Nice piece in the NYT on the importance of the Chinese in the US debt market. When the Chinese decrease their appetite for US government debt, the Obama admin will have a difficult time funding the $ 1 trillion spending spree.
'China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.
“All the key drivers of China’s Treasury purchases are disappearing — there’s a waning appetite for dollars and a waning appetite for Treasuries, and that complicates the outlook for interest rates,” said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland.
At the same time, three new trends mean that fewer dollars are pouring into China — so the government has fewer dollars to buy American bonds. The first, little-noticed trend is that the monthly pace of foreign direct investment in China has fallen by more than a third since the summer. The second trend is that the combination of a housing bust and a two-thirds fall in the Chinese stock market over the last year has led many overseas investors — and even some Chinese — to begin quietly to move money out of the country, despite stringent currency controls. A third trend that may further slow the flow of dollars into China is the reduction of its huge trade surpluses.