That’s like saying all money spent on the military is wasted because you never get anything out of it.
Except that you do get something out of it.
China may be willing to take some monetary losses in order to pressure the USA. This seems quite obvious to me. That China’s #1, overridding everything else, priority is not always going to be to make the most financially out of their investments. They have other objectives which can override that. You know, like any other nation and person on earth.
Owning foreign debt gives China the ability (to a certain extent, obviously) to control the value of their own cuirrency and of the currency they hold. Having China hold so much American debt takes away deciding capacity from America and gives that capacity to China.
Plenty of experts notice the danger. If you don’t then maybe it means you do not understand the problem.
Nobody has mentioned HOW China came by all of that debt/cash: they are practicing mercantilism. They sell everything from air conditioners to contaminated foods, poisonous drywall, etc., to us… They buy almost nothing from us. This mbalance in trade is balanced by China buying US debt. The whole thing is unssutainable, and the Chinse know it-but how would they ever buy enough from the USA to balance their trade? I don’t see what we could sell, apart from food, scrap metal, and raw materials.
In all cases in the past, mercantilism hasn’t worked well, but tell it to the Chinese.
sailor The point is they have too many eggs in one basket. The US could do that to Britain because we didn’t have all of our eggs in that basket. If China did it they’d hold this mountain of debt that they intentionally devalued, plus one of the largest consumers of their products would no longer be able to afford to buy from them.
These seem like big numbers until you look at it in context. Ok, so China has roughly $400 billion in US treasuries. Daily US treasury trading volume is now around $175 billion. This is quite low as last year’s daily volume of $300 billion. For example, Calpers has $175 billion in total assets under management. If you looked at the big asset managment companies, their combined holdings would dwarf the Chinese government.
The US government needs to raise $3.25 trillion this fiscal year, according to Goldman Sachs Group Inc.
A quick search didn’t turn up the average money market daily volume but it’s pretty huge too.
When I worked on the institutional sales desk at Lehman Brothers in 1996. The minimum trade in Asia for a treasury was $1 million. In New York, a sales person that only sold treasuries, had to sell $200 million per day to make quota (eg a billion dollars per week). This was back in 1996.
Net net, China could sell off all of it’s treasury holdings in a single day and it would definately push up the yield curve short term. My guess would be not by more than 50 basis points. In the long term, treasury yields would probably be up 20 to 30 bp to entice other buyers to replace the Chinese. It’s only about 10% of what the US government is going to sell in new treasuries this year.
So, the Chinese have some influence and their concerns should be listened to, but will the sky fall if Obama tells 'em to go pound sand? Will Uncle Sugar allow Chinese a free hand to tip the strategic balance of power in Asia? No no and hell no.
For those here who appear to be complacent on the grounds China cannot afford to do anything - I would not expect the Chinese Govt to be totally driven by such calculations if they consider their interests are threatened.
Thanks for the correction, and I should never use IIRC data. A more reliable figure is that China holds about $768 billion in Treasury securities as of March, according to U.S. government data. (A trillion makes a better sound bite).
Read the Report on Foregin Portfolio Holdings of US Securities. New report will be out at the end of June. It does show Japan and China at approximately the same levels.
Government and Agencies debt holdings
Total = 3.140,700 trillion
Long term = 2.759,401 trillion
Short term = 380.448 billion
US National debt is about $11 Trillion give or take. So the Chinese hold about 6%. It’s important but again I would argue that this level does not give China undue power, and certainly not at the level for the US to allow Taiwan to be annexed.
Excellent. There is one part, though, which I do not understand:
How this? It would drive prices up if these projects cost any used, necessarymoney to the people, i.e. if the state needed to raise taxes or increase salaries. As it is, they could just use the “unused” dollars they already have and currently spend on T bills, and spend them for these projects, e.g. by directly hiring American firms.
