Is the PBoC going to stop buying US treasuries? The debt ceiling debate and a potential default have brought this question back into the spotlight. The theoretical and the real world answer to concerns about China and US debt is the same: China will not dump Treasuries. China’s purchase of US treasuries is simply a function of its trade policy.
And as we see today, with Treasury yields even lower, at 2.74% on the 10-year, it’s really all about interest rate expectations. John Brynjolfsson is right. “ A shutdown would signal greater weakness in the economy and cause Treasury yields to fall even more” – since we all know bond holders will eventually get their money.
The right question to ask is “How fast will the Chinese revalue to dump dollars?” “if China wants to dump dollars, it should stop the chatter and put its money where its mouth is: Revalue faster or float; everything else is just hot air.”
Expect more from Michael Pettis on this question in his next weekly column.
Below I answer questions about Chinese demand for US debt in the context of the debt ceiling debate on a Friday appearance on Russia Today.
Note, my next media appearance will be tomorrow on the BBC World News at 12 to1230ish ET to talk about the debt ceiling (again!). Tune in.