http://www.financialpost.com/news-sectors/Story.html?id=2162062In the long term, it is becoming more apparent that China's opinion is the only one that matters in terms of the U.S. government's creditworthiness.
Having to explain and justify U.S. national economic policy to their Chinese counterparts is kind of like the due diligence meetings major debt issuers have with their lending groups on Wall Street. But that is exactly what Fed Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, and White House economists Larry Summers and Christina Romer experienced at the China-US Strategic Economic Dialogue held in Washington at the end of July. They were grilled by their Chinese creditors.
"Like it or not, it is healthy that the U.S. government realizes it is now in the same position vis a vis China that large corporate debt issuers are with respect to institutional investors and rating agencies," DBRS Canada said in a recent newsletter.
China's U.S. Treasury holdings first passed those of Japan only a year ago. But just four years earlier, Japan's U.S. Treasury investments were over three times China's.
This has pushed discussion of long-term U.S. credit issues like health care and budgets to the forefront, while American officials are being forced to answer the tough questions. Chinese officials naturally want the U.S. government to cut its budget deficit in order to prevent inflation that would erode the value of China's dollar-denominated assets.
If China changed its stance on holding U.S. Treasury debt, the impact on global credit markets would be enormous. But that is not likely to happen in the near future. The Chinese have a lot to lose as investors if U.S. Treasury debt were to lose its traditional attraction. China may be diversifying its holdings and decreasing its short-term U.S. debt holdings, but it is also expressing confidence in the U.S. by letting its long-term positions rise, DBRS noted.
Read more: http://www.financialpost.com/news-sectors/Story.html?id=2162062#ixzz0a3OrkbPm
The Financial Post is now on Facebook. Join our fan community today.
Having to explain and justify U.S. national economic policy to their Chinese counterparts is kind of like the due diligence meetings major debt issuers have with their lending groups on Wall Street. But that is exactly what Fed Chairman Ben Bernanke, Treasury Secretary Timothy Geithner, and White House economists Larry Summers and Christina Romer experienced at the China-US Strategic Economic Dialogue held in Washington at the end of July. They were grilled by their Chinese creditors.
"Like it or not, it is healthy that the U.S. government realizes it is now in the same position vis a vis China that large corporate debt issuers are with respect to institutional investors and rating agencies," DBRS Canada said in a recent newsletter.
China's U.S. Treasury holdings first passed those of Japan only a year ago. But just four years earlier, Japan's U.S. Treasury investments were over three times China's.
This has pushed discussion of long-term U.S. credit issues like health care and budgets to the forefront, while American officials are being forced to answer the tough questions. Chinese officials naturally want the U.S. government to cut its budget deficit in order to prevent inflation that would erode the value of China's dollar-denominated assets.
If China changed its stance on holding U.S. Treasury debt, the impact on global credit markets would be enormous. But that is not likely to happen in the near future. The Chinese have a lot to lose as investors if U.S. Treasury debt were to lose its traditional attraction. China may be diversifying its holdings and decreasing its short-term U.S. debt holdings, but it is also expressing confidence in the U.S. by letting its long-term positions rise, DBRS noted.
Read more: http://www.financialpost.com/news-sectors/Story.html?id=2162062#ixzz0a3OrkbPm
The Financial Post is now on Facebook. Join our fan community today.
