The New York Times is reporting this morning that the Chinese government may be losing its ability and desire to support low interest rates in the United States by continuing to purchase treasury notes in the hundreds of billions of dollars.

Just as President elect Obama has stated, the economy 'could become dramatically worse.' News from overseas lends credence to our dilemma. The NYT quotes Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland: "All the key drivers of China's Treasury purchases are disappearing - there's a waning appetite for dollars and a waning appetite for Treasuries, and that complicates the outlook for interest rates."

Under normal conditions, during the last decade China has acquired over a trillion dollars of our debt and kept it. This has supported the dollar, kept us buying their goods, and in turn propelled the rapid growth of the Chinese economy. Fitch Ratings, the credit rating agency, forecasts that China's foreign reserves will increase by $177 billion this year. However, this would be a large drop from an estimated $415 billion accumulated last year.

Would you believe that oil imports actually rose last month? The increase also caused an increase in the U.S. Trade Deficit to $57.2 billion dollars. Contrary to what you might expect, the US bought more oil last month than the month before. Yes, you heard it right. And people who started using public transportation when the price of gas was about $4.00 per gallon continued to use public transportation to date. It seems that our large refiners were able to sniff out that a cut in Saudi production was coming so they loaded up on inventory to beat the production cuts.

Supposedly the cuts were made. Yet there are some analysts who believe that the Saudi's did not, in fact, cut production and continued to produce the oil at the same levels. There are also those who beleive that even with production cuts by OPEC that they will not be enough to drive up the price of crude oil much higher. In fact some are even predicting that the price of gas will fall to $1.25 per gallon by next spring.

OPEC meets next week. It will be interesting to see exactly what their cuts will be and what effect these cuts will have on the price of crude oil.