Sunday, December 20, 2009

China: Harder To Buy US Treasuries

Scenario: You are an irresponsible credit card user. You are on the verge of maxing out your ninth credit card. Rather than do the responsible thing and stop charging, you instead opt to shop for credit card number 10.  A few weeks later rather than getting that shiny new card, you begin to receive a steady stream of rejection letters.

Consider the article below Washington’s first rejection letter.

IT is getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.
The comments by Zhu Min, deputy governor of the People's Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.
Chinese officials generally are very careful about commenting on the dollar and Treasuries, given that so much of its US$2.3 trillion reserves are tied to their value, and markets always watch any such comments closely for signs of any shift in how it manages its assets.
China's State Administration of Foreign Exchange reaffirmed this month that the dollar stands secure as the anchor of the currency reserves it manages, even as the country seeks to diversify its investments.
In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.
He then addressed where demand for that debt would come from.
"The United States cannot force foreign governments to increase their holdings of Treasuries," Zhu said, according to an audio recording of his remarks. "Double the holdings? It is definitely impossible."
"The US current account deficit is falling as residents' savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world," he added. "The world does not have so much money to buy more US Treasuries."
China continues to see its foreign exchange reserves grow, albeit at a slower pace than in past years, due to a large trade surplus and inflows of foreign investment. They stood at US$2.3 trillion at the end of September. 

I have zero faith that the powers that be in Washington will take heed of this warning. Even if the world was to stop buying our debt, our irresponsible leaders will simply monetize our debt by printing more money or raising taxes through the roof.

For Washington, spending has become an incurable sickness.


Just a conservative girl said...

Which is why is it mandatory that we clean the swamp next year.

I hope that your snow day has been enjoyable.

Janelle said...

Vote them in and out on a regular basis........ remember the old saying; "Politicians are like diapers, they need changing on a regular basis and for the same reason".

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