The Chinese Government Continues To Buy US Bonds

LINK(fwiw)
February 12, 2009 11:32 AM EST

A Chinese banking regulator told the FT that China will continue to purchase US Treasury bonds even though it speculates the dollar will depreciate. The regulator said buying US Treasury bonds remains its "only option" in this tough economic climate.

China is using the dollars it accumulates through exporting its manufactured goods to the US to buy US Treasuries. Luo Ping, a director-general at the China Banking Regulatory Commission, said that China would continue to buy Treasuries despite the economic troubles in the United States.

Ostensibly, China keeps buying US Treasuries, because in this very difficult environment, the US Treasury is the safest investment with the least amount of flees. It does not appear that Ping is betting on a turnaround in the US market, but rather, he is seeking a safe haven to hold China's money.

Ping said, "Except for US Treasuries, what can you hold? Gold? You don't hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option."

Ping did say that he does not like increasing US budget deficit because the dollar will drop in value, but there is nothing China can do. "We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."

Also, Luo said China is not looking to make direct investment in any US financial institutions. "There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books," said Lou.

I'm patiently waiting for this to blow up too. This game is all going to end very badly.

TBT chart looks great here. Im looking for mid-50's by April.

Edited by beta, 13 February 2009 - 11:45 AM.