China Becomes US Second Biggest Bondholder

The People's Daily (CCP News) ^ | 7/29/02

[Enemy Of The State]

China Becomes US Second Biggest Bondholder

China has risen from its 4th place to become the second biggest bondholder claiming US$82 billion worth securities in the US. Japan still with US$317.3 billion securities on hand stays atop.

The UK comes third with a sum of US$49.4 billion. Hong Kong takes the 6th place and China's Taiwan Province 9th alongside the others as known from US official data lately released.

[staytrue]

The result will be a collapse in the U.S. Treasury market

Selling 40 billion will not collapse the treasury market. In the 3rd quarter this year, the US govt. is selling an additional 78 billion and I don't see the collapse anywhere in sight.

[Principled]

William Green has some odd ideas about economics.

[staytrue]

If they dumped them all, it would be less than the US treasury sells in a single year. Now if china, japan, hong kong and britain dumped them all together, it might collapse the market, but even then, I'm not sure if it would or would not. A bigger threat is the US banks and hedge funds dumping treasuries via derivatives leveraged at 20-1 or more. The hedge funds could mount a concerted 10 trillion dollar attack on virtually any market via derivatives, but even they can be punished by the market if they are wrong.

[Principled]

In the 3rd quarter this year, the US govt. is selling an additional 78 billion ...

Some think China can sell at the same time, making our bonds worth so much less... meaning we'd have to increase their yield to sell enough to make ends meet.

It's nothing more than a blunt stick in they eye... making us pay more for our credit. But if they had $ trillions, it would be a sharp stick.

[Principled]

Looks like we're on the same page here.

[chnsmok]

Weren't we worried about the Japanese in the 80's? Some smart investers in China.

[Willie Green]

What is the difference between a) fixing a broken car so it runs like new and b) taking steel and plastic and making a new car ? How about renovating an old house vs. manufacturing a new one ?

All are examples of value-added activities, not services. Repairs/renovations do add-value and create wealth, albeit not as much as new manufacturing/construction. Essentially, they restore wealth that had been allowed to deteriorate/depreciate in value.

[Blackyce]

We are always in a position to pay, WE PRINT THE MONEY!! Its a beautiful scheme really. bSure we could cause inflation, but defaulting is really not even an issue. If the U.S. ever defaulted, the entire world econmy would be destroyed.

[Toddsterpatriot]

SERVICE: An activity that provides direct satisfaction of wants and needs without the production of a tangible product or good. Examples include information, entertainment, and education. This term good should be contrasted with the term good, which involves the satisfaction of wants and needs with tangible items. You're likely to see the plural combination of these two into a single phrase, "goods and services," to indicate the wide assortment of economic production from the economy's scarce resources.

So, let me get this straight, Hollywood produces "entertainment" and sells movies all over the world making billions of dollars and this doesn't create wealth?

Wealth is created only by engaging in value-added activities. By the same token, Service sector activities do not create wealth, they merely transfer, redistribute and eventually dissipate wealth as consumption. Thus, as value-added activities move offshore and the U.S. labor force shifts to the Service Sector, wealth is dissipated, not created. And the U.S. standard of living declines as a result.

If we didn't have any "value-added" activities left in the U.S., we wouldn't need to import steel, or make any, so why do we need steel tariffs?

[Dat]

In order to get something you have to give up something. We give up money (pieces of paper with ink 'worth' maybe 1/10th of a cent) and get VCR's, automobiles, computers etc. Pretty good deal if you ask me.

[Toddsterpatriot]

The idea that China would refrain from using its U.S. Treasury holdings as a weapon because of economic consequences seems ludicrous in light of China's history.

The idea that we'd even notice if they dumped all their Treasuries is ludicrous. If they sell their Treasuries they get dollars, one piece of paper for another. It's not "worth" anything till you buy something with it.

They will dump their Treasuries when their banking system melts down. They'll be trying to save themselves.

[Toddsterpatriot]

I tell people that all the time. Send us more stuff, we've got plenty of paper.

[Tourist Guy]

Hey WG let us not forget that included as "exports" during the 90's were the complete factories that went over to China. I kid you not.

[Toddsterpatriot]

Hahaha! Boy, you need to take a course in economics!

Yeah, he's a little confused. He thinks that steel tariffs (which raise our cost of steel) are good, but if foreign producers raise their price of steel sold to us, that's bad.

[Thane_Banquo]

China could do that, but then they'd just be screwing people who own treasuries,no the U.S. government (it has to pay back face value either way), and the price of treasuries would probably rise back to normal levels after the sale, because the sale was not based on economic fundamentals.

[LS]

Quite the contrary. It is great. Let's look back at Japan, shall we? In the 1980s, there was a great hue and cry about Japan becoming a large U.S. bondholder. They were going to "take over" our markets. (CLUE: U.S. investors hold more than 85% of all U.S. credit---so if the ChiComs are the "largest" remaining of that, the MOST they could hold would be 7%).

Anyway, what did we learn from the Japan "threat?" That the Japanese were putting their money here because it wasn't safe/secure THERE. It was a flee from tyranny, not a takeover attempt, which simply can't happen, especially from a still-3d world country such as Com. China.

[andy_card]

Such is the legacy of a debtor nation that negotiates one way trade deals that inures to the benefit of the other side. The Chickens are coming home to roost.

They're not one-way trade deals. They're making us money. And the fact that they buy US bonds is a good thing, because it means we can continue to export inflation, and that they're reinjecting the money they make off trade deals back into the US economy. This is good all around. They could, afterall, stick the money all under some matress in Guangzhao. That would be bad.

[andy_card]

we are all going to die.

Its sad, but the adult mortality rate is still 100% in many parts of the United States. What does Bush know about this, and when did he know it?

[cynicom]

mlocher....

China would not be left holding the bag at all. U.S. corporations have invested huge sums of money in China in the form of factories etc etc. Should we default, china will merely take possession with the stroke of a pen. The rest of the world would still buy their "American" products, made in China.