Monday, December 21, 2009

China Says - It's Getting Harder To Buy US Treasuries

From Shanghai Daily:

It is getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.

The comments by Zhu Min, deputy governor of the People's Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.


In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.

He then addressed where demand for that debt would come from.

"The United States cannot force foreign governments to increase their holdings of Treasuries," Zhu said, according to an audio recording of his remarks. "Double the holdings? It is definitely impossible."

"The US current account deficit is falling as residents' savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world," he added. "The world does not have so much money to buy more US Treasuries."

When we can't sell those T-Bills - then what will Obama and Congress and Bernanke do? Gee... I guess they'll just have to print up some more money...

By a con­tin­u­ing process of infla­tion, gov­ern­ments can con­fis­cate, secretly and unob­served, an impor­tant part of the wealth of their cit­i­zens“ – John May­nard Keynes, 1919

But the U.S. Gov­ern­ment has a tech­nol­ogy, called a print­ing press (or, today, its elec­tronic equiv­a­lent), that allows it to pro­duce as many U.S. dol­lars as it wishes at essen­tially no cost. By increas­ing the num­ber of U.S. dol­lars in cir­cu­la­tion, or even by cred­i­bly threat­en­ing to do so, the U.S. Gov­ern­ment can also reduce the value of a dol­lar in terms of goods and ser­vices, which is equiv­a­lent to rais­ing the prices in dol­lars of those goods and ser­vices. We con­clude that, under a paper-money sys­tem, a deter­mined gov­ern­ment can always gen­er­ate higher spend­ing and hence pos­i­tive infla­tion.“ – Cur­rent Fed­eral Reserve Chair­man Ben Bernanke, 2002

Treasury bills safe? Hmmm let's see - Can it really be a good deal to earn 0% in a depreciating currency?