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China Divests 97% Holding Of Us Treasuries- $ 2 Trln Down To $ 5 Bln

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China Has Divested 97 Percent of Its Holdings in U.S. Treasury Bills

CNSNews.com) - China has dropped 97 percent of its holdings in U.S. Treasury bills, decreasing its ownership of the short-term U.S. government securities from a peak of $210.4 billion in May 2009 to $5.69 billion in March 2011, the most recent month reported by the U.S. Treasury.

Treasury bills are securities that mature in one year or less that are sold by the U.S. Treasury Department to fund the nation’s debt.

Mainland Chinese holdings of U.S. Treasury bills are reported in column 9 of the Treasury report linked here.

Until October, the Chinese were generally making up for their decreasing holdings in Treasury bills by increasing their holdings of longer-term U.S. Treasury securities. Thus, until October, China’s overall holdings of U.S. debt continued to increase.

Since October, however, China has also started to divest from longer-term U.S. Treasury securities. Thus, as reported by the Treasury Department, China’s ownership of the U.S. national debt has decreased in each of the last five months on record, including November, December, January, February and March.

Prior to the fall of 2008, acccording to Treasury Department data, Chinese ownership of short-term Treasury bills was modest, standing at only $19.8 billion in August of that year. But when President George W. Bush signed legislation to authorize a $700-billion bailout of the U.S. financial industry in October 2008 and President Barack Obama signed a $787-billion economic stimulus law in February 2009, Chinese ownership of short-term U.S. Treasury bills skyrocketed.

By December 2008, China owned $165.2 billion in U.S. Treasury bills, according to the Treasury Department. By March 2009, Chinese Treasury bill holdings were at $191.1 billion. By May 2009, Chinese holdings of Treasury bills were peaking at $210.4 billion.

However, China’s overall appetite for U.S. debt increased over a longer span than did its appetite for short-term U.S. Treasury bills.

In August 2008, before the bank bailout and the stimulus law, overall Chinese holdings of U.S. debt stood at $573.7 billion. That number continued to escalate past May 2009-- when China started to reduce its holdings in short-term Treasury bills--and ultimately peaked at $1.1753 trillion last October.

As of March 2011, overall Chinese holdings of U.S. debt had decreased to 1.1449 trillion.

Most of the U.S. national debt is made up of publicly marketable securities sold by the Treasury Department and I.O.U.s called “intragovernmental” bonds that the Treasury has given to so-called government trust funds—such as the Social Security trust funds—when it has spent the trust funds’ money on other government expenses.

The publicly marketable segment of the national debt includes Treasury bills, which (as defined by the Treasury) mature in terms of one-year or less; Treasury notes, which mature in terms of 2 to 10 years; Treasury Inflation-Protected Securities (TIPS), which mature in terms of 5, 10 and 30 years; and Treasury bonds, which mature in terms of 30 years.

At the end of August 2008, before the financial bailout and the stimulus, the publicly marketable segment of the U.S. national debt was 4.88 trillion. Of that, $2.56 trillion was in the intermediate-term Treasury notes, $1.22 trillion was in short-term Treasury bills, $582.8 billion was in long-term Treasury bonds, and $521.3 billion was in TIPS.

At the end of March 2011, by which time the Chinese had dropped their Treasury bill holdings 97 percent from their peak, the publicly marketable segment of the U.S. national debt had almost doubled from August 2008, hitting $9.11 trillion. Of that $9.11 trillion, $5.8 trillion was in intermediate-term Treasury notes, $1.7 trillion was in short-term Treasury bills; $931.5 billion was in long-term Treasury bonds, and $640.7 billion was in TIPS.

Before the end of March 2012, the Treasury must redeem all of the $1.7 trillion in Treasury bills that were extant as of March 2011 and find new or old buyers who will continue to invest in U.S. debt. But, for now, the Chinese at least do not appear to be bullish customers of short-term U.S. debt.

Treasury bills carry lower interest rates than longer-term Treasury notes and bonds, but the longer term notes and bonds are exposed to a greater risk of losing their value to inflation. To the degree that the $1.7 trillion in short-term U.S. Treasury bills extant as of March must be converted into longer-term U.S. Treasury securities, the U.S. government will be forced to pay a higher annual interest rate on the national debt.

As of the close of business on Thursday, the total U.S. debt was $14.34 trillion, according to the Daily Treasury Statement. Of that, approximately $9.74 trillion was debt held by the public and approximately $4.61 trillion was “intragovernmental” debt

http://cnsnews.com/news/article/china-has-divested-97-percent-its-holdin

Hmm..so if the Chinese have been selling the stuff (and moving into PMs and such like presumably) who has been buying it? How much of this has been bought up by the Fed through QE1 and 2? If so, what is their exit strategy...or have they even got one?

I wonder what impact reduced Chinese holdings of US debt is going to have on US-China trade relations, since the gun to the head approach may no longer work with the Chinese?

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Uncle Ben will buy them all. I wonder how large n will get to in the QEn program? My guess is that it will be a lot higher than 2.

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So not quite 97% of treasuries, only treasury bills, but still with the overall total of treasuries of some description falling from 2Tn to 1.14Bn, so over 40%, which to be honest is very encouraging if you're cheering on the collapse of the US dollar B)

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It would be a good article if they said to WHOM they are offloading the government paper to.

They mature on one year as the article says at the top. So they aren't selling them to anyone. Just not buying any more when they do mature.

It's a big deal for short term US debt. Obviously send the whole market a clear message, and that's not likely to be "buy buy buy".

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So not quite 97% of treasuries, only treasury bills, but still with the overall total of treasuries of some description falling from 2Tn to 1.14Bn, so over 40%, which to be honest is very encouraging if you're cheering on the collapse of the US dollar B)

Maybe China will fill the vacuum left by the US and become our new masters. Don't think Putin's Russia can pull it off. Perhaps a 4th Reich? Must be a totalitarian superpower somewhere that can become our new masters? Or would we have been better off not siding with the US during WW2 and done a deal with Hitler to put the Soviets our of their misery?

What if the US stopped buying Chinese tat? Good thing we don't buy much Chinese tat. Hang on................................

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Maybe China will fill the vacuum left by the US and become our new masters. Don't think Putin's Russia can pull it off. Perhaps a 4th Reich? Must be a totalitarian superpower somewhere that can become our new masters? Or would we have been better off not siding with the US during WW2 and done a deal with Hitler to put the Soviets our of their misery?

What if the US stopped buying Chinese tat? Good thing we don't buy much Chinese tat. Hang on................................

I think you'll find they sided with us.. eventually ;)

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They are talking about short term US debt here, not all US Bonds. It would be more interesting to know what the total of US debt the Chinese holds.

Something doesnt add up. If you are going to run a chronic trade surplus with another nation, and keep your exchange rate fixed at a low rate, then you have to purchase large amounts of debt from the other nation. If you stop purchasing the debt, then that will cause the exchange rate to move until the balance of payments balances again.

I had heard stories that the Chinese were buying US debt by proxy, which would keep it off the main books where non-inquisitive officials would take a cursory look from time to time. I am not sure if that explains what is going on here.

I certainly havent heard of the US running any trade surplusses or the exchange rate with the Renminbi moving violently.

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They are talking about short term US debt here, not all US Bonds. It would be more interesting to know what the total of US debt the Chinese holds.

Something doesnt add up. If you are going to run a chronic trade surplus with another nation, and keep your exchange rate fixed at a low rate, then you have to purchase large amounts of debt from the other nation. If you stop purchasing the debt, then that will cause the exchange rate to move until the balance of payments balances again.

I had heard stories that the Chinese were buying US debt by proxy, which would keep it off the main books where non-inquisitive officials would take a cursory look from time to time. I am not sure if that explains what is going on here.

I certainly havent heard of the US running any trade surplusses or the exchange rate with the Renminbi moving violently.

There's a secret (well, hardly) symbiotic relationship between the Fed and the bond market which is what keeps the yield low and inflation raging. The Fed tips off the market in advance of it's asset purchases which is what's holding up demand. The newly printed is thrown at coms, and stocks, etc.

Edited by dom

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There's a secret (well, hardly) symbiotic relationship between the Fed and the bond market which is what keeps the yield low and inflation raging. The Fed tips off the market in advance of it's asset purchases which is what's holding up demand. The newly printed is thrown at coms, and stocks, etc.

Sure, I know the fed is doing this.

But how are the Chinese government fixing the exchange rate at an artificially low rate, running a massive trade surplus, and reducing their holdings of US debt at the same time? That would be a true miracle.

Edited by leicestersq

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Sure, I know the fed is doing this.

But how are the Chinese government fixing the exchange rate at an artificially low rate, running a massive trade surplus, and reducing their holdings of US debt at the same time? That would be a true miracle.

It's an internet hoax. For those that can be bothered - explained over at Zero Hedge for those that can be bothered...........

http://www.zerohedge.com/article/china-dumps-us-bonds-attempts-clickbaiting

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They are talking about short term US debt here, not all US Bonds. It would be more interesting to know what the total of US debt the Chinese holds.

Something doesnt add up. If you are going to run a chronic trade surplus with another nation, and keep your exchange rate fixed at a low rate, then you have to purchase large amounts of debt from the other nation. If you stop purchasing the debt, then that will cause the exchange rate to move until the balance of payments balances again.

I had heard stories that the Chinese were buying US debt by proxy, which would keep it off the main books where non-inquisitive officials would take a cursory look from time to time. I am not sure if that explains what is going on here.

I certainly havent heard of the US running any trade surplusses or the exchange rate with the Renminbi moving violently.

GC's figures are probably correct, give or take....(#4)

Edited by council dweller

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Uncle Ben will buy them all. I wonder how large n will get to in the QEn program? My guess is that it will be a lot higher than 2.

Yes, Uncle Ben now owns more treasury debt than any other nation; more than Japan and more than China.

They could just print more money through QE and buy some more government debt for themselves. But this has already been tried by Zimbabwe. Maybe they are taking economic lessons from ignoble award winner Osborne Gono, governor of Zimbabwe’s Reserve Bank.

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