This January, The Atlantic Monthly described the $1.4 trillion dollar question.
That is: How will China ever unwind its immense long position in US government debt? This purchasing spree helped keep interest rates low for a long time, as government paper always found a willing buyer in the Chinese government. That may be changing. Several news organizations state that information coming out of China is that the government is looking long and hard at whether to diversify its holdings after a financial tsunami here in the US.
My big concern is whether an orderly sale of even half of the position could doom the domestic economy into a 5-year period where interest rates are higher than expected, as fewer buyers are present to soak up the surplus of government paper that would hit the market.
That is: How will China ever unwind its immense long position in US government debt? This purchasing spree helped keep interest rates low for a long time, as government paper always found a willing buyer in the Chinese government. That may be changing. Several news organizations state that information coming out of China is that the government is looking long and hard at whether to diversify its holdings after a financial tsunami here in the US.
My big concern is whether an orderly sale of even half of the position could doom the domestic economy into a 5-year period where interest rates are higher than expected, as fewer buyers are present to soak up the surplus of government paper that would hit the market.
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