• The Heritage Network
    • Resize:
    • A
    • A
    • A
  • Donate
  • China Stops Buying Treasuries: Who Cares?

    china-and-interest-small

    The headlines should read: World Didn’t End! Sub-head: We didn’t know what we were talking about.

    The data for official Chinese purchases of Treasury bonds in 2009 were published yesterday. Verdict: the PRC bought practically nothing. In 2008, official Chinese purchases of US Treasury bonds were equal in size to half our federal budget deficit. Last year they were equal to 2%. That’s not a typo, that’s a ’2′.

    According to the “China is our banker!” hysteria, our interest rates should be soaring. Of course, they aren’t.

    The whole idea of China’s financial grip over us is a fiction, and has been from the beginning.

    Yes, there is a huge issue here. But it’s us, not China. We’re mortgaging our future because the President and Congress want a government hand in every aspect of business. We can finance our huge deficit without too much trouble, and in 10 years we’ll be very sorry that we could.

    China’s purchases of our bonds are not important and never have been. What matters is our elected officials are acting to ruin the economy. Fix our problems first and worry about China second.

    Posted in International [slideshow_deploy]

    4 Responses to China Stops Buying Treasuries: Who Cares?

    1. Jill Flyer says:

      Kinda like a balloon mortgage? Payments may be manageable for awhile, then POP!

    2. Spiritof76, NH says:

      China is buying because they consider it risky.

      Who is buying our debt? Our deficit in 2009 over $1.5T. You don't have an answer to that fundamental question.

      The Fed. is buying with no assets- monetizing the debt. What will that do? Inflation. It will make 1979 look like a cake walk.

      Repeat after me. The US is broke and is just putting up a facade. We are just another banana republic with a sinking reserve currency advantage.

    3. Spiritof76, NH says:

      China is not buying because they consider it risky.

      Who is buying our debt? Our deficit in 2009 over $1.5T. You don't have an answer to that fundamental question.

      The Fed. is buying with no assets- monetizing the debt. What will that do? Inflation. It will make 1979 look like a cake walk.

      Repeat after me. The US is broke and is just putting up a facade. We are just another banana republic with a sinking reserve currency advantage.

    4. Pacer, FL says:

      The flow of funds probably looks something more like this: Fed-to-Treasury-to-Banks-to-Treasury Securities.

      So here's the irony: If the banks start lending, as so many think they should be, then they won't be parking assets in treasuries. In turn, interest rates on U.S. debt will rise, just as inflation is sparked as all that money enters circulation.

      We could have a novel new scenario–stagflation paired with increasing government debt service costs. How you like them apples?

    Comments are subject to approval and moderation. We remind everyone that The Heritage Foundation promotes a civil society where ideas and debate flourish. Please be respectful of each other and the subjects of any criticism. While we may not always agree on policy, we should all agree that being appropriately informed is everyone's intention visiting this site. Profanity, lewdness, personal attacks, and other forms of incivility will not be tolerated. Please keep your thoughts brief and avoid ALL CAPS. While we respect your first amendment rights, we are obligated to our readers to maintain these standards. Thanks for joining the conversation.

    Big Government Is NOT the Answer

    Your tax dollars are being spent on programs that we really don't need.

    I Agree I Disagree ×

    Get Heritage In Your Inbox — FREE!

    Heritage Foundation e-mails keep you updated on the ongoing policy battles in Washington and around the country.

    ×