What's up with conservatives talking about Chinese treasury holdings?

June 5, 2011 8:15 AM

Can somebody explain the current conservative talking point "China Has Divested 97% of Its Holdings In U.S. Treasury Bills" to me? Is this simply false, or is it creative statistics, or what?

My Dad mentioned this story to me in the context of his usual carping about how my grandchildren's grandchildren will still be paying for Obama's financial irresponsibility etc. etc. etc. When I searched for related news it seems like all these right wing sites are parroting the exact same story with no context. It seems telling to me that they all use that exact 97% figure. I'm too politically ignorant to get what's going on here. Did China even divest these securities? I can't find any confirmation elsewhere but I don't really know where to look. Does it really matter if they did? Why is this so important to right wingers?

posted by mindsound to society & culture (7 answers total)

A lie gets halfway around the world before the truth has a chance to get its pants on.
(Winston Churchill)

it would definitely matter a lot and there is a lot of talk about the chance it might happen but it would go a little bit against their current currency policy
posted by 3mendo at 8:42 AM on June 5, 2011

I have no idea what those articles are talking about, but if you look at the Treasury table of foreign holder of Treasury securities ... China went from $895B in March 2010 to $1.1T in March 2011.
posted by geoff. at 8:44 AM on June 5, 2011 [1 favorite]

Their holdings of treasury bills have indeed dropped very dramatically, but that's just because they're holding more treasury bonds instead. The distinction is the maturity of the securities. China's total holdings across all types of US government debt have continued to rise.
posted by Perplexity at 8:46 AM on June 5, 2011 [5 favorites]

Oh so they're swapping short-term debt to long-term debt, this makes more sense as the economy continues to stabilize.
posted by geoff. at 8:54 AM on June 5, 2011

mindsound: "Does it really matter if they did? Why is this so important to right wingers?"

I think it comes down to defunding the people who contribute to Dem candidates. Under the guise of fiscal conservatism they aim to cut apart unions, social programs, and anything else that doesn't involve carrying a gun on the clock. With that goal in mind, they want to point to the debt ceiling and the bond market as a wake up call to cut the budget. Except the bond market says, as measured by the price charged (as interest), the US is quite stable. "Bond vigilantes" are not a major component of the US market. They're too busy playing chicken with the Eurozone right now, where countries are facing real problems financing their debt burden, not just an arbitrary political limit that can and has been moved every time it became an obstacle.

It's telling that they're pushing what looks on the face of it to be a statement of long term stability, China moving to long maturity, as the complete opposite: a sign of bond holders revolting. I also note a bit of irony that we should be concerned with the free market operations of a communist/socialist nation, and that conservatives want us to take cues from that!
posted by pwnguin at 9:56 AM on June 5, 2011 [4 favorites]

Ohhhh! Thanks, I totally missed the distinction between bills and bonds. That sort of makes the whole dialectic make sense. You are all the men/women now, dog.
posted by mindsound at 10:03 AM on June 5, 2011

Good god, what a clusterfuck of information those articles are. It's no wonder people get confused by financial reporting.

Yes, China's purchase of short-term (one part of four of the types of US debt they purchase, which also includes: long-term, intermediate term and TIPS) has gone down recently. But looking back at this chart, which covers the past 15 years or so, you'll see that such fluctuations are normal and the ebbs and flows are bound to happen depending a lot of different political/financial reasons. I also agree with Perplexity here.

The Financial Times can always be counted on to have good straightforward coverage on these things and they touch on it here, in which they say the following (emphasis mine):

Though far from a full-fledged retreat, the latest data indicate that Chinese Treasury holdings have been declining slightly since a peak in October 2010. The decline is more significant in the context of booming issuance and Federal Reserve purchases [i.e. massive amounts of liquidity]. In late January, the Fed passed China as the single largest holder of Treasury debt, a little more than two years after China passed Japan. At $1,140bn, up from $70bn a decade ago, China’s holdings remain massive but their stash has stopped growing – something that might have sent yields higher a few years ago. Instead, QE2 has allowed 6 month T-bills to drop to their lowest-ever yield even as China has reduced its share of outstanding debt to below 8 per cent, the same level as two years ago.

China has been critical of the Fed’s funny money purchases. They may protest too much though. After all, it has given them a way to trim exposure without incurring paper losses.

Add bureaucrats in Beijing to the list of those who may lament the end of QE2.

So yes, the huge reserves that China holds is of some concern. But probably not for the reasons that the talking heads are saying and I doubt this particular piece of data is all that significant in the larger scheme of things regarding China and debt. Trying to make it all about one politician or party - which ultimately is what they're trying to do - is like saying that the world is going to run out of water this year because I've been taking longer showers lately.
posted by triggerfinger at 3:59 PM on June 5, 2011 [2 favorites]