September 5, 2007
The link below contains a report that indicates the Chinese have begun to quietly dump U.S. Treasuries on the world market. The data cited by the US Federal Reserve Board indicates at least one major foreign owner of US Treasury instruments is selling them in large quantities. China is the likeliest national seller simply because it currently owns so much US Treasury debt. It was also just a short time ago that the Western markets dropped precipitously when China hinted it might take this very action.
Readers are urged to keep an eye on the performance of the US dollar against other foreign currencies, especially the Euro, the Japanese Yen, and the British Pound. If the dollar starts dropping dramatically against these and other currencies, it will be a symptom that large political and economic events are happening behind the scenes which could affect all our lives.
The western world’s nations, companies and governments have overwhelmingly forgotten the inexorable truth stated in Proverbs 22:7 that “the borrower is servant to the lender.” It seems apparent that the western world is about to learn that this biblical principle cannot be ignored or repealed by any power on earth. US-Chinese relationships are governed by the fact that China is the “lender” and the US is the “borrower.” This means that China is steadily gaining more and more leverage over the economic and political decisions made by the USA, and this dynamic will not have a “happy ending” for the USA and its leaders.
Is China quietly dumping US Treasuries?Telegraph – Sept 5, 2007
A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.
Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.
“This comes as a big surprise and it is definitely worrying,” said Hans Redeker, currency chief at BNP Paribas.
“We won’t know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US.
They don’t seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros,” he said.
While the greenback has been resilient over recent weeks – even regaining something of a ‘safe-haven’ role as banks scrambled to buy the currency to cover dollar debts – most experts believe that America’s $850bn current account deficit will eventually cause the dollar to resume its relentless slide.
David Powell, an economist at IDEAglobal in New York, pointed the finger at Beijing as the main suspect in the sudden bond flight this summer.
In a client note entitled “Has China started to dump US Treasuries?”, he said the sales appear to coincide with early moves by Beijing to launch its new $300bn sovereign wealth fund.
The scheme is part of the government’s plan to diversify it $1,340bn reserves from bonds (mostly in the US) to a broader portfolio of investments and a better yield.
If so, the switch comes at a very delicate time, just as tempers flair on both sides of the Pacific over China’s policy of holding down yuan by currency intervention. A bill in Congress calls for punitive tariff sanctions of 27.5pc against Chinese imports, and there has been a growing outcry over contaminated pet food and lead-tainted toys.
Two top advisers to the Chinese government gave strong hints in August that Beijing should use its estimated $900bn holdings of US Treasuries and agency bonds as a “bargaining chip”, words taken as an implicit threat to trigger as US bond crash if provoked.
The Chinese government has since put out an official statement clarifying that it has no intention in taking such an irresponsible step, which would in any case backfire by devaluing China’s remaining holding.
Mr Powell said the switch out of Treasuires was a purely commercial decision. “If if turns out that the Chinese are behind this, it is merely an attempt to increase returns on investment. It has nothing to do with settling protectionist scores,” he said.
Any evidence that China was pulling out would risk setting off an unstoppable stampede, which is why such a policy would never be announced. It holds the world’s biggest pool of resrves, followed by Japan.
Robin Bhar, a metals analyst at UBS, said there was little evidence yet that Asian central banks were switching heavily into gold. Most of the recent buying of gold has been on the COMEX futures markets, the playground of hedge funds.
Central banks tend to buy their bullion in London at the AM and PM fixings, leaving a footprint that is visible to experts. They seem to have been largely absent from the market so far.