What If China Stops Buying U.S. Government Debt?

Forbes ^ | 10/06/2013 | Gordon Chang

[honestabe010]

Just about everyone worries that Beijing, perturbed by the ongoing squabble in Washington, will sour on Treasuries. This concern is embedded in the provocative title of Eamonn Fingleton’s recent Forbes posting: “If Republicans Want to Shut Down Washington, They’ll Have to Ask China’s Permission First.”

The Republicans in fact did not seek Beijing’s approval, and neither did Democrats. Are both sides making a mistake by not taking into account China’s “feelings,” as the Communist Party demands everyone do?

It’s clear Chinese officials are watching closely. “The United States, the world’s sole superpower, has engaged in irresponsible spending for years,” observed Xinhua News Agency in an editorial on Wednesday. “With no political unity to redress its policy mistake, a dysfunctional Washington is now overspending the confidence in its leadership.”

[Hoodat]

Scary.

[sickoflibs]

They would need another place to put it.

[bigbob]

What if?? They’ve been selling more US treasuries than they’ve been buying since 2011. Japan is or soon will be the largest holder of US debt, yet the sky hasn’t come tumbling down yet. Once China un-pegged it’s currency there was no reason for them to keep on the path they’d been on, and Chinese leaders have criticized US spending patterns for a long time. Like most theories about the US economy, the idea that the U.S. is reliant on China to buy its debt and that hell will break loose when it stops is greatly exaggerated.

[nascarnation]

You’re correct.
Poor Bush had to worry about peddling to the Chinese, Baraq just has Ben and Jack handle it.
Much more accomodating.

[PeterPrinciple]

We got their crappy products and they got our crappy dollars. Who won?

[Uri’el-2012]

Chang must have head in sand. China doesn’t buy our debt anymore. They’re worried about the debt they’ve already bought.

The Chinese still have to buy US Dollars in order to buy OIL.

The reserve currency is PetroDollars.

[PieterCasparzen]

The Treasury markets taxpayer debt securities throught its primary dealers, shown at this link:

http://www.newyorkfed.org/markets/pridealers_current.html

The heads of those banks are the go-to people that are needed to keep the bond sales moving.

When Hank Paulson (ex-CEO of Goldman Sachs) told GWB that the "banking system would collapse", he meant that a number of the major banks would be insolvent, ergo, this primary dealer banking syndicate would cease to function, i.e., Congress can't borrow money.

Hank's solution was a boatload of government borrowing and to use the cash to extend gracious loans to banks as necessary to ensure they have enough cash to meet their current obligations, without having to start selling off assets to raise cash, which would not have worked for every bank all at once, of course, since the problem already was rooted in declining values of financial assets.

The reliance of the US government on this banking syndicate is such that Hank could easily ask for and get clearance to start the taxpayer commitment at $700 billion by means of the quickly-passed Emergency Economic Stabilization Act of 2008.

[apoxonu]

Old news now I believe. Iran is already selling oil for yuan and rubles. Other OP nations will follow.

[Phillyred]

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[StormEye]

I wish everyone would stop buying US Government debt.
Savings bonds --- LOL!

[Phillyred]

[C210N]

Interesting they used rocks... when, of course, they probably should have used cards.

[Uri’el-2012]

Old news now I believe. Iran is already selling oil for yuan and rubles. Other OP nations will follow.

You can dismiss it as old news,
but 90 days after it happens
we will have Hyper-inflation.

[sarge83]

That is what I thought, China bailed on us a while back and let the Fed pick up the debt buying.

At some point we will default, the question is how we handle it, a partial default, total government default, total default across the board for public/private debt?

[agere_contra]

They are also using US dollars to buy gold.

Immense amounts of gold.

[honestabe010]

thanks for the links and post.

[sunrise_sunset]

Right, and they are blocked from most significant U.S. investments. Just some smallish corporate takeovers and a lot of residential housing in California. China would never be allowed to take over a Boeing, for instance, even though they could easily afford it.

So with their dollars they can buy land in Africa or bonds.

China looks very unstable internally now anyway.