China says lending to US will not go on forever China has warned that it will not keep lending money to the United States. BEIJING (AFP) â China warned it would not keep lending money to the US economy indefinitely, even as new data showed it had consolidated its position as the top buyer of American government bonds. "China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis," the China Daily said in an editorial. The warning from the state-run newspaper, an English-language daily that mainly addresses a foreign audience, came after the US Treasury Department reported a steep increase in Chinese holding of US Treasury bonds. China held 652.9 billion dollars of US Treasury bonds at the end of October, up 11.2 percent from 587 billion dollars a month earlier, when China became the largest creditor ahead of Japan, according to the data released Tuesday. Japan remained in second place, with total holdings of 585.5 billion dollars at the end of October. The China Daily said that, given the global economic crisis , the consequences would be serious if China and other nations stopped channeling money into the US economy. "Interest rates in the US would rise to undermine that government's efforts to bailout distressed financial institutions and companies," it said. China was also constrained by a lack of other places to put its money, according to the paper. "With few options to invest its increasing reserves safely and profitably, China may thus have to buy more US Treasury securities in spite of growing domestic skepticism that such purchases may incur huge losses later," it said. However, as China and other nations help prop up the US economy, the United States should use the window of opportunity to undertake necessary reforms, the China Daily said. "The current strong foreign appetite should not be taken by the US government as solid proof of the long-term value of its Treasury bonds," it said. "Instead, it should race against time to undertake painful but critical reforms to revive its economy before such demand peaks any time soon." http://news.yahoo.com/s/afp/20081217/bs_afp/financeeconomychinausbonds
once this hapens fed will likely step in (like in japanese case) and monetize all the debt. note that fed's ballance sheet easily dwarfs even chinese USD holdings nowadays. therefore chinese can't do it while they want to support export to the US. the only leverage chinese have is in fact the US consumer who wants cheap stuff - once consumer backs away and cheap stuff is not cheap anymore because of a weaker dollar chinese can go fuck themselves. that's the power you have when you have a world reserve currency (which will never collapse Latam style). so much for effective threats...
the funny thing is everyone keeps talking about how the $'s they own in treasuries was up 10% recently. well i think treasuries have rallied 10-20% recently so wouldn't that mean they are actually selling into this rally?
Ah, therein lies the rub. The Chinese are the second worst at inconsistant declarations of intent. The ECB being the first.
China should very well remember that USA made China what it is today by outsourcing manufacturing to China. Otherwise now China would have been a "tribal village" without USA help. I always knew one day China would turn out to be the "biggest back-stabber" for USA. China has a "hidden desire" to rule this world. China wants to be supreme military power in the world. Remember some years back when USA fighter plane collided with Chinese fighter jet. China displayed its military power by holding captive USA jet and its pilot (don't remember exactly what had happened). USA was helpless and felt weak. In fact no country in this world is safe from "China's Hidden Desire". China is a "Hub from computer hackers" they have waged a war against USA in the past. China's military growth and desire should be STOPPED right now before they become a big trouble for the whole world.
you have some problem with europe ivanovich. i already realized this when you were implying that continental europe is not better off than UK. do your homework - have you ever lived in either for a longer period of time by the way? the above about ecb is utter nonsense - in fact the exactly opposite is true. trichet is the only one who was consistent during the past 2 years. not so the fed or even boe. well to be fair he has it a bit easier because he has a single mandate - inflation. maybe all central bankers should have it...!
Well, I have and other parts of the world...UK is in deep poop, but the ECB has yet to divulge all their dirty laundry yet, especially when Italy and Portugal followed by Spain start defaulting on their loans... Believe me, in the simplest terms, the shit has not hit the fan , yet. Set a date on your calender for 12/20/2009 and we can review the outcome...it will not be pretty. As for the Chinese, they will simply buy/ loan less than previously because their exports are going to drop off a cliff here as is elsewhere. It makes sense in addition to the fact that their first priority is their own infrastructure.
it is an opportune time to sell wall paper and buy real assets. in time the japanese and chinese will trade more and more among themselves and their far east neighbors. they will also trade more with russia and with commodity producing nations. this cold ie economic downturn that they caught from the US will pass. a nation that thinks productivity means lawyers suing everybody or traders trading pieces of back and forth is work is a nation in inexorable decline.
Once the Chinese and the rest of the world gags on the thought of buying more US debt, we will have to accept the reality that we can't "borrow and spend" our way to prosperity.... and it won't be pretty.