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.

Continue reading China is having U.S. Treasury fatigue

China is having U.S. Treasury fatigue originally appeared on BloggingStocks on Thu, 08 Jan 2009 13:04:00 EST. Please see our terms for use of feeds.