china sends message to obama

China Sends Obama a Clear Message
by Tony Sagami 03-17-09

What would happen if your boss cut your salary, you had no savings, and none of the banks or credit card companies would lend you any money? You’d be in some deep doo-doo, wouldn’t you?

Well … that’s exactly the situation the U.S. is potentially staring at if foreign governments decide they don’t want to loan us any more money by buying U.S. Treasury and other government-backed bonds.

And who buys most of our bonds? China and Japan …

At the end of 2008, China owned $727.4 billion worth of U.S. Treasury bonds. And Japan was second, at $626 billion.

Japan has drastically curtailed buying U.S. bonds now that its economy is in shambles. But China has been — and continues to be — the most important lender to the U.S., essentially funding a big chunk of President Obama’s $787-billion economic stimulus plan.

The problem is …

China is Re-Thinking the Wisdom
Of Holding So Much U.S. Debt

Chinese Premier Wen Jiabao is worried about the stability of China’s huge portfolio of U.S. government bonds.
Chinese Premier Wen Jiabao, speaking at the closing press conference of China’s National People’s Congress — China’s annual legislative session — dropped this verbal bomb on the Obama administration last week:

“To be honest, I am definitely a little worried. We have loaned huge amounts of money to the United States, so of course, we have to be concerned. We hope the United States honors its word and ensures the safety of Chinese assets.”

I highly doubt that those remarks were impromptu. They are a clear message to the Obama administration that it needs to stop spending like a drunken sailor if it expects the rest of the world to buy U.S. government bonds.

The line of Chinese policymakers, economists, and scholars voicing concerns about investing too much of their country’s $2 trillion surplus in U.S. debt is growing longer and longer. Many are urging diversifying out of U.S. bonds and into more tangible assets such as natural resources and gold.

The reason is simple:

There is an expectation that U.S. bonds are headed for a big drop in value because we are simply printing too much money to fund our stimulus spending spree.

In fact, the Chinese are already starting to move out of U.S. bonds …
Regards
BufFett