This morning, China’s State Administration of Foreign Exchange (labouring under the unfortunate acronym SAFE) issued a statement dismissing any talk of dumping US foreign debt, but proclaiming that ‘We hope the U.S. take a responsible policy measures to fully consider the budget deficit pressures and inflation risks’.
Maybe Fort Knox is falling behind on the gold deliveries or something. Whatever – writing as if somebody had asked the question in the first place, SAFE’s website says that ‘Any concerns are completely unwarranted. The US Treasury market is the world’s largest government bond market, and US Treasury bonds deliver fair (sic?) good security, liquidity and market depth with low transaction costs. The US Treasury market is a very important market for China’.
OK, OK – we believe you already. But do we?
The piece went on to assert that ‘the foreign exchange reserve holdings of U.S. treasuries is a market and investment behavior, increasing or decreasing its investment in U.S. Treasury bonds are normal operation‘. And at this point, I decided things were getting silly: what, anything you do with American notes is normal?
Call me paranoid if you like, but there is a serious amount of protesting too much going on here. And what concerned me further was when I read the London Financial Times’ piece saying that
‘China held $900.2 bn in US Treasuries at the end of April, according to US Treasury data released on June 15…[but]…bankers say China’s total holdings of dollar-denominated assets are much greater, accounting for perhaps two-thirds of its reserves’.
The SAFE website today has its latest FC reserve number as $2477 billion. So if the FT is right, China holds twice as much US debt as the Fed is prepared to let on about.
You know, when one side is denying fear about a debt, and the debtor is lying about the size of it, the smell of fish cannot be far away.
FT links are blocked these days, but the Wall St Journal also has the story.
The Slog 