Is China's record purchase of U.S. treasuries a good thing?

Posted May 25th 2009 5:15PM by Connie Madon
Filed under: International Markets, China, Commodities, Recession

Why should we say thank you to China? China has purchased $23.7 billion of U.S. treasuries, bringing their total to $768 billion. Now let's see if we can figure all this out. China has excess reserves from exporting goods the the U.S. The U.S. is caught with having to finance record deficits, some left over from the Bush administration and the new stimulus packages just approved by Congress. So by buying U.S. treasuries, China is helping us to finance our debt.

The actual amount of China's reserves is a state secret. However it is assumed the 70% of the estimated $1.95 billion dollars of China's reserves is in U.S. treasuries, and that China holds about a quarter of U.S. debt held by foreigners.

China buys U.S. treasuries because it is the most liquid and largest world trading market. China's State Administration of Foreign Exchange (Safe) said that it would disrupt any other world market if it shifted its assets elsewhere. Safe traders have stayed away from the UK markets because of the "Negative" rating of their government debt.

Over the long term, China wants to cut its exposure to U.S. treasuries and has eased restrictions for state owned companies to acquire competitors abroad.

Just like we say that politics makes strange bedfellows, we could say the same about the Chinese -- U.S. connection.

What are your thoughts on this kind of relationship?

Tags: china, us treasuries

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Reader Comments (Page 1 of 1)

5-26-2009 @ 12:37AM

perk said...

Let's speculate: If China did not buy any Treasuries, the interest rate would have to rise until other buyers stepped in, as a result the yield on Treasuries would rise and the marketvalue of the $750B of US debt that China owns would drop.

The drop in value may be greater than the cost of buying $28B. China has no choice.

5-26-2009 @ 12:40AM

karl75771 said...

China is now purchasing more Treasurys with shorter maturities. They are buying more, but they are avoiding the long term bonds.

5-26-2009 @ 1:58AM

MrBrentPearson said...

Well, they are both Fiat Currancys, tied to no tangibal value. Lets face it, the chinese are the most corrupt government, the only thing they are doing is printing more money faster then us and using theirs to buy ours.

People say the dollar is worthless, I got news for you. Our dollar is the most valuable commodity in the world. Why? Because its what is spent and accepted here in the United States.

The Quality of living here is better then anywhere. I dont care what five star resort your at world wide. Go there for two weeks and you will be begging to get back to the states. Grociery stores on every corner, water and sewage districts like no other, quality education and hospitals. Police, military and fire service...Due Process. I'm sure Michael Moore could shoot holes in us, but he can go live in France if he wants too!

This rapid expansion is what the US, and the world needs to keep currancy up to demand. Think about it, we have twice as many people in the world then we had just twenty to thirty years ago. Ten trillion in debt, big deal whats that sixty thousand a person, and thats a running total? Thats not even one fourth of the average cost of a persons thirty year mortgage. Get over it America and realize that we got it made. It is the American Dream and Jobs will come back when people realize it.

5-26-2009 @ 6:18AM

MyKisa said...

...all paper currency whould be printed on absorbent paper, so as to have SOME real value

5-26-2009 @ 3:48PM

Namron Soar said...

MrBrentPearson and other Americans

Actually Canada is way better off. I have complete coverage for everything and I hardly worked all my life. I'm an artist and do pretty much what I want. Don't get me wrong I'm a responsible citizen but don't work at regular jobs. I write etc. My concern is green and the world.

You on the other hand can't answer for things like the false flag operations your gov keeps pulling off like 911 for example. Just Google economic hitman and see how wonderful America is.

Nsoar

5-26-2009 @ 5:24PM

Namron Soar said...

I should add that we are all Americans, even the Chinese, if you can grasp that concept. There is only one Hollywood and there is only one American dream and we all aspire to it.

Lets bring real democracy back to the world. Lets clean up America and especially the US.

Is this a shade too pollyanna?