Friday, December 18, 2009

China Central Banker Says Harder to Buy U.S. Treasuries

As I have been pointing out for some time, the Federal Reserve's halt in money printing is resulting in fewer dollars available to support the old economic structure. This has a lot to do with the current problems now developing in many international venues. China central banker Zhu Min seems to agree. Zhou Xin and Jason Subler write for Reuters:
It is getting harder for governments to buy U.S. Treasuries because the United States' shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said on Thursday...The U.S. current account deficit is falling as residents' savings increase, so its trade turnover is falling, which means the U.S. is supplying fewer dollars to the rest of the world," he added.

"The world does not have so much money to buy more U.S. Treasuries."
What he sees as a new desire to save in the US, I see as a greater demand to hold cash. That's why it is harder to find dollars around the world. If it was just a case of Americans saving instead of Chinese, why the the Americans would be buying up the Treasury issues.

But, on a long term basis, Zhu Min seems to think, as do many (including EPJ), that the situation will change:
In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.
Obviously, by this remark Zhu Min believes that at some point the Fed will have to come in and buy Treasury securities aggressively, and thus spark both price and monetary inflation.

1 comment:

  1. unless there is enough savings here to fill the gap.