How China Delays a Plunge in U.S. Treasuries

[papau]

Thank God for China not wanting to accept losses on currency-reserve holdings, or have it's currency rise, given it's need to steal jobs from the US - and Bush's willingness to let it happen just so long as he can claim GDP growth - albeit via a low interest rate mortgage from China.

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pesek&sid=a5EnMJpq7xYQ


How China Delays a Plunge in U.S. Treasuries: William Pesek Jr.
Aug. 22 (Bloomberg) -- Call it the China Bond Mystery.

A Chinese currency revaluation of the kind engineered last month was expected to slam the U.S. bond market. Letting the yuan rise means China may buy fewer Treasuries to hold it down. That, it was thought, would send yields skyrocketing and shoulder check the world's biggest economy.

That hasn't happened. The 10-year Treasury note yielded 4.16 percent on July 20, the day before China let the yuan rise 2.1 percent. It's now 4.22, a negligible rise compared with what many investors anticipated.

Is Asia's hold over U.S. bonds waning? Hardly. China is still the second-biggest holder of Treasuries with more than $243 billion at the end of June, up from $165 billion a year earlier. Japan is the largest with $680 billion. Add in Asia's other central banks and this region's Treasury holdings are about $1.2 trillion.

Any broad move by Asia to trim those holdings would certainly hurt the U.S. economy by driving up borrowing costs. The U.S., it's often said, has built a huge and productive economy, but Asia holds the mortgage. <snip>

[unblock]

1. it hasn't had much of an effect because a 2.1% adjustment is teeny-tiny

if it were to float freely, then there would be some serious turmoil.

which is one of the many reasons they're taking baby steps.

[phantom power]

2. Aside from preserving one of their biggest markets (us)...

I wonder what other concessions the Chinese might be demanding, behind closed doors.

They could crash our economy, if they wanted to. The leverage that gives them over our politicians is almost impossible to exaggerate. I don't think we could make many counter-threats. They're an enormous country with a well developed military, and of course a nuclear power. What could we really do to them? That goes double considering that our military is currently balled up in the middle east.