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Thread: Foreign demand falls for Treasuries

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    Re: Foreign demand falls for Treasuries

    Is China Turning Bearish on the U.S. Treasury? / The Christian Science Monitor - CSMonitor.com


    If China is indeed losing its taste for Treasuries, its timing could not have come at a worse time. The federal government has to finance over $1.3 trillion in deficit spending this fiscal year. And in the past, the U.S. has relied on China to buy not only Treasuries, but corporate and mortgage debt as well. Without China in the picture, it’s unclear where all this money will come from.

    For years, concerns over the growing U.S. debt to China—estimated at $755 billion—were met with calming explanations of the economic interdependence of the two superpowers. After all, the argument went, China wouldn’t ever sell off its U.S. paper because the two economies need each other so much.

    While that symbiotic relationship remains, it might not be enough to persuade the Chinese to continue lending us billions of dollars annually. Decisions of foreign leaders aren’t driven by budget finances alone: continued arms sales to Taiwan, free-speech issues raised by Google and others, and unhappiness with currency valuations could all come into play. And the Chinese might decide that the benefits of a more diversified portfolio and protection against an inflated dollar might outweigh the costs of selling off T-bills.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by ptif219 View Post
    Is China Turning Bearish on the U.S. Treasury? / The Christian Science Monitor - CSMonitor.com


    If China is indeed losing its taste for Treasuries, its timing could not have come at a worse time. The federal government has to finance over $1.3 trillion in deficit spending this fiscal year. And in the past, the U.S. has relied on China to buy not only Treasuries, but corporate and mortgage debt as well. Without China in the picture, it’s unclear where all this money will come from.

    For years, concerns over the growing U.S. debt to China—estimated at $755 billion—were met with calming explanations of the economic interdependence of the two superpowers. After all, the argument went, China wouldn’t ever sell off its U.S. paper because the two economies need each other so much.

    While that symbiotic relationship remains, it might not be enough to persuade the Chinese to continue lending us billions of dollars annually. Decisions of foreign leaders aren’t driven by budget finances alone: continued arms sales to Taiwan, free-speech issues raised by Google and others, and unhappiness with currency valuations could all come into play. And the Chinese might decide that the benefits of a more diversified portfolio and protection against an inflated dollar might outweigh the costs of selling off T-bills.
    China is taking a very gradual path toward diversifying its foreign investments. It is not dumping Treasury securities.

    IMO, while the timing of the possible shift in China's policy might be a little inconvenient given forthcoming financing needs for the U.S., it is also fortunate in a way that it might result in U.S. policymakers having to put some focus on the nation's long-term fiscal imbalances sooner than they might otherwise choose to do so. If so, earlier efforts to address those fiscal imbalances would lead to a less painful fiscal consolidation. In terms of reduced Chinese appetite for mortgage and corporate debt, such a development could also provide a constraint that reduces the risk of overleverage down the road. In the long-run, that, too, would not be a bad development.

    In sum, while there are short-term costs associated with the possible new Chinese policy, the long-term benefits could greatly outweigh those costs if U.S. policymakers become serious about fiscal consolidation and U.S. households and corporations avoid becoming overleveraged.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by donsutherland1 View Post
    China is taking a very gradual path toward diversifying its foreign investments. It is not dumping Treasury securities.

    IMO, while the timing of the possible shift in China's policy might be a little inconvenient given forthcoming financing needs for the U.S., it is also fortunate in a way that it might result in U.S. policymakers having to put some focus on the nation's long-term fiscal imbalances sooner than they might otherwise choose to do so. If so, earlier efforts to address those fiscal imbalances would lead to a less painful fiscal consolidation. In terms of reduced Chinese appetite for mortgage and corporate debt, such a development could also provide a constraint that reduces the risk of overleverage down the road. In the long-run, that, too, would not be a bad development.

    In sum, while there are short-term costs associated with the possible new Chinese policy, the long-term benefits could greatly outweigh those costs if U.S. policymakers become serious about fiscal consolidation and U.S. households and corporations avoid becoming overleveraged.
    China sold $34.2bn is that gradual? It has been one month no one can say what they will do over the next few months especially with Obama pissing them off.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by ptif219 View Post
    China sold $34.2bn is that gradual? It has been one month no one can say what they will do over the next few months especially with Obama pissing them off.
    http://www.ustreas.gov/tic/mfh.txt

    They bought $23b in March 09, bought $38b in May 09, sold $25b in June 09, bought $25b in July 09, sold $10b in Nov. 09, and sold $34b in Dec. 09.

    Yea, I'd say that's gradual and well within their normal range of behavior.
    People sleep peaceably in their beds at night only because rough men stand ready to do violence on their behalf.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by RightinNYC View Post
    http://www.ustreas.gov/tic/mfh.txt

    They bought $23b in March 09, bought $38b in May 09, sold $25b in June 09, bought $25b in July 09, sold $10b in Nov. 09, and sold $34b in Dec. 09.

    Yea, I'd say that's gradual and well within their normal range of behavior.
    Then why are financial people saying this is something to watch?

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by ptif219 View Post
    Then why are financial people saying this is something to watch?
    ...because "make things seem more important than they are" is the core principle of all media?
    People sleep peaceably in their beds at night only because rough men stand ready to do violence on their behalf.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by ptif219 View Post
    Then why are financial people saying this is something to watch?
    It's important to see if a new trend that diverges from past behavior develops. At a time when the U.S. fiscal situation is coming under greater scrutiny, one has to look for indications that might entail realization of risks associated with that fiscal situation.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by RightinNYC View Post
    ...because "make things seem more important than they are" is the core principle of all media?
    Nice spin.Notice my 2 sources are not the MSM. The MSM are quiet on this.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by donsutherland1 View Post
    It's important to see if a new trend that diverges from past behavior develops. At a time when the U.S. fiscal situation is coming under greater scrutiny, one has to look for indications that might entail realization of risks associated with that fiscal situation.
    Obama selling weapons to Taiwan and meeting with the Dalai Lama is not helping.

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    Re: Foreign demand falls for Treasuries

    Quote Originally Posted by ptif219 View Post
    Obama selling weapons to Taiwan and meeting with the Dalai Lama is not helping.
    Those are points on which U.S. and Chinese foreign policy diverge. Those are irritants for China, but the impact should be limited. There won't be a rupture in relations.

    Significant damage in relations or an outright rupture in relations would arise if, for example, the U.S. rescinded its "One China" policy or if it recognized Tibet as an independent state. Neither outcome is even remotely likely at this time.

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