“We have lent a huge amount of money to the United States,” Mr Wen said. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the US to maintain its good credit, to honour its promises and to guarantee the safety of China’s assets.” From the FT.
A number of key longer-term events are showing up in the news. The comments from premier Wen Jiabao tell the US quite clearly that as a large bondholder they have concerns about credit quality. Mr Wen is the new bond vigilante. With the Chinese trade surplus declining they will have less money to invest in the US. There will have to be trade-offs between internal growth stimulus commitments and external financing of their trading partner.
The US cannot go to Japan to have them buy Treasuries and they do not want the US consumer to save more. We are left with monetization by the Fed which will not be liked by any of our foreign buyers.
A number of key longer-term events are showing up in the news. The comments from premier Wen Jiabao tell the US quite clearly that as a large bondholder they have concerns about credit quality. Mr Wen is the new bond vigilante. With the Chinese trade surplus declining they will have less money to invest in the US. There will have to be trade-offs between internal growth stimulus commitments and external financing of their trading partner.
The US cannot go to Japan to have them buy Treasuries and they do not want the US consumer to save more. We are left with monetization by the Fed which will not be liked by any of our foreign buyers.
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