Home > Europe, Global Finance, History, Politics, USA, World Economy > China central banker says harder to buy U.S. Treasuries

China central banker says harder to buy U.S. Treasuries

Exchange Bigger IOUs for old IOUs

… 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 U.S. current account deficit is falling as residents’ savings increase, so its trade turnover is falling, which means the U.S. is supplying fewer dollars to the rest of the world,” he added.

“The world does not have so much money to buy more U.S. Treasuries.” (via China central banker says harder to buy U.S. Treasuries | Reuters).

Reuters slips in a dud

Interestingly, Reuters tried talking up the dollar by making out as though China was scrambling for dollars which were not available. Post the Lehman-collapse, after initial panic over the dollar has subsided – and most economies have continued on the dollar bearing – with a slight change in course. Unlike Britain (or most of Europe), US debt and deficit are still well within ‘reasonable’ limits.

Where did all this money go

Also, must be remembered, that most of this deficit and debt has been rung up for consolidating alliances and de-fanging potential adversaries (like China). For instance, in case of the USA,

The deficit for the fiscal year 2009 came in at more than $1.4 trillion-about 11.2 percent of GDP, according to the Congressional Budget Office (CBO). That’s a bigger deficit than any seen in the past 60 years-only slightly larger in relative terms than the deficit in 1942 … having the fiscal policy of a world war, without the war … war in Afghanistan and Iraq … are trivial conflicts compared with the world wars.

According to the CBO’s … projections, (US) federal deficit will decline from 11.2 percent of GDP this year to 9.6 percent in 2010, 6.1 percent in 2011, and 3.7 percent in 2012 … (and) stay above 3 percent … Meanwhile, in dollar terms, the total debt held by the public (excluding government agencies, but including foreigners) rises from $5.8 trillion in 2008 to $14.3 trillion in 2019-from 41 percent of GDP to 68 percent.

While the above picture is not rosy, it’s not a cause for alarm. For any peace-loving nation, that is. For the Empire of the USA, seeking to maintain its hegemony. This is a bad financial situation to be in.

If war is what USA wants!

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