Two pieces of disturbing news on the wires this week:
- The Chinese are NOT buying US debt anymore.
- The Chinese ARE buying US debt (except they are buying it through intermediaries). [1]
And then there is always the fear that China might dump $700 billion or so of US Treasuries and so yields will go through the roof. [2]
If I had a dirty mind, (which of course I do not), I might have suggested China was gaming the system, pushing up the yield before the auctions, so they can buy cheap. Actually, according to Simon Johnson, a former IMF chief economist, that $700 billion is more like $1.2 trillion; but a hundred billion here and a hundred billion there, who’s counting? And who’s counting how much of the Non-Government debt, much of which is now toxic, is owned by foreigners?
Of course there is not much chance of anyone dumping that at the moment because no one is buying…apart from the Fed. Or perhaps some of the $1.25 trillion of “legacy assets” the Fed just bought, was a sop to the all powerful Chinese, no one knows if the Fed paid “face” for that stuff, or even who it bought it from.
If I had a really dirty mind, (which of course I do not), I might suspect that the Fed DID pay “face” and it did buy some of that “melamine tainted milk” from America’s “Most Favoured Customers (for US debt)” to encourage them to keep buying Treasuries. Now that would be a conspiracy theory that would make the 100 cents on the dollar paid out to Goldman Sachs et al at on those CDS from AIG; look like a rounding error. But then no one will ever know, because unlike most US Government or related “private” institutions; the Fed doesn’t have to give out those sorts of details.
“Who’s counting” is the operative word, the “estimates” from the Treasury (note the word “estimates”) don’t jive with the Bureau of Economic Analysis (BEA) numbers, but either way they are big numbers. According to the Treasury as of December 2009 China owned $894.8 billion of US Treasures out of $3.689 trillion that “foreign” governments own. It’s not completely clear how much of…
