China warns it may drop its holdings of US Treasuries

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DrKrbyLuv's picture
DrKrbyLuv
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Joined: Aug 10 2008
Posts: 1995
China warns it may drop its holdings of US Treasuries

Obama I hope you are listening - by trying to borrow your way out of this mess you are destroying our markets and credit worthiness.  Your insane approach might look good to the US and Western media dupes but you aren't fooling your creditors.

Oh, and what a great time for the blood money Pentagon to pick a fight with China by snooping along their shores.

By Xinhua writers Wang Yaguang and Zhu Yifan

    BEIJING, Feb. 18 (Xinhua) --
Increased borrowing by the United States to fund its massive stimulus
package could cause the depreciation of U.S. dollar-denominated assets,
Chinese economists have told Xinhua.

    Being the largest holder of U.S.
Treasury securities, China had reason to be concerned about that
possible depreciation, the economists said.

    The 787 billion U.S. dollar
stimulus bill, the American Recovery and Reinvestment Act, is designed
to jolt the ailing U.S. economy by providing government spending and
tax cuts for both individuals and businesses. U.S. President Barack
Obama signed it into law Tuesday.

    "To rescue the ailing U.S. economy
by increasing government borrowing will create a record-high federal
deficit," said Yu Zuyao, economist with the Chinese Academy of Social
Sciences, a government think tank.

    "This can further lead to
catastrophic consequences such as serious inflation and U.S. dollar
depreciation," he said Tuesday.

    China faced high depreciation risk
to its foreign exchange reserves, U.S. Treasury bonds and other U.S.
dollar-denominated assets, Yu said.

    According to the U.S. Treasury,
China held 681.9 billion U.S. dollars worth of U.S. government bonds as
of November, and it bought another 14.3 billion U.S. dollars worth in
December.

    "Buying U.S. government bonds amid
an economic downturn, [a purchase] that is not based on the sound
performance of the U.S. economy itself, indicates a huge bubble," said
Zuo Xiaolei, chief economist of China Galaxy Securities.

CONTRACTION LOOMING

    Forecasts for the U.S. economy
indicate a contraction this year. For example, the U.S. Congressional
Budget Office (CBO) forecast that the economy would contract 2.2
percent year-on-year while unemployment would reach 8.3 percent.

    According to the World Bank, the
U.S. economy would shrink 0.5 percent in 2009, while the International
Monetary Fund (IMF) estimated the decline at 0.7 percent.

RECOVERY UNCERTAIN

    The timing of a U.S. economic
recovery remains uncertain, with broad signs of deterioration including
falling corporate profits, increasing bankruptcies and rising
unemployment, according to Zhao Xijun, deputy director of the Institute
of Finance and Securities at Renmin University.

    According to the IMF, whose
forecast is one of the more optimistic, the U.S. economic downturn
would end late in 2009. The World Bank doesn't see a rebound until
2010.

    Huge Treasury bond issues would
exacerbate the depreciation of the U.S. dollar and world wealth. Such
developments would be more catastrophic than the global financial
crisis, according to Zhang Yansheng, head of the International Economic
Research Institute under the National Development and Reform
Commission, the chief economic planning body in China.

    "The United States should be more
responsible in addressing the global financial crisis. The U.S.
economic stimulus plans should focus more on maintaining financial and
currency stability," Zhang said.

    A weaker U.S. dollar would hurt
that currency's international status, he said, which would "not be in
the interests of the United States and other countries and would
exacerbate the crisis."

    Said Zuo: "U.S. dollar depreciation
is inevitable in the long run. China should prepare and reduce its
holdings of U.S. Treasuries to a proper size."

China's reserves hit a record 1.95 trillion U.S.
dollars at the end of 2008, the largest in the world and far exceeding
those of Japan, the second-largest foreign exchange holder with 1.03
trillion U.S. dollars.

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: China warns it may drop its holdings of US Treasuries
DrKrbyLuv wrote:

Oh, and what a great time for the blood money Pentagon to pick a fight with China by snooping along their shores.

On no... we'll wait a little longer... at least when we have one leg down and an arm behind their back.  The only thing we can do is default and that will probably lead to one thing: WAR

Yeah... And I don't think we want to try and take on China.  I imagine we already have lots of intel on them regarding their doomsday weaponry.

caroline_culbert's picture
caroline_culbert
Status: Platinum Member (Offline)
Joined: Oct 2 2008
Posts: 624
Re: China warns it may drop its holdings of US Treasuries

And if someone wanted to dump the U.S. for all it's troubles and lack of worth, how best would someone go about doing that? Answer: Default on huge debt and go to war with someone much more powerful than you and therefore make it look like any other "normal" war: U.S.-Good guys; Everyone else- Bad guys.  Start playing "Risk" all over again with the game changer when China is superpower.

I'm sorry... but this would seem like a nightmare!

Doesn't anyone talk about what might (likely) happen IF we can't repay China???

britinbe's picture
britinbe
Status: Gold Member (Offline)
Joined: Dec 28 2008
Posts: 381
Re: China warns it may drop its holdings of US Treasuries
caroline_culbert wrote:

And if someone wanted to dump the U.S. for all it's troubles and lack of worth, how best would someone go about doing that? Answer: Default on huge debt and go to war with someone much more powerful than you and therefore make it look like any other "normal" war: U.S.-Good guys; Everyone else- Bad guys.  Start playing "Risk" all over again with the game changer when China is superpower.

I'm sorry... but this would seem like a nightmare!

Doesn't anyone talk about what might (likely) happen IF we can't repay China???

I think it would be too uncomfortable for anyone main stream to talk about.  This would be a nightmare and I'm not sure the US (or anyone else in the western world) would come out on top in that kind of situation.

plantguy90's picture
plantguy90
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Posts: 271
Re: China warns it may drop its holdings of US Treasuries

What can not be paid off, will not be paid off.

DrKrbyLuv's picture
DrKrbyLuv
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 1995
Re: China warns it may drop its holdings of US Treasuries

caroline_culbert

Doesn't anyone talk about what might (likely) happen IF we can't repay China??? 

Hilary Clinton was just in China discussing this exact issue - behind closed doors.  Who knows what was offered as collateral or what backroom deals were made.  The press should have made a huge issue of the secrecy involved but they are dupes for the people who tell Obama what to do.

Why don't they ever discuss how vulnerable we have become by having to beg the Chinese for more money.  If the government were really worried about our national security they would never rely on China to help us pay our bills.

Larry

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
Joined: Sep 8 2008
Posts: 929
Re: China warns it may drop its holdings of US Treasuries

Maybe we should just default on all the debt we owe the Federal Reserve first.

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