China Will Keep Buying Our Debt

By Justin Gardner | Related entries in China, Money

Why?

Because it’s the best of the worst…and it’s all bad right now.

From FT:

China will continue to buy US Treasury bonds even though it knows the dollar will depreciate because such investments remain its “only option” in a perilous world, a senior Chinese banking regulator said on Wednesday.

China has used the dollars it accumulates selling manufactured goods to US consumers to accumulate the world’s largest holding of Treasuries.

However, the increasing US budget deficit and its potential impact on the dollar have raised questions about the future Chinese appetite for US debt.

Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York on Wednesday that China would continue to buy Treasuries in spite of its misgivings about US finances.

And here are the key statements…

“Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”

Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn]?.?.?.we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”

Lucky for us?


This entry was posted on Thursday, February 12th, 2009 and is filed under China, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

7 Responses to “China Will Keep Buying Our Debt”

  1. kranky kritter Says:

    They will if they keep buying debt at all. But if they’re smart instead, and spend all that money on internal improvements to their country to make their people better off, instead of buying inflated dollars with less value, then we’ll be screwed.

    What if China goes “hmm, we’ve been exporting goods and importing dollars for quite awhile. Maybe we should start importing some cool good to make Chinese people better off.”

    Don’t you think there are plenty of Chinese folks who would like to become consumers?

  2. shane Says:

    Good post Justin,

    You didn’t take your questions far enough though and KK has touched it. What will happen when the economy bottoms and there are other places to put their investments? What are they going to do with the money? Buy here? Buy somewhere else? Real Estate, businesses, raw materials? The quote has frightening foreshadowing. They are going to dump it as soon as they can. They are aware that we are inflating it and they want out. How bad will the economy here be when they turn that debt over? What does nearly 800 billion of stimulus debt add to that equation? Will the 800 billion of spending get us the 800*(1+apr) year over year in income/revenue/sustainably to pay for the spending?

  3. mw Says:

    Isn’t that comforting? It is good to know that this President and Congress are willing to trust the future of the US economy to decisions made by a few Chinese government bureaucrats.

    As Obama and the Democrats tsk-tsk over the massive deficit spending of the Republicans, they are hell-bent on making the situation far far worse by tripling the deficit over the next two years. We are heading for debt in the range 12%-14% of GDP, levels never seen before in the U.S. Levels that cannot be escaped except by printing dollars at a rate that has also never before been attempted in the US. It is a gigantic crap shoot, and no one knows how the dice will fall. Obama and the Democrats are gambling with the entire US economy at stake. Why worry though? Just because every other country, without exception, that has every attempted to print their way out of massive debt has experienced catastrophic currency devaluations, no reason to think this will happen to us. Why? Well, because we are supremely, arrogantly confident that the Chinese and Europeans will follow our currency all the way down. Because they have “no choice”. While this is probably a good bet with the Europeans, it is a really bad bet with the Chinese.

    Make no mistake. They have a choice. And we just keep making that choice easier and easier.

  4. Doug Mataconis Says:

    mw,

    Exactly.

    And the point that everyone seems to keep missing is that in a debtor-creditor relationship, it’s usually the creditor that has the advantage.

  5. mike mcEachran Says:

    So we’re responding to one burst bubble by creating another bigger one. I get it. That’s bad. So instead we should take the hit now, endure the pain, accept the MAJOR adjustment in American ideals and lifestyle that will come with a devastating global economic collapse. Okay, that’s one idea.

    Or we make some investments now that will soften the economic blow, and consciously make the adjustments in American ideals and lifestyle.

    Republicans insist we can’t do anything consciously – it must be forced upon us by free market forces including major, incrediblly painful collapses. I guess that is where the fault line is. Some believe that we can consciously steer a course toward prosperity, and others believe that we can only get there if we let greed and stupidity have free reign, and suffer the consequences, if/when it goes wrong no matter how devastating.

    Sounds stupid to me.

  6. Doug Mataconis Says:

    So we’re responding to one burst bubble by creating another bigger one. I get it. That’s bad. So instead we should take the hit now, endure the pain, accept the MAJOR adjustment in American ideals and lifestyle that will come with a devastating global economic collapse. Okay, that’s one idea.

    I agree completely. Unfortunately, any politician who ran for office on this eminently sensible platform would lose.

  7. Jimmy the Dhimmi Says:

    Or we make some investments now that will soften the economic blow, and consciously make the adjustments in American ideals and lifestyle….Some believe that we can consciously steer a course toward prosperity, and others believe that we can only get there if we let greed and stupidity have free reign, and suffer the consequences, if/when it goes wrong no matter how devastating.

    Your position seems to be predicated on the idea that government can produce wealth and prosperity in society better than private enterprise can. I hate to break it to you but the govenment can fail too, as it has since the Feds cut interest rates in 2001 and pumped up the secondary mortgage maket with subprime lending and the GSE’s.

    There is stupidity in government (and greed as well when you consider pork-barrel spending), and right now the government thinks it is wise to bail out mismanaged companies that fail due to their own stupidity. That, to me, sounds stupid.

Leave a Reply


NOTE TO COMMENTERS:


You must ALWAYS fill in the two word CAPTCHA below to submit a comment. And if this is your first time commenting on Donklephant, it will be held in a moderation queue for approval. Please don't resubmit the same comment a couple times. We'll get around to moderating it soon enough.


Also, sometimes even if you've commented before, it may still get placed in a moderation queue and/or sent to the spam folder. If it's just in moderation queue, it'll be published, but it may be deleted if it lands in the spam folder. My apologies if this happens but there are some keywords that push it into the spam folder.


One last note, we will not tolerate comments that disparage people based on age, sex, handicap, race, color, sexual orientation, national origin or ancestry. We reserve the right to delete these comments and ban the people who make them from ever commenting here again.


Thanks for understanding and have a pleasurable commenting experience.


Related Posts: