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Ear to the Ground

China Flexes Financial Muscle

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Posted on Feb 17, 2010
United States Treasury

An early 19th century note that was a precursor to the U.S. Treasury bonds that China sold in December.

News that China sold $34 billion in U.S. government bonds at the end of last year has raised the fears of analysts, some of whom think that the move—which involved less than 5 percent of the overall amount of bonds held by China—is meant to signal a loss of confidence in U.S. economic policy.

The sale caused China to fall from being the world’s largest overseas holder of U.S. government bonds (Japan moved to the No. 1 spot) and thus represented a development that journalists were eager to write stories about. Like this one. —JCL

The Guardian:

China sold $34bn (£21.5bn) worth of US government bonds in December, raising fears that ­Beijing is using its financial ­muscle to signal that it has lost confidence in American economic policy.

US treasury figures for the period ending in December 2009 show that, following the sale, China is no longer the largest overseas holder of US treasury bonds. Beijing ended the year sitting on $755.4bn worth of US government debt, compared to Japan’s $768.8bn.

Since the sub-prime crisis that began on Main Street USA grew to engulf the global economy, China’s leaders have repeatedly expressed concerns about US policy. December’s $34bn sell-off made only a tiny dent in Beijing’s total holdings of US assets, which amount to well over $1tn when stakes in American companies, as well as treasury bills, are taken into account.

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By beeline, May 5, 2010 at 7:40 am Link to this comment

Stimulating the economy and putting more money in workers’current accounts will make a pleasant change for the working class.

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By P. T., February 17, 2010 at 7:27 pm Link to this comment

Selling securities at low interest rates is one problem the U.S. government does not have.  Such securities are still considered around the world as the safest place to park one’s money.  And sentient investors already know the U.S. trade deficit is unsustainable.

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By diman, February 17, 2010 at 1:35 pm Link to this comment

This could be a wrongful assumption, lower dollar means the interests rates will go higher, slowing down the economic activity.

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By P. T., February 17, 2010 at 12:26 pm Link to this comment

That is a good thing for U.S. workers—not so good for bankers.  A lower dollar means more exports and fewer imports, stimulating the U.S. economy and thereby requiring smaller budget deficits.

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