Japan passes China as largest holder of U.S. Treasuries

[Kshasty]

China has ceded its position as the largest foreign holder of U.S. Treasuries to Japan after occupying top spot for 15 months, the Chinese official news agency Xinhua said, citing the U.S. Treasury Department.

Chinese experts have long argued that China had invested too heavily in U.S. Treasury notes at a time that the U.S. authorities had injected huge sums of money into the national economy to ease the credit crunch and spur recovery from the country's worst economic recession since the Great Depression.

The anti-crisis measures taken by the administration of President Barack Obama have caused fears of inflation growth in the world's largest economy and, as a result, devaluation of investment in U.S. securities.

U.S. Treasury Department figures showed that Chinese holdings dropped $34.2 billion or 4.3% from April to December 2009 to $755.4 billion while Japanese exposure grew 1.5% to $768.8 billion, making Japan the largest creditor of the U.S. government.

Over the same period, Britain increased its holdings of the U.S. government debt to $302.5 billion from $277.6 billion, Brazil to $160.6 billion from $157.1 billion while Russia trimmed its investment $9.6 billion to $118.5 billion.

On February 1, the United States released a new budget plan projecting a record $1.6 trillion deficit for the 2010 fiscal year.

http://en.rian.ru/business/20100217/157914503.html

[dmallind]

1. Please note detail folks - largest FOREIGN holder

Foreign entities in total only hold a bit under 20% of US debt. The biggest holder by far is other deoartmenst of the government.

There is a strange preconception around here and in general that China, or foreigners in general, hold a huge ratio of US debt and could destroy our economy by "calling it in". Not so.

[A HERETIC I AM]

3. Well, since it is impossible for a holder of a bond to "call it in" anyway...

the point is somewhat moot.

There is a strange preconception around here and in general that China, or foreigners in general, hold a huge ratio of US debt and could destroy our economy by "calling it in". Not so.

I agree with you and, as you indicate, it's not just here on DU, either. I've seen this sentiment on other websites/discussion boards. Lots of people apparently think that someone from the US Government went hat in hand to the Chinese and begged them for a loan or that the Chinese can demand their money back from the Treasury prematurely.

Nothing could be further from the truth.

[jtuck004]

4. But they can sell it at a discount on the open market

Or quit buying it at the rates we offer, then we increase rates and the debt costs more.

[A HERETIC I AM]

5. They can sell for whatever discounted price they care to.

If the Chinese government began to unload their US paper at a large clip, prices would plummet because the prices on those securities is largely driven by supply and demand. As each transaction settled, they would get lower and lower bids, thus losing money by the trainload on any bonds they are trying to sell. At some point however, yields would rise to the point that other buyers would flock back in, buying up this debt paper and driving prices back up again.

Don't forget that in December of '08 the yield on the 30 year Treasury went all the way down to 2.5% because at the height of the financial crisis (a crisis largely centered in the USA), when everyone thought all hell was and would continue to break loose, bonds issued by the American Government were still seen as the safest place in the world to put money.

No large holder of US Treasury paper wants to see a financial collapse of this country. Those bonds pay interest in dollars and are redeemable only in dollars. It is important that those dollars hold value.

[jtuck004]

6. Interests change

Your points are well taken and certainly over history that is true, and rational.

China's is growing. We have interfered with enough other nations and economies that it is not beyond the realm of possibility that another nation might decide to do something to us. They might even feel provoked by something such as our continued arms sales to Taiwan or electing an administration that would be unfriendly to them. They already dictated how we could receive the Dalai Lama for cryin' out loud, and are limiting their support for sanctions on Iran because of our arms sales to Taiwan. They could make a strategic decision that there is enough of a market in the rest of the world for their output and dump our debt on the open market. This might weaken us to the point that we would not be as big a threat to them for many years. Not necessarily a rational economic decision, perhaps, but all of our actions on the world stage could hardly be called rational either. The first step would be to limit their exposure to U.S. paper, exactly what they are doing now.

I'm not saying it is at all likely, but we do live in more of a glass house than we used to, and it would be in our best interests to keep ourselves in an economically strong position to avoid such an occurrence. Which probably means less Cargill, ADM, and Walmart, more family farms, tuition-free (or nearly) higher level adult education in history, economics, engineering, science, math.

[Art_from_Ark]

7. If you had bought US bonds in 2008 with Japanese yen

then you would be at approximately a 10% loss (in yen terms) right now.

Not particularly "safe", in my opinion, speaking as someone who uses a non-US currency on a daily basis.

But the gold that I bought for 2900 yen per gram right around that time is now selling for 3500 yen (with a dealer buy price about 60 yen less than that).

[jtuck004]

8. Just being curious, so please tell me if it's none of my business

Why would one purchase gold with yen vs dollars? Trying to take advantages of currency fluctuations or dealing with particular traders?

I have read some stuff on links from Forex and other sites, but haven't figure out the advantage in using something other than dollars, given what might be a real lack of information on what is going on.

I don't know anything about this, obviously, so if you would like to share...

[Art_from_Ark]

9. My main currency is yen

That is the currency I earn, since I work in Japan, and that is the currency I have to use to buy gold from local dealers. Most of them are not interested in taking dollars because they lose money in exchange rate conversions-- not only if the dollar is falling against the yen, but the banks also take their commission for converting dollars, moreso if the dollars are cash and not electronic (they even favor traveler's checks over greenbacks).

Specifically, most Japanese banks have a 2-yen difference between their buy (TTB) and sell (TTS) rates, for electronic dollars. However, if you want to deal in cash, then there can be up to a 6-yen difference between buy and sell rates.

So, if gold is selling for $1000/ounce, and the official exchange rate is 90 yen per dollar, then the Japanese price would theoretically be 90,000 yen for one ounce (excluding the 5% sales tax). If I pay for a 1-ounce coin in dollars ($1000) cash, the dealer might take the cash to the bank and find out that he can get only 87,000 yen for it, so he's lost 3000 yen, or about $33, for taking US cash.

[jtuck004]

10. Thank you, I appreciate it.

[roamer65]

2. The Chinese are slowly dumping US debt.

I don't blame them one bit.