China questions value of U.S. Treasuries
Mar 13th 2009 7:00AM
Updated Dec 3rd 2009 10:35AM
China helps finance the U.S. government. As a matter of fact, it may be the single largest buyer of U.S. debt. If it slows down this buying process, the cost for the U.S. Treasury to raise money could move up sharply. Other purchasers of Treasuries could also start to worry.
According to The Wall Street Journal, "Chinese Premier Wen Jiabao expressed concern over the outlook for the U.S. government debt China holds, urging Washington to take effective policies to restore the American economy to health."
This is only one sign that U.S. debt may be looking less attractive. Credit insurance instruments, which allow investors to hedge default rates on debt, are having to pay higher rates for paper backing U.S. Treasuries. It is astonishing that there is any market at all in the risk of America's debt becoming distressed.
Between China and the financial markets, it is becoming clear that the plans of the Administration to put over $1 trillion into a stimulus package, a mortgage bailout, and more aid for the banks may stretch the U.S.'s ability to raise funds to its limit. With tax revenue falling due to the recession, these concerns are becoming more acute.
The message to the American government that is beginning to talk shape is that even Uncle Sam does not have limitless financial resources.
Douglas A. McIntyre is an editor at 24/7 Wall St.