Thursday, February 18, 2010
Uh, oh... Is China cutting back its holdings of US debt?
AP...
Foreigners cut Treasury stakes; rates could rise
A record drop in foreign holdings of U.S. Treasury bills in December sent a reminder that the government might have to pay higher interest rates on its debt to continue to attract investors.
China reduced its stake and lost the position it's held for more than a year as the largest foreign holder of Treasury debt. Japan retook the top spot...
The Treasury report showed that China reduced its holdings of Treasury securities by $34.2 billion in December.
Alan Meltzer, an economics professor at Carnegie Mellon University, said China's shift should be a wake-up call for Washington.
"The Chinese are worried that we have unsustainable debt levels, and we do not have a policy for dealing with it," Meltzer said.
He said the Chinese worry that confidence in the U.S. government's ability to repay its debt could erode. That would cause the value of Treasurys and the dollar to fall -- and lead to losses on Beijing's' U.S. debt holdings.
The Obama administration on Feb. 1 released a budget plan that projects the deficit for this year will total a record $1.56 trillion. That would surpass last year's record of $1.4 trillion deficit....
