Bloomberg News tells us: “China Sells U.S. Treasuries to Support Yuan”
Editor adds: Our dads warned most of us to stay out of debt, that ‘debtors lose in the long run.’ Wall Street offers a stew of confusion because they forgot dad. Neither politicians nor bankers tell the simple truth about debt because they are all in the business of creating debt, So lets look at China and the USA.
China’s government, good or bad, is a creditor, holding uncounted US dollars, much of it in some $1.4 trillions of US Treasury bonds bills and notes, plus those issued by its other trading partners in Europe and elsewhere.
In stark contrast, the USA Treasury, once in China’s world creditor chair, is now the world’s largest government debtor owing about $18 trillion (debt bubble). How complicated is this? Forget all the Walls Street justifications, in the long run it’s the USA, not China that is in financial trouble.
Is China headed for a financial bubble or is the US?
Yes, we have the most powerful army by five or ten times anyone else, and we could destroy lots more countries, if stealing or scuttling their resources would get the US out of debt. But wars only make the debt bigger, and they have fouled markets for goods we might otherwise sell to the victims. Bloomberg news published two, almost useful opinions about US debt, to which I add a little translation:
BLOOMBERG: “The People’s Bank of China has been offloading dollars and buying yuan to support the exchange rate, a policy that’s contributed to a $315 billion drop in its foreign-exchange reserves over the last 12 months. The $3.65 trillion stockpile will fall by some $40 billion a month in the remainder of 2015 because of the intervention, according to the median estimate in a Bloomberg survey.”
Translated: This remark is confusing only in that it seems to worry that the Chinese “reserves” of foreign currencies may be diminished, as though this is a problem for China. In fact China is calling in its debts, therefore the problem is for its debtors. China is selling US Bonds in the open market making this money available for other purposes, and the result will be a drop in the value of US paper. China is cashing out its debtors and using the money internally. The problem is for American’s IRA’s, pensions, and mutual funds that are loaded with these same US bonds. It is expected that the value will go down!
Bloomberg gets closer to the bottom line: China selling Treasuries is “not a surprise, but possibly something which people haven’t fully priced in,” said Owen Callan, a Dublin-based fixed-income strategist at Cantor Fitzgerald LP. “It would change the outlook on Treasuries quite a bit if you started to price in a fairly large liquidation of their (China’s) reserves over the next six months or so as they manage the yuan to whatever level they have in mind.”
Dad would say, “of course US bonds are losing value, they issued too many and now the chickens are coming home to roost.”-Edit by CECarlson
Read the Bloomberg Story: “China Sells U.S. Treasuries to Support Yuan“
