Reply #25: Came across this article while trying to find the one I saw the other [View All]

[54anickel]

day about China backing off on buying our debt. Thought you might find it interesting.

http://www.lewrockwell.com/north/north233.html

From "The Bottom of the Food Chain" section

....Except for Japan, which remains in a slightly price deflationary mode (-0.3%), the world’s price level is inching above 2%.

This means that anyone who holds T-bills or a commercial CD is losing money. He pays an income tax on his earnings, yet even if his income were tax-free, he would be falling behind. Are people nuts? Why are they willing to do this? Because they don’t think the stock market will hold up. They don’t want to go into real estate.

Noland reports that China is no longer buying U.S. bonds. Instead, the country is using its dollars to buy oil.

Although still intervening heavily in the foreign-exchange market, in the last few months China has radically scaled back its purchases of United States bonds. In September, Chinese institutions were actually net sellers of U.S. government and agency debt by $2.8 billion, even though foreign reserves rose by $19 billion. Now, economists and market strategists are beginning to wonder what Beijing is doing with all the dollars it is buying. Chinese state media provided a partial answer in early December, reporting that Beijing plans to build up a 90-day, 50-million-tonne strategic oil reserve. At current crude prices of around $30 a barrel, that will cost China $10 billion. Bankers and brokers in Hong Kong predict further large purchases of strategic materials, together with the possible acquisition of equity stakes in overseas suppliers over the coming year. If pursued, China’s diversification away from U.S. government bonds will be bad news for Washington, which has relied heavily on China’s debt purchases to fund its fiscal and current-account deficits. In Asia, some economists even say Washington had it coming, suggesting that the switch is subtle retaliation for current U.S. trade pressures on Beijing.

This is consistent with my belief that China will become a competitor in the consumption of raw materials. This is also the view of "investment biker" James Rogers.
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The "A WAVE OF CORPORATE BOND PURCHASES" section is pretty interesting as well.