Monetary Policy

Deadbeat Nation Watch: China Dumps More Than $30 Billion in U.S. Funny Money

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You won't have the Chinese to kick around anymore for holding so much U.S. government debt. After a record-setting reduction in its Treasury securities position, China is no longer Uncle Sam's largest foreign creditor. You'll just have to kick it old school with straight-outta-the-eighties Japan bashing.

Next Fed Open Market Committee meeting will be held at Marshalsea.

According to Treasury Department data, China, Russia, France and Germany all substantially reduced their positions in Treasuries in December 2009. From ABC's Matthew Jaffe:

According to new data released Tuesday morning by the Treasury Department, foreign holdings of Treasury securities plunged by $53 billion in December, a record drop. China led the sell-off, reducing its holdings by $34 billion. Japan, meanwhile, increased its holdings by $11 billion to become the new largest foreign holder of Treasuries. As of the end of December, Japan held $768 billion of US government debt, followed by China at $755 billion, and then Great Britain at $302 billion, after increasing its holdings by $25 billion during the course of the month.

In the last year there have been consistent concerns that China and other nations might reduce their holdings of US government debt as the US continues to rack up record deficits in the wake of the recession. If foreigners were to undertake a massive unloading of US Treasuries, the country could have to make higher interest payments.

From your mouth to God's ear, Matt! But the Treasury's foreign-held debt figures tell a slightly less dramatic tale. Total foreign-held debt increased in December, and since December 2008, other countries have added nearly $600 billion in Treasuries to their debt portfolios.

Why do they hate us? Or does this mean they love us?

Clearly, it would be a very helpful step for international markets to lose their taste for U.S. government debt, and concerns about the solvency of Washington are real. But so far, this dog's other shoe still hasn't boiled. Treasury note yields continue to stay low. Regulars in the Reason threads will be familiar with ace commenter RC Dean's speculations that the U.S. government is quietly buying up its own bonds to cover up for a drop in demand. But for reasons that escape me (maybe they just haven't visited this country in a while), foreigners still seem to be willing to flush money down the American Standard loo.