Posts Tagged ‘treasury bonds’

What If China Says “Sorry, Pay Up” to U.S.?

Friday, February 4th, 2011


credit: Lars Plougmann

Is there a “Plan B?”

  • Countries like the U.S. sell government bonds to raise money. Bonds are a form of debt – when the bond-holder cashes in their bond, the government has to pay them back with interest.
  • China is the biggest buyer of U.S. Treasury bonds, which means that if it suddenly sold off a lot of them, it could screw up the entire U.S. market.
  • A dramatic change like that would also hurt China’s economy, so there are probably only two situations in which China would consider selling off that much U.S. debt:
  1. China and the U.S. get into a serious fight. Like, a military-style fight, probably over resources in Asia
  2. China starts to think the American dollar is going to totally tank, and gets out while it still can
  • So what’s Plan B? There is no official plan, but the U.S. government would probably start asking its own citizens and its friends around the world to buy a whole lot of bonds. And the Fed would have a much bigger problem on its hands than the recession.

Facts & Figures

  • China is the United States’ biggest creditor in the world
  • If you include Hong Kong, China holds almost $1 trillion in U.S. debt

Best Quotes

“I worry that we could be at a tipping point.” – Eswar Prasad, economist at the Brookings Institution, former IMF official

“The U.S. government should have and maybe still could call on the people of the U.S. to invest in U.S. debt…. What we need to do is have a plan that’s reasoned, reasonable, can reassure our foreign lenders and also demonstrate to the American people that Washington can get something done” – David Walker, former U.S. Comptroller General

What do you think?

How has your life been affected by the rise of China?

China Is The Biggest Buyer Of U.S. Treasury Bonds

Monday, October 18th, 2010

When you hear about the U.S. budget deficit, do you think about bond holders in China? Maybe you should…

  • For the second month in a row, the Chinese government is the biggest foreign holder of U.S. Treasury bonds – bonds issued and backed by the U.S. government.
  • A report called TIC (“Treasury International Capital”) tracks sales of American securities to foreign buyers. It’s one way of seeing how easily the U.S. government can attract foreign investors when it needs to raise cash.
  • In the rank of foreign holders of U.S. Treasury bonds, Japan comes in right behind China.

Facts & Figures

  • China’s Treasury bond holdings total $868.4 billion.
  • Japan’s holdings total $836.6 billion.
  • In August, private foreign investors bought $85.5 billion in Treasurys. In July they purchased $21.4 billion.

Investors Run For Cover In Low-Yield Investments

Monday, June 7th, 2010

What should you do when the stock market gets unpredictable? You can hold on for dear life or you can hide your head in the government sand...

  • There’s been a lot of ruckus in the stock market lately; between recession repercussions and the European debt crisis, investors are avoiding higher-risk, higher-return instruments in the stock market.
  • Instead, people are funneling money into significantly lower-risk instruments that are also lower-yield, like money market funds and Treasury (government) bonds.
  • The stock market is expected to improve in the future, but because of potential problems in Europe and a damaged financial infrastructure here in the U.S., investors are likely to stick to safe investments (like bonds) for now.

Facts & Figures

  • The only mutual funds that outperformed the Treasury mutual funds in May were “bear market funds” – mutual funds that earn money only when the market goes down.
  • Bear market funds returned an average of 8% on investment in May
  • The going rate of return on a 30-year Treasury bond is 3.2%

Best Quote

“It’s still awfully close to zero. The amazing thing is that even at these rates, when you’re getting virtually no return on your money at all, people are still moving cash into money market funds. It’s sobering.” – Peter G. Crane, President of Crane Data