patrick.net

I posted this Investment forum. Didn't get any reply. May be it was in wrong forum. But answer for this question I am looking since long and didn't find any convincing answer yet. Any one any thoughts on this?

Akki, I heard these were short-term maturity treasuries.

Also, if the US defaults I doubt it will be a pure "Screw You" default, the Chinese may be aiming to get preferrential treatment of some kind in return for retiring the debt they hold.

This is a pretty misleading article. China has run a $100B trade deficit year to date, but their total treasury holdings are less than December 2010.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

http://www.census.gov/foreign-trade/balance/c5700.html

However, debt held by the public has only risen $100B since April so China probably couldn't buy treasuries since April even if they wanted to.

Troy says

This is a pretty misleading article. China has run a $100B trade deficit year to date, but their total treasury holdings are less than December 2010.

Almost every article on Treasury debt is misleading if it doesn't give a full history. China greatly increased its holding of US debt in 2007-2008. Anything we have now is far higher than say 2004, regardless of whether China drops its Treasury debt holdings by 10% or 30%.

Troy says

This is a pretty misleading article. China has run a $100B trade deficit year to date, but their total treasury holdings are less than December 2010.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

http://www.census.gov/foreign-trade/balance/c5700.html

However, debt held by the public has only risen $100B since April so China probably couldn't buy treasuries since April even if they wanted to.

“Nessuna soluzione . . . nessun problema!„

Ok. I got that. But still it is not what I am looking for. What is the benefit for China to buy US Debt if they know US won't be able to repay. Below two are the only reason I can think of.

1) They expect US to pay back. How long that can happen? China lends more to US then US pays back.
2) They don't have any other option being developing and export oriented economy. Specially they have huge pile of US Tresury reserve and any unfavaourable action from them will undermine their own reserve. They have huge interest in keeping dollar alive. Also they can't buy Europe debt (EU is in much worse condition) and there is not so much commodities floating around that they can buy to satisfy thier huge surplus.

I believe this is the very important question not only for US/China's future but world's future.

http://mpettis.com/2011/07/current-account-dilemma/

Perhaps USA is "Too Big To Fail"?

Also remember that ChiCom bureacrats are not idiots. They act in their own best interests and the long-term good of China. A frequent assumption from American finance people is Chinese are rubes and suckers, which I think is incorrect. They are playing a longer game.

Troy says

http://mpettis.com/2011/07/current-account-dilemma/

From your article:

This means that if Germany [China] runs persistent trade surpluses with Spain[US], there are only three possible outcomes.[...]

[outcome#1]If Germany [China] is very small – say the size of Sri Lanka – or if Germany [China] runs a very small trade surplus, for all practical purposes we can treat the borrowing capacity of Spain [US] as unlimited as long as the growth in debt is more or less in line with Spain’s [US's] GDP growth.

Couple of things here...

1) I presume this guy is talking about real GDP, otherwise outcome #1 gets blurred with outcome #3 (inflation or default or both)

That leaves the other two outcomes. [outcome#2], once Spanish [US]debt levels become worryingly large Germany[China] and Spain[US] can reverse the policies that led to the large trade imbalances. In that case Germany[China] will begin to run a current account deficit and Spain[US] a current account surplus. In this way German[China] capital flows to Spain[US] can be reversed as Spain[US] pays down those claims with its own current account surplus. Neither side loses.

2) Where do "extend-and-pretend" or "domestic, taxpayer funded bailout" fit into these outcomes?

I don't know where this all goes. I don't think anybody can know.

Our economy is structured on low tax rates. We collectively have borrowed $10T to buy over-priced homes:

http://research.stlouisfed.org/fred2/series/HHMSDODNS

and if we raise income taxes back to just Clinton levels say goodbye to today's house prices, and eventually the banking system as everyone defaults and walks away.

Devaluing the dollar is the "best" bet, but is not something I would choose to do either, given our dependence on oil imports and the general peak oil deal.

$10 gas at the pump isn't going to be a pleasant thing for housing either, and higher energy costs will also destroy the larger economy due to cost inflation.

The intelligent thing we should do is figure out where we want to be in 10 years an enact a transitory regime of incremental change to get us there.

We're not even arguing about the right questions any more. The Tea Party is basically as nihilistic as the corporatocrats that got the 2001-2003 tax cuts in place. They're playing a longer game of destruction, and the American people aren't smart enough to fight against it, yet.