Is China Really Lending Us That Much Money?
Posted by scapozzola on 01/26/2010
Here's a surprising bit of news: according the New York Times' Floyd Norris, China is far from the big banker it's commonly perceived to be. While it's often assumed that the U.S. government stays afloat thanks to generous, ongoing loans from Beijing, it turns out that China purchased only 5% of the U.S. Treasury Securities issued for sale in 2009. Who bought the remaining 95% of U.S. bonds? Foreign purchases accounted for only 39% of borrowing, and according to Norris, American investors purchased the remainder. In previous years, Beijing did in fact purchase large amounts of U.S. Treasuries. In 2006, China hit a peak of purchasing 47.4% of Treasury Securities. But the steady decline since then helps to debunk a great fallacy, namely what might happen if China stopped purchasing U.S. bonds:
Some economists have feared what could happen if China ever decided to unload the Treasury securities it owns, but the reduction of Chinese purchases probably did not result from any decision to do that, said Robert Barbera, the chief economist of ITG, an investment advisory firm. Instead, he said, China’s main determination now was to prevent the rise of its currency against the dollar, and the country needed to buy fewer dollar-denominated securities to accomplish that goal, as the Chinese trade surplus with the United States declined.It's also suggested that if the U.S. chose to enforce its trade laws against China's continued violations, Beijing might retaliate by discontinuing its loans. Norris reveals this scenario to be unlikley, if not implausible. And so, it becomes more evident that the U.S. can and must stand up for itself and take action against China's predatory trade practices. American investors have proven to be the largest recent customer of Treasury Securities. And so, refusing to act out of fear is simply an untenable position. China is not the almighty banker it's believed to be, and the U.S. need not feel so indebted. Read the full article.
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