Thursday, October 24, 2013

American Debt, Chinese Anxiety, Elaborated

"Or, how the Tea Party is working hard to sabotage the dollar's role in global finance.

foreignheldtreasuries.jpg
Figure 1: Share of publicly held Treasury debt held by foreign residents (blue squares), and held by China (red triangles). Solid squares/triangles denote data from annual benchmark surveys; open squares/triangles from monthly series. Source: TIC, and St. Louis Fed FRED.
From my op-ed "American Debt, Chinese Anxiety" in the International New York Times on Sunday:
Madison, Wisconsin — Last week, the United States once again walked up to the precipice of a debt default, and once again the world wonders why any country, much less the world’s largest economy, would endanger its financial reputation and thus its ability to borrow.
Though a potential global financial crisis was averted at the last minute, one notable development has been a string of warnings by Chinese officials. Prime Minister Li Keqiang told Secretary of State John Kerry that he was “highly concerned” about a possible default. Yi Gang, deputy governor of China’s central bank, warned that America “should have the wisdom to solve this problem as soon as possible.” An opinion essay in Xinhua, the state-run media agency, called “ for the befuddled world to start considering building a de-Americanized world.”
These statements, unusually blunt coming from the Chinese, show that repeated, avoidable crises threaten the privileged position of the U.S. as issuer of the world’s main reserve currency and (until now) risk-free debt.
It is unlikely that China would provoke a sudden, international financial calamity — for instance, by unloading U.S. Treasury securities and other government debt. Nonetheless, the process of repeated crises and temporary reprieves will only solidify the Chinese government’s determination to diversify its holdings away from dollar-denominated assets. ...
Foreign entities — governments, companies and individuals — hold nearly half of the publicly held debt owed by the United States. Of China’s $3.6 trillion in foreign exchange reserves, about 60 percent is estimated to be held in U.S. government securities..."

at  http://www.econbrowser.com/archives/2013/10/american_debt_c.html

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