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China increase holdings of Treasuries

cohodkcohodk Posts: 19,102 ✭✭✭✭✭
in Precious Metals
Seems all I've heard it that China is selling. They have increased their holdings of long term paper to a record. So if they are so concerned about US default then why are they buying more longer term paper?


Who said foreignors are selling?..... Foreign holdings of Treasuries rose for a 24th month


The Communist nation’s holdings of longer-term notes and bonds rose 0.8 percent to a record $1.149 trillion in April, surpassing the $1.145 trillion held in December
Excuses are tools of the ignorant

Knowledge is the enemy of fear

Comments

  • secondrepublicsecondrepublic Posts: 2,619 ✭✭✭
    Chinese buying of either Treasuries or other US assets is mathematically necessary to preserve their huge trade surplus. Treasuries happen to be the easiest, most liquid, and least politically sensitive place for them park their dollars. It also happens to give them some measure of control over our government's policies, if and when for example the situation with Taiwan heats up. I wouldn't perceive it as a vote of confidence in the U.S. or anything of the sort.

    Edited to add: I read recently that their purchases are mostly short-term. Not long.
    "Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)
  • jmski52jmski52 Posts: 22,824 ✭✭✭✭✭
    They recently sold most of their short term and bought long term. There was no big change in their net position except in the maturities. Long term is more volatile and much more likely to lose value if interest rates go up. Are the Chinese stupid? Nope.

    This is why I think a deal has been made to keep rates low for a long time, which will also help out the debt problem by keeping some pressure off of the interest on the national debt.

    The way to keep rates low is to create more liquidity - to avoid another credit freezeup. More money creation. Buy gold.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • cohodkcohodk Posts: 19,102 ✭✭✭✭✭


    << <i>They recently sold most of their short term and bought long term. There was no big change in their net position except in the maturities. Long term is more volatile and much more likely to lose value if interest rates go up. Are the Chinese stupid? Nope.

    This is why I think a deal has been made to keep rates low for a long time, which will also help out the debt problem by keeping some pressure off of the interest on the national debt.

    The way to keep rates low is to create more liquidity - to avoid another credit freezeup. More money creation. Buy gold. >>




    Maybe the Chinese just arent concerned of US default?


    Just seems that every month someone posts a thread about the Chinese selling when in fact they are not. Nor are any other foreign govts. 3% yield might just look good in a deflationary environment?
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • gecko109gecko109 Posts: 8,231 ✭


    << <i>

    << <i>They recently sold most of their short term and bought long term. There was no big change in their net position except in the maturities. Long term is more volatile and much more likely to lose value if interest rates go up. Are the Chinese stupid? Nope.

    This is why I think a deal has been made to keep rates low for a long time, which will also help out the debt problem by keeping some pressure off of the interest on the national debt.

    The way to keep rates low is to create more liquidity - to avoid another credit freezeup. More money creation. Buy gold. >>




    Maybe the Chinese just arent concerned of US default?


    Just seems that every month someone posts a thread about the Chinese selling when in fact they are not. Nor are any other foreign govts. 3% yield might just look good in a deflationary environment? >>





    So you are calling this a "deflationary environment"? Whose stats are you using? The government sponsored stats?
  • HigashiyamaHigashiyama Posts: 2,192 ✭✭✭✭✭
    It still seems to be the case that China's only other alternative is:

    (a) not buy, which ...

    (b) leads to instability in the global financial markets, which

    (c) reduces China's ability to sell to the US, which

    (d) poses a severe threat of instability in China.


    I would much rather be an upper middle class American than a wealthy Chinese. Probably we can muddle our way out of this ...
    Higashiyama
  • derrybderryb Posts: 36,793 ✭✭✭✭✭
    China is more concerned with losing its customer base in the US than it is with losing its bond investment.

    "Interest rates, the price of money, are the most important market. And, perversely, they’re the market that’s most manipulated by the Fed." - Doug Casey

  • OPAOPA Posts: 17,119 ✭✭✭✭✭


    << <i>China is more concerned with losing its customer base in the US than it is with losing its bond investment. >>



    Bingo.

    "Bongo drive 1984 Lincoln that looks like old coin dug from ground."
  • cohodkcohodk Posts: 19,102 ✭✭✭✭✭


    << <i>

    << <i>

    << <i>They recently sold most of their short term and bought long term. There was no big change in their net position except in the maturities. Long term is more volatile and much more likely to lose value if interest rates go up. Are the Chinese stupid? Nope.

    This is why I think a deal has been made to keep rates low for a long time, which will also help out the debt problem by keeping some pressure off of the interest on the national debt.

    The way to keep rates low is to create more liquidity - to avoid another credit freezeup. More money creation. Buy gold. >>




    Maybe the Chinese just arent concerned of US default?


    Just seems that every month someone posts a thread about the Chinese selling when in fact they are not. Nor are any other foreign govts. 3% yield might just look good in a deflationary environment? >>





    So you are calling this a "deflationary environment"? Whose stats are you using? The government sponsored stats? >>




    No, im not saying we are in a deflationary environment.....yet. image What I am saying, is that as low as a 3% yield seems, it is a very nice return in a deflationary environment. Demand for these low yields seems to be strong, so is the bond market seeing a deflationary environment?


    The purpose of the thread is to provide balance to the countless comments of the Chinese dumping our bonds and them "threatening" to sell their Treasury holdings. Higashiyama is exactly right, we probably will muddle through this and that process will take many, many years. As they say, time heals all wounds.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • jmski52jmski52 Posts: 22,824 ✭✭✭✭✭
    as low as a 3% yield seems, it is a very nice return in a deflationary environment

    Which brings us to the crux of the matter - the real interest rate, which is generally understood to be the difference between the yield on 90-day T-Bills and the rate of inflation. There is alot of incentive for the gov't to underreport inflation, which they do routinely.

    The greatest variable in assessing whether or not 3% is a good return on long term bonds................is risk. And the market deals with that continuously. Note Greece's long term debt scorched upwards toward 30% yesterday. Who was it that recently remarked that the US is in worse fiscal shape than Greece? Bill Gross isn't without ulterior motives, but he also has made some valid points about longterm US debt.

    Longterm US debt is a bad deal right now. For China to shift virtually *ALL* of their US debt holdings from short term to long term paper - indicates that something is afoot. I have no way of guessing what their motives might have been, but that type of massive shift in holdings clearly signals that China thinks that interest rates will stay low for the interim. I don't know why they would think that, especially in light of the US gov'ts budget problems, spending problems, unfunded liabilities, the mortgage market's ongoing value destruction and the stagnant economy in the US.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • InYHWHWeTrustInYHWHWeTrust Posts: 1,448 ✭✭✭
    Analogies all break down at some point, but some comport better than others. When I think of the China:America economic relationship, several come to mind, and I have listed on other threads. Perhaps there is a nugget of truth in them that helps me understand. But 'muddling through', I'm not so sure about ,unless that means some kind of real pain for both parties.

    1. Drug dealer needs junkie for livelihood; if no junkie, no income, dead dealer. 100% deadbeat junkie = 100% liability, and junkie is off'ed, but dealer must find other junkies. A live junkie, strung out on eternal debt /slavery, making payments, is better than a dead junkie, until payments not keeping up with drug use...

    2. Parasites that kill their host, without another host to move to (or transmit offspring), die with their host.

    3. People that go out on tree limbs, do not benefit themselves, by sawing proximal to their position on the tree limb. They need to make a move first and saw on the other side (distal)

    That's my contribution for the day. Hope this helps image

    The 'tarbaby' analogy I used to think of-- doesn't work at all.
    Do your best to avoid circular arguments, as it will help you reason better, because better reasoning is often a result of avoiding circular arguments.
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