The real reason for QE-2: China has stopped buying US debt

[Coes]

"Over the last 2 quarters, China has stopped buying USD debt. This makes a difference of 150 Bn USD per quarter, 50 Bn USD/month. The gap China leaves is now filled by the US central bank."


article on econoshock

[littlewolf]

1. it was bound to happen ....

[BootinUp]

2. UnRec for panic. nt

[KansDem]

3. So what does this mean?

China has stopped buying US debt

What's next? :shrug:

[dgibby]

5. It means the Fed is printing more money,

which will devalue the dollar even more. Just watch grocery prices. Now, I think, would be a good time to stock up if you can.

[dixiegrrrrl]

10. It means we can't rollover the debt payments to china

and now the Fed is buying the Treasuries that china used to buy,
and if that continues the economy will simply collapse since all money in the USA will have to go to interest on the increasing debt.
which will leave NO budget for anything else.
which is why there is a huge issue in Congress right now to raise the debt ceiling....again.

It's like loan sharking. the interest will kill you.

the more money the Fed prints ( via the Treasury) the less value each dollar has, the less it buys.
The less value of the dollar means countries which sell us stuff, like oil, will want some other form of payment instead of worthless dollars, or will want MORE dollars for same amount of oil.
which is why oil prices are rising so fast.

dollar falls, oil goes up. Oil is now at 86.00 barrel.
(It has been as high as ...130.00, I think, in 2008)

[blue97keet]

11. So we pay the interest on the debt to us instead of China?

Is China's currency manipulation method derailed?

[dixiegrrrrl]

12. essentially.

the more worthless we make our dollar, and our economy, the less interested other countries are
to "invest" in our debt, because as we slide down into insolvency, they know they risk not getting paid off.

they WOULD want to buy our debt if we paid higher interest rates on it, but Bernanke wants to keep interest rates low, sooo.........

and the less interested other countries are in having their money tied to ours.
which is what this "currency war" is about. Timmy wants china to keep their currency tied to ours,
and china, wisely, wants to unhook from what it sees as our economy in freefall, since we seem hell bent on debasing the dollar.

[Ozymanithrax]

4. Well, that will tend to cause inflation...

The more money, even virtual money, in circulation the less the dollar is worth and the higher inflation. Of course, inflation hasn't been our problem. But it could be. Some of us remember the Wiemar Republic, and it sucks to pay a thousand dollars for a loaf of bread.

[pscot]

14. $1000?

Try $1.2 mil.

[girl gone mad]

6. 1. No, they have not, and..

2. We don't need China to buy our debt. It's simply a relationship that works for both countries. They have excess dollars from trade surplus, their banks traditionally do not pay interest so they buy our bonds, and, 3. Quantitative easing is not related to our ability or inability to sell debt to China.

[leveymg]

7. When that goes on for a year, it will match the US-China trade deficit: $600 billion/yr

That will make a $1.2 trillion dollar total bite that China is taking out of U.S. current-accounts. Ouch! Utterly unsustainable.

Trade war, anyone? Looks like it's going to happen. I would dump Wal*Mart stock, now.

[dipsydoodle]

8. I didn't know anyone had bought

the

[leveymg]

9. You should read the article that preceded it on the Fed's Quantitative Easing (QE2) policy. Scary

http://www.econoshock.be/tag/qe2/
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Ben Bernanke wrote an Op-Ed in the Washington Post, explaining his strategy. It is astonishing how the central banker sees QE, and the arguments he gives to support his actions. <...>
Continue Reading
3 November: QE-Day

Posted on 02. Nov, 2010 by Geert.
31

Balance sheet of the US Federal Reserve - Source: New York Times

Financial markets are focused on the message from the US central bank, today and tomorrow. It is widely expected that the Fed will continue its strategy of monetary stimulus aka Quantitative Easing. Quantitative Easing (QE) is a strategy of buying Treasury securities to put downward pressure on long-term interest rates. The hope is that new action by the Fed will make a deflationary spiral of falling prices less likely, and make it somewhat easier for consumers and businesses to borrow and spend.

So the Fed believes that it will help the US economy that economic agents can borrow and spend more easily, and is willing to bet an expected 1 Trln USD, or 100Bn USD per month, on this strategy. With this strategy, the Fed wants to:

* hold down long term interest rates
* depreciate the US dollar
* create inflation in the MT/LT

If you believe these are solutions, instead of new problems, the US strategy could become a success. But it is far from certain that they will achieve the expected result. The US dollar market is vast, due to its role as reserve currency. As a consequence, the impact of even 1Trln USD is not certain. QE can also have serious drawbacks:

* It is a road without any return. If the first trillion does not work, the Fed will only quicken its money printing. The point of no return has been reached, and Bernanke will not change its policy anymore.

* The Chinese are not happy about QE2, and they will diversify away from USD, and even quicken this strategy. The Chinese will be buyers of euros, gold, natural resources, African hard assets, and food.

* Once inflation hits, it will be difficult to control. That’s the problem with money printing. You can start this, but there is no economic and monetary manual that explains how you can successfully stop this policy.

In the meantime, we are witnessing decisions today and tomorrow, that will have effects for the following years. This emergency policy would only be necessary in extreme situations. Therefore, the optimism from the corporate sector, and the Billion USD bonuses in the US banking sector are in stark contrast with the panic policy of the US Federal Reserve.

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Continue Reading

[bemildred]

13. We have such a well run economy, you just don't know who to thank.

:sarcasm:

[OlympicBrian]

15. Do we know if this non-buying has continued?

Just wondering.

[OlympicBrian]

16. China’s holdings of treasury bonds rose by $846.7 billion in July after two months of decline

Kind of stale story, but:

http://economictimes.indiatimes.com/features/sunday-et/world-update/China-buys-more-US-bonds-allows-more-imports/articleshow/6582412.cms

Also I think they meant "to $846.7 billion in July" not "by"...