China Uneasy About Proportion of Holdings in U.S. Treasuries

At the NPC meetings, Premier Wen Jiabao expressed concern over $1 trillion of U.S. assets held by China, and called on the U.S. to guarantee its “good credit.” From the Washington Post: Wen’s remarks, which were made at the close of the annual National People’s Congress meeting in Beijing, echoed those that have been made by other high-ranking policymakers and bankers over the past year since the subprime crisis devastated the value of the mortgage-backed securities that made up a large chunk of China’s U.S. holdings. “We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” Wen said. At a number of diplomatic meetings since then, Chinese officials have raised the issue of U.S. Treasuries and have sought assurances the United States that it will do everything possible to maintain the stability of its economy. On Friday, Wen called on the Obama administration to “maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.” Read also article from Financial Times, the Wall Street Journal, and Xinhua. ...
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4 Responses to China Uneasy About Proportion of Holdings in U.S. Treasuries

  1. Fazal Majid says:

    The question is not whether the US government will honor its debts, it’s whether the dollars the debt is denominated in will be worth anything at maturity.

    The US is unique in its “exorbitant privilege” (to paraphrase De Gaulle) of borrowing in its own currency. It could cheat and inflate its debt into nothingness. This would of course destroy the dollar as the international currency of reference, something which brings an extra 2-3% growth to the US, and not too likely, but neither was dropping the gold standard.

    It’s not inconceivable that at some point the Chinese may demand US treasuries denominated in euros or yens.

  2. Ron says:

    China should be worried about their dangerous over investment in US Treasury obligations. Washington ’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

    Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

    The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See:
    Thanks, Ron

  3. […] response to Wen Jiabao’s unease at the safety of China’s U.S. Treasury holdings, the White House has sought to reassure China. From Bloomberg: “There’s no safer investment in […]

  4. mjB says:

    Hyperinflation and the crash of the Keynesian model could be in the offing soon if the Chinese drastically draw down.