China Has 'Canceled US Credit Card': Lawmaker

[Purveyor]

China, wary of the troubled US economy, has already "canceled America's credit card" by cutting down purchases of debt, a US congressman said Thursday.

China has the world's largest foreign reserves, believed to be mostly in dollars, along with around 800 billion dollars in US Treasury bonds, more than any other country.

But Treasury Department data shows that investors in China have sharply curtailed their purchases of bonds in January and February.

Representative Mark Kirk, a member of the House Appropriations Committee and co-chair of a group of lawmakers promoting relations with Beijing, said China had "very legitimate" concerns about its investments.

"It would appear, quietly and with deference and politeness, that China has canceled America's credit card," Kirk told the Committee of 100, a Chinese-American group.

"I'm not sure too many people on Capitol Hill realize that this is now happening," he said.

MORE...

AFP: http://rawstory.com/news/afp/China_has_canceled_US_credit_card_l_04302009.html

[TheWraith]

1. As a Republican, his word is suspect until proven otherwise. nt

[Joanne98]

2. K&R! Must be nice having all those JOBS!

[northzax]

6. well, there's the rub, ain't it?

the minute China stops financing US debt, the US stops buying stuff from China, putting all those jobs at risk. The money they are lending us is the money we spent there.

[Uzybone]

3. Mark Kirk (Republican - ILL 10)

At least someone still listens to republicans I see.

[annabanana]

4. ruh roh

Things could get a lot crappier faster....

[MadHound]

5. And now the shit really hits the fan

This is what happens when you outsource your most valuable economic sector, manufacturing, and allowing it to be replaced by that shell game known as the financial industry.

[texastoast]

7. Expecting this

If this is valid, it would have been nice coming from a Dem first.

[northzax]

8. horse hockey

simply not true. China is still running a massive trade surplus, what does Kirk think they are doing with it? buying debt from someone else? do they really want to devalue their two trillion dollars in currently held debt?

[Mojorabbit]

37. I have read articles in our own stock market watch

daily thread which have hinted at this. They have almost stopped buying our treasuries if I am remembering right and have made statements re concern about our debt. I have no reason to doubt the republican congressmans statement.

[Tiggeroshii]

9. NOOOOOOOOoooooo

But who are we going to seek out to sell out predatory lending to now?

[Democrats_win]

10. Maybe we can sell them the bankster whore Democrats. They aren't worth anything to America.

Besides, they've already been bought so why not put them on a slow boat to China.

[Xithras]

11. Let's hope he's wrong.

The Obama economic recovery plan requires deficit spending. Deficit spending requires selling bonds to cover the debt. No buyers for that debt means no deficit spending. We'd have to live within our means (our current tax receipts).

Last year, that deficit was about $400 billion dollars. This year we have that AND the TARP money AND the economic stimulus money in our deficit. If the "credit card" is cut off, we'll either need $400 billion in new taxes, or $400 billion in budget cuts. And no stimulus next year.

[dixiegrrrrl]

12. Glad to see somebody gets it.

Military costs almost half of budget, partially due to triple cost of contracting jobs out.

china has been threatening to stop buying dollars, wants a new currency in the world to use.

Both/either of these moves by China have been predicted for at least 3 years that I have been reading Max Keiser and Karl Denninger and Mish and others , and either move is very bad for us.
Very very bad.
I am surprised it took this long.

[leveymg]

13. It would be very painful for both

But, if China thanks it'll prevail in the OK Corral, this would be a fine opening volley in the showdown.

I don't think either side is ready for the remake of High Noon.

More like two Titanics tied together. If one goes down, the other goes with it. Better for both to avoid the icebergs.

[Xithras]

14. Yeah, but they won't cut the military.

We'd need to cut $400 billion to eliminate the annual deficit (not even looking at one-off deficit spending like the economic stimulus), and the military budget is $515 billion this year. There isn't a bats chance in hell that our government would cut military spending by 80%. 20% would be a hell of a fight, but is probably the best we could hope for.

That would leave $300 billion to make up from discretionary spending elsewhere. Where do you cut?

$515.4 billion - United States Department of Defense
$145.2 billion(2008*) - Global War on Terror
$70.4 billion - United States Department of Health and Human Services
$59.2 billion - United States Department of Education
$44.8 billion - United States Department of Veterans Affairs
$38.5 billion - United States Department of Housing and Urban Development
$38.3 billion - State and Other International Programs
$37.6 billion - United States Department of Homeland Security
$25.0 billion - United States Department of Energy
$20.8 billion - United States Department of Agriculture
$20.3 billion - United States Department of Justice
$17.6 billion - National Aeronautics and Space Administration
$12.5 billion - United States Department of the Treasury
$11.5 billion - United States Department of Transportation
$10.6 billion - United States Department of the Interior
$10.5 billion - United States Department of Labor
$8.4 billion - Social Security Administration
$7.1 billion - United States Environmental Protection Agency
$6.9 billion - National Science Foundation
$6.3 billion - Judicial branch (United States federal courts)
$4.7 billion - Legislative branch (United States Congress)
$4.7 billion - United States Army Corps of Engineers
$0.4 billion - Executive Office of the President
$0.7 billion - Small Business Administration
$7.2 billion - Other agencies
$39.0 billion(2008*) - Other Off-budget Discretionary Spending

We'd doubtless see new taxes, but even if we taxed the rich at 100% it wouldn't make up a $300 billion dollar deficit. Programs would have to be cut.

[coalition_unwilling]

36. If China reduces its purchases of

dollar-denominated debt securities, then aggregate global demand for such securities would decline BUT NOT DISAPPEAR!

Standard economic theory would predict a climate of higher interest rates in such a scenario, since yield moves inverse to price.

BUT THERE WOULD AND WILL STILL BE BUYERS OF US DEBT.

[Tierra_y_Libertad]

15. The Chinese are smart. They are very slowly anticipating the collapse of the Treasury Bubble.

They are purchasing less U.S. Debt but doing so cautiously. They don't want the dollar to collapse because they are awash in them so they are still propping it up until they can spend a good portion of what they have on "real" stuff like oil contracts, mineral rights, factories, and land all over the world with the "strong" dollar.

It serves their interests, at the moment, to continue to prop up it up. But, just like the housing bubble, it's built on sand.

[AdHocSolver]

34. Correct!. To believe that the Chinese are in as bad shape as is the U.S. is wishful thinking. nt

[On the Road]

16. They Probably Don't Have the Cash to Buy as Much

the recession is hitting China, too.

[nichomachus]

17. People totally misunderstand what's happening in China

China is not the "miracle" economic powerhouse that everyone seems to think it is.

It's actually a rather fragile economy that's built on selling cheap shit to other countries. So, it's basically low margin. It seems prosperous because (a) it's growing (or was) and (b) it's selling a lot of stuff.

But it's like the old joke where people were selling stuff at a loss of 10 cents per item, but planned to "make it up on volume."

There's a lot of churn going on in China, but it's not strengthening their own economy.

Also, China has its own toxic debt problem. The banks and government control the economy -- and loans are given out based not on whether the borrower is viable, but based on who knows who and what the borrower's political connections are. It's crony economics at its worst.

Consequently, there are a lot of defaults and some loans are never repaid. Some estimates currently place China's bad internal loans at close to two-thirds of their GDP.

In other words, if they're cutting their own margins and still selling less stuff to other cash-strapped countries, they don't have any money to buy anything.

So, to say that they're "canceling" anyone's credit card is just nonsense. What's happening is that China is running out of steam. It couldn't buy more paper if it wanted to.

[ChairmanAgnostic]

19. what you said.

[Pacifist Patriot]

21. The untold story. This could be an OP in it's own right.

[glitch]

25. Crikey. Agree with above poster, this should be an OP. nt

[AdHocSolver]

33. The Chinese are in far better shape than we are.

They have a large manufacturing base courtesy of American corporations. The corporations have dismantled the U.S. manufacturing base and sent it to China.

If the Chinese get smart, they only need to inject a stimulus into their economy by raising worker wages, which will enable the Chinese worker to buy the stuff they make, and they wind up with a booming economy.

In the U.S. meanwhile, the government can inject all kinds of stimulus money into the economy. However, since practically everything we buy comes from Asia, all the stimulus money will go to shore up the economies that we buy everything from, such as China.

The ONLY way to restore the U.S. economy is to change the trade and tax laws so that most of the goods we buy are manufactured here in the U.S. A sustainable economy requires that the money spent circulates WITHIN the economy. If most of the money spent in an economy "leaks out", the economy eventually collapses.

The U.S. economy has developed a major "oil leak" and the economic engine has already started to "seize up".

The only reason China currently has any economic problems is because, up till now, the U.S. corporations have dictated in many ways Chinese economic policy. The Chinese are not stupid. The American corporations are led by a lot of stupid people. The greed of American CEO's and their ignorant lackeys in government are going to turn the tables, and the Chinese are poised to wind up on top.

[ChairmanAgnostic]

18. China cannot afford anything.

They are closing factories left and right. Toy makers are 90% idle. Finished goods, like computers, etc, are in the shitter, with no one buying.

their economy is far worse off than ours, plus their rural areas are dying. (City folks would work and save, sending money to their parents and kids in the country) Because of the lack of jobs, the poor are suffering even more. There have been reports of riots in some areas. Why do you think that the Chinese just cancelled all agreements to share economic data with Reuters, Bloomberg, etc?

Kirk only has 1/2 the story. but that's par for GOPers, even the smarter ones like him.

[Purveyor]

22. Perhaps of interest to some: Does China’s Buying Gold Signal a Shift in Forex Policy?

China recently released an update on the breakdown of its foreign reserves and this rare disclosure confirmed that China has been quietly adding to its gold reserves. In fact, over the past six years, China has almost doubled its holdings in gold to 1,054 tons, making China the sixth largest holder of gold bullion.1 As news of China’s gold-buying reached the markets last Friday, gold futures jumped $7.70 to a three-week high of $913 an ounce as investors speculated that China will continue to buy gold as part of its overall foreign exchange reserves.

At an estimated $1.95 trillion, China manages the world’s largest foreign currency reserves, but even taking the latest buying spree into account, gold accounts for only 1.6 percent of China’s overall reserves. The lion’s share – a full $744 billion – is held in the form of US government bonds, and it is this massive exposure to the US dollar that is raising alarm bells at the People’s Bank of China.

Earlier this month – just prior to the London G20 summit meeting, in fact – Zhou Xiaochuan, Governor of the People’s Bank of China, called for a discussion aimed at replacing the US dollar as the world’s de facto reserve currency with a new currency issued by international financial institutions. The topic did not make the official G20 agenda of course, but China did manage to make its point that as the world’s preeminent holder of foreign currencies, it would not be ignored – nor would it quietly accept US economic policy that further weakens the dollar thereby reducing the value of its cash reserves.

As America continues to flounder in a devastating recession while simultaneously adding to an already out-of-control national debt, China has watched the value of its US reserves wither. Nevertheless, China remains the principle buyer of US government bonds so critical to President Obama’s recovery plans, but you do have to wonder if China will soon reach the point where it will simply decide that it is too risky to continue serving as America’s personal banker.

The problem with this of course, is that China can ill-afford to do anything that will delay an eventual recovery in the US – it simply has too much to lose. Should China deny further credit to the US – or even less likely, flood the forex market with some of its own greenbacks – the resulting loss in the dollar would hurt China almost as much as the United States itself. Not only would the value of China’s reserves be slashed, but China’s number one customer would be in an even weaker position to buy the exports China desperately needs to sell to maintain its own economy.

MORE...

http://forexblog.oanda.com/20090430/does-china%E2%80%99s-buying-gold-signal-a-shift-in-forex-policy/

[David__77]

20. China is in a position to really play hardball.

If I were in the Chinese leadership, I'd be making demands of the US through diplomatic channels:

1. No more human rights annual reports criticizing China.
2. No arms sales to Taiwan.
3. No meetings with Dalai Lama or dissident figures.
4. Open US markets to Chinese imports, especially in agricultural sector.


There are so many demands they could indeed make. It will be interesting to see if they effectively utilize their very real leverage over US policy.

[northzax]

26. Actually, China doesn't really have any real leverage here

Recall the old adage: if you owe the bank a million dollars, the bank owns you. If you owe the bank a billion (or in this case a trillion) dollars, you own the bank.

[AllentownJake]

31. That's assuming China is doing this for investment reasons

and not for their own financial crisis reasons. I suspect another poster up thread has the situation in China correctly.

[sixmile]

23. Story not exactly true

Check the yields and prices since December. They are steady

http://www.treasurydirect.gov/RI/OFNtebnd

From Marketwatch, 4/28/09:

'Treasury prices stayed lower Tuesday, pushing 10-year yields up to the highest since mid-March, after the government got sufficient demand at its auction of a record amount of 5-year notes.'

http://www.marketwatch.com/news/story/Treasurys-up-flu-bank-fears/story.aspx?guid=%7B731D41CE-6A52-4B5F-A636-9793553FBDFD%7D

If China was not buying these bonds the market would drop out of them.

[girl gone mad]

24. Treasuries have stayed in demand due to..

the flight to safety and quantitative easing. Going forward, prospects are more uncertain.

[roamer65]

27. Bingo and going forward there will be much more QE.

The Federal Reserve will try to fill the gap left by China.

[BlooInBloo]

28. Does it matter to anyone if that's false? Or is the desire for itoldyouso hysteria too great?

[Political Heretic]

30. I just wanted to post my kirk pic. I'll wait until we really know what's going on

..for something more serious. :)

[BlooInBloo]

32. Heh. I love the KHAN!!! moments.

[Political Heretic]

29. Chiiiiiiiiiiiiiiiiiina!!!!!! ....ina!!!!! ....ina!!! ....ina!!!

[NNN0LHI]

35. Good lets stop buying stuff from them and buy American made instead

I have no problem with that.

Don