China sells US Debt. WHO BUYS?

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China openly sells a record amount ($34B) of its US debt.

Why? It could be because China feels restive about the level of US debt. Or it could be to smack Washington’s nose for having defied the Chinese over US arms sales to Taiwan. Either way, it is a using debt as a BIG political stick. Welcome to the new politics.

Two further questions: Will China sell more, and Who is buying?

Experts opine that China can’t afford to sell too much too quickly as it would collapse the value of the rest of its $1T plus of US Debt it has bought. True. But they can sell as much as they want provided they do it slowly. Say they sell $34B next month also. Will the rest of the market panic, sell, and screw themselves? No. The Chinese can sell so long as they ‘boil the frog’ slowly.

Who is buying. The US has to sell a Trillion in new debt in the next two years. It also has to roll over or re-sell short term debt that will come back on to the market. The Japanese have to sell hundreds of billions of Dollars worth of their own debt and so do we and so does the EU. So who out of all these debtors has spare cash to buy US debt?

Answer , we do. This last month the UK bought £24B worth of US debt. That is, WE bought everything the Chinese sold and MORE! And we did this in the same month that public sector borrowed a record level of £3.34B.

WHY? Why buy their debt when we are sinking into debt ourselves? Will this help you and your family at all, in any way whatsoever?

AND WHAT DID WE PAY WITH?

Think about it.

6 thoughts on “China sells US Debt. WHO BUYS?”

  1. thesleeperawakes

    Golem – I agree with your analysis but purely as devil advocate, what do you think about the rumours that China could be buying US debt via the UK. Or that the UK is hedging its bets against a failing pound and euro and is foreseeing a flight back to the dollar?

    Also, what are you views on the Bank of England? I notice that they have had a bumper year, making almost 1bn in profits which goes to shareholders. Who are these shareholders and if it is the Treasury, who does the Treasury pay interest to in return for these shares?

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  2. Golem XIV - Thoughts

    thesleeperawakes,

    I think China is buying via brokers in London. WHat I also think however is that part of the reason they are doing so is to sell Long dated debt with one hand while buying short dated debt with the other. This allows them to decrease their long term exposure quietly.

    If they continue to sell like last month this changes the game.

    As for the UK hedging its bets. I don't think this makes too much sense. What money did we buy with? If we borrowed the money, then the rate we paid to borrow the money will have been greater than the rate of return we will get on the dollar debt. Our borrowing rate is higher than the US's. So its a net loss proposition for us. That's how I understand it at least.

    Of course if the dollar were to rocket up against the pound then you could argue the BoE would cover its costs and make a profit that way. Could be. Could also be, I suppose that the BoE is speculating with cash on deposit from its clients ( the banks we bailed out). If so, however, once again it is our money being used. Money we as a nation printed or borrowed.

    The BoE and its profit I am no expert on. Please remember I'm not an expert on any of this. All I try to do is think clearly, and for myself, about what I see and read. That's all.

    The BoE profit – was the profit at the BoE or BoE Nomiees Ltd? They are different. The nominees is a private limited company with share holders who are the major banks. But large though a billion sounds in comparison with liabilities and exposure to risk, I think it's no guarantee of success.

    I need to read more on the BoE generally. ANything you can tell me I would appreciate.

    Must go out now. Thank you for writing.

    Reply
  3. ChrisWoods

    The Fed will be back buying its own debt and roll it all over in the future if no one else looks like buying it. Same has been happening in the UK, who you think is buying our debt? If its not our banks (with our money we just printed) then is the BOE directly. Why you think theres so much secrecy about who is buying what?

    So long as the market believes that the UK and USA will respect property rights and they put in place a `respectable` amount of GDP-debt that the ratings agencies can claim is ok, then the charade will continue. When you go outside this, then it becomes apparent you are living on a house of cards where debts fall quicker than you can raise or carry over in the market re. Bear Stearns, or Lehmans or as it looks the Greeks.

    The Greeks wont fail because the Germans are playing a very clever game. They are instructing the Greeks to cut, the issues the greeks are making can be bought with Greeks own banks (or central banks) and roll it over. Lends money to itself, no default and no one has to pump any money into their economy. Hey presto, a miracle.

    SO long as there is confidence assured in the economy, the ponzi scheme keeps going.

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  4. thesleeperawakes

    Although I agree 1 billion is not a lot in the scale of things, it is still a lot of money which we don't know where it is going. If it is going to further the riches of the rich and they are profiting by issuing our currency etc and other things that could be done by government then I strongly object however much it is.

    As far as I can see when it was established it profited from lending to governments to finance wars etc. As there was hardly any capital in the bank, this was a textbook fractional reserve system.

    In 1946, the bank was nationalised. The Treasury then became shareholders in the bank. This sounds like a good idea but what in fact happened was that the government paid for the shares in government so stock so that although the Treasury receive the profits, they then have to pay most of this out to the holders of the government stock as interest. In fact even if there is no profit from the BoE, the stockholders get paid. No wonder they allowed the bank to become nationalised – a guaranteed risk free income! It has never been disclosed who the owners of the stock are.

    Anyway that is what I can find about the BoE and seeing as they issue our currency at interest, seem to be above government with regard to printing money and are answerable to the Bank of International Settlements, who we have had no say in electing, I think the bank needs a through audit and investigation as does the Fed.

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