China Needs U.S. Guarantees for Treasuries, Yu Says

[Coventina]

Source: Bloomberg

Feb. 11 (Bloomberg) -- China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.

The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt.

Benchmark 10-year Treasury yields climbed above 3 percent this week on speculation the government will increase borrowing as President Barack Obama pushes his $838 billion stimulus package through Congress. Premier Wen Jiabao said last month his government’s strategy for investing would focus on safeguarding the value of China’s $1.95 trillion foreign reserves.

China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets. A People’s Bank of China official, who didn’t wish to be identified, declined to comment on the telephone.



Read more: http://www.bloomberg.com/apps/news?pid=20601080&sid=aG_eSDsmh7rw&refer=asia

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Our masters grow impatient with us....

[ixion]

1. so, someone remind me again why it was good to sell our souls to China

because I'm not seeing an upside. We're in it to them for hundreds of billions, not including the money we borrow from them and others on a daily basis just to service the money we've already borrowed (and spent) and now have nothing to show for that expense.

We've screwed the pooch, as the saying goes.

[leveymg]

2. They remember what we did to Japan in 1985. Deflate the currency, devalued foreign debt

The 1985 Plaza Accord led to a 55 percent inflation of the yen relative to the dollar. That measure plunged Japanese export earnings, which led to the 1990 Nikkei stock market crash and a decade of stagflation in Japan.

In 2003, Bush tried to force a similar revaluation of US/China exchange rates in an effort to write down the already huge trade deficit. China refused to go along, and its currency remains pegged to the dollar, which keeps the price of Chinese exports artificially low.

We'll see how Obama approaches this. If the Chinese sell off a big chunk of Treasuries, the result will likely be a trade war. Lose-lose.

[madrchsod]

3. 50% of the toy manufactures in china are closed

no wonder they are nervous....

what is their currency worth?

[blueclown]

4. Makes Geithner look like even more of an idiot for accusing China of manipulating their currency.