of the print edition of Barrons. But journalists mongering doom lie for a living.

[rbg81]

Oh, that’s rich! They cut their holdsing 3% in June 09—after increasing it nearly 50% from the previous year. They really have us by the short hairs. The ironic thing is that we gave them the $$ to do it with.

[JasonC]

The increase in private US savings since last summer comes to more than $750 billion per year. This exceeds our imported capital at the peak rates on record, and is more than twice what we are still importing. The rate of gross investment in capital and equipment has meanwhile dropped 20% on the recession.

Concretely, before last autumn's smash US households were saving zero net of new debt entered into while business was investing $2 trillion a year, and now instead US households are saving $750 billion a year while businesses are investing $1.6 trillion a year. Reinvested cash flow (earnings and depreciation) by business makes up most of the remainder.

The key change was US deadbeats being cut off by the banking system. That plus crisis generated fear caused the savings rate to soar. Understand, men running up net debt they can't repay are "negative savers"; they mask the savings out of income of others. Stop lending to them and the underlying savings rate of everyone else reappears.

As an accounting identity, all the new investment here that we don't save ourselves shows up as a trade deficit and imported capital, paid for by sales of assets here. Raise domestic savings and the need for that disappears, dollar for dollar.

Naturally the period of time in which the savings rate was rising wasn't much fun. Businesses were expecting that income to be spent on consumer goods and it wasn't. Adjusting to that new reality *was* the recession, and it is an adjustment we have already (largely) made. It might continue one more quarter or not, that is about it. The leading indicators all say "not".

[RobRoy]

That is actually a pretty scary chart. I look at percentages rather than actual raw dollars.

Percentage wise, the UK holdings changes are interesting...

[JasonC]

They don't have us by anything. Nobody here requires Chinese to save for them. The total capital imported from China in the last year amounts to 1.5% of our income for that period. Save half the next raise and we don't need them at all.

Also the terms of trade shifting have a comparable or larger effect. A $40 reduction in the price of oil, for example, saves us as much as all Chinese capital provides - and oil today is not $40 but $70 below its peak.

It is absurd for people to imagine that a Chinese economy a quarter the size of our own dominates anything. Our own savings and investment practices control our economic trajectory.

[milwguy]

http://www.treas.gov/tic/mfh.txt

Here is list and holdings of US treasuries over last 12 months. China and Japan increased holdings by ttl $300 billion, with China accounting for 200 bil of that.

If China reverses course, and starts reducing holdings, Fed monetizing is only alternative as their is not enough $ to soak up that amount of debt.

Fed balance sheet is now full of worthless mortgages the banks unloaded on them. Fed is lending money to banks with the understanding the banks buy treasuries with the cash. Easy way for banks to borrow money for 0% and ‘lend’ it to the gov’t at 3-4% in 5,7,10, 30 years. Totally corrupt, and putting us right on the same path as Japan with lost decades because Fed, Gov’t are not forcing banks to own up to the fact they have balance sheets that are still a diasaster.

China recognizes this and is ‘slowly’ exiting the game, buying SHORT term treasuries, reducing holdings, and buying hard assets whenever possible.

This will not end well, and will end sooner than most people believe possible. Fraud is fraud, whether it is the Fed, the Treasury, or banks.

[milwguy]

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.

Ludwig Von Mises