Red Alert! China Dumps 97% of Its U.S. Treasury Holdings

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Friends, this is what we’ve been dreading. The killer punch is dealt to the U.S. economy. China — the country that purchased most of America’s debt in the form of U.S. Treasury notes and bonds — has divested 97% of its holdings.
The U.S. government has been operating by borrowing and borrowing and borrowing. Now it is faced with two stark choices:

  1. Either raise the artificially low interest rates on those Treasuries so as to entice buyers, which means certain inflation, if not hyperinflation; or
  2. Continue to keep interest rates depressed, which will result in even more dumping of those Treasuries by big holders such as China. With no one buying those Treasuries, the U.S. government can no longer function as before.

Some of the implications for ordinary Americans, not the very rich, are:

  • If you’ve been frugal and are a saver, you’ll probably be O.K. because as the prices of goods increase, so will the interest rates on your savings — that is, assuming you’ve invested in conservative (vs. speculative and, therefore, unpredictable) financial instruments.
  • If you have credit card and other debts, the interest rates on your debts will rise, along with inflation. So, please, pay off those debts ASAP!
  • If you are on fixed income, you’ll have less unless you get cost-of-living adjustments commensurate with the rate of inflation.

Why this isn’t headline news in every newspaper and TV channel is beyond my comprehension.
UPDATE (6/5/11): The headline “China Divests 97% of Holdings in US Treasury Bills..." finally made it onto Drudge Report today.
~Eowyn

Terence P. Jeffrey of CNSNews.com reports today, June 3, 2011: 
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. […]
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.

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0 responses to “Red Alert! China Dumps 97% of Its U.S. Treasury Holdings

  1. Here comes the proverbial “tipping point.”
    -Dave

     
  2. Interesting that this was announced on a Friday night, after a week of sensationalized idiocy (thank you Congressman Weiner, NOT). I noticed that over at the Daily Finance, they’re saying it’s really isn’t so scary. The comments were quite telling, like remember that mortgage problem that really wasn’t a problem? Except that it was. May God have mercy.

     
    • I find it “interesting’ that it is NOT being reported …. do they think people won’t know and only those who have inside knowledge will pull out of the stock market on Monday morning in time? God help the “little guy” .. we are the ones who have gotten screwed over in all this mess that the GOVERNMENT has created … how about some shared sacrifice?

       
      • The headline “China Divests 97% of Holdings in US Treasury Bills…” finally made it onto Drudge Report today, June 5, 2011.

         
  3. Get ready….it’s gonna be a bumpy ride!

     
  4. lowtechgrannie

    As of 9:50 pm PST June 3rd, I went on Google News and did a search on CHINA and TREASURY. You’ll all be glad to know there were stories from all the major news outlets that basically downplayed or ignored the significance of this story. The official story appears to be either that it’s not a big deal and we’re focused on other issues right now and/or that China is finally cooperating with our currency demands.
    We are so screwed!

     
  5. Can’t say we weren’t warned … they told Obama to act responsibly .. and all he and Washington did was spend spend spend … thing is was this just stupidity or was it by plan .. I believe the latter.
    http://www.reuters.com/article/2010/07/07/us-china-economy-reserves-idUSTRE6660VC20100707

     
  6. Last night I was about to get out of my truck at Wal Mart and Michael Savage was on, when he in his smart-ellic way declares that China had just dumped 97% of all it’s bond holdings! I like to have fell the rest of the way out of my truck when I heard that. My first thought was, “I listen to conservative talk radio 15 hrs. a day and I had not heard a single person mention the slightest thing about this all day. What the heck is going on?! Are you telling me that no one in the New York Stock Exchange reacted the slightest way hearing this news, when the market only went down 97 points Friday. That is nothing. What would it have been if the market was acting on news like this. I just hope that this does not force the Republican’s to give in to the Socialists and allow the debt ceiling to be raised. They had the vote on it Tues. and it was voted down. And Pelosi goes around telling everyone “This was not a real vote, this was not real, it’s not real.” Oh, yes it is Nancy. And I’m sure she voted to raise the ceiling. Sure she would. Are you wondering why the Democrats never came up with a budget for the past two and a half years? Because they were getting everything they’ve ever wanted, why have a budget? That would mean that they had to not spend in some places and only a little in some others. The Democrats were getting all they have been planning for the past thirty years, why stop just for a budget? No budget, just spend, spend, spend, woopee!

     
  7. It’s happening, as I had warned.
    Today’s headline on Washington Times, June 9, 2011:
    “Lack of buyers may force Treasury to boost rates.”
    http://www.washingtontimes.com/news/2011/jun/7/lack-of-buyers-may-force-treasury-to-boost-interes/

     

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