Daily Revolt

March 13, 2007

China May Sell U.S. Bonds

We should be very concerned since we depend on the Chinese to keep the U.S. from going bankrupt:
With much of China's $1 trillion in reserves currently invested in ultrasafe U.S. Treasury debt, a significant shift out of the American bond market could have an impact on American consumers. Interest rates would rise, making it more expensive to borrow money for a home mortgage or car loan or to pay credit card debt.

Chinese officials said they planned to form a government investment firm to manage some of its holdings, an indication that China has tired of earning small and predictable returns and wants to look elsewhere.

Why exactly its a problem:
For Americans, "this will be a challenge, no doubt about it," Silvia said. "It likely will mean higher mortgage rates and a weaker dollar. But these effects could take 5 or 10 years to be fully felt."

Huge holdings of Treasury bonds by both China and Japan have been taken for granted by Americans for the last decade. Their involvement in debt markets has helped to hold down long-term interest rates, especially for mortgages.

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