Home Research Commentaries Are the Chinese Holding a Trump Card?
Are the Chinese Holding a Trump Card? PDF Print E-mail
Written by Michael Rizzo   
Wednesday, 06 February 2008 16:20

Despite the recent steep decline in the exchange value of the dollar, the U.S. still runs a substantial current account deficit with China. When Chinese citizens sell goods and services to American citizens, rather than accepting U.S. goods and services as payment, Chinese citizens have been purchasing American assets instead, and in particular, U.S. Treasury securities. While foreign ownership of such debt has been increasing rapidly, Chinese accumulation of U.S. government debt has raised some concerns that the U.S. is at risk to the Chinese “dumping” all of these securities on the open market – thereby depressing federal debt prices and putting upward pressure on U.S. interest rates.

Though the dumping scenario is unlikely (see here for commentary on why), another reason not to be alarmed by Chinese holdings of U.S. treasury securities is that while their holdings have increased by over $300 billion since 2000, their holdings still only account for 17 percent of the total debt held by foreign entities. However, foreign entities hold in total only $2.3 trillion of the roughly $9 trillion in total US debt outstanding. The rest of the federal debt is held by the American public and the federal government itself. The Chinese hold only 4.3 percent of the total federal debt outstanding. Is this enough to be considered a gun to the head of American policymakers?

Data courtesy of US Treasury

Foreign Holdings of US Treasury Securities

< Prev
 

Add your comment

Your name:
Your email:
Subject:
Comment:
  The word for verification. Lowercase letters only with no spaces.
Word verification:
yvComment v.1.16.0

About AIER

AIER CastleAmerican Institute for Economic Research (AIER) conducts independent, scientific, economic research to educate individuals, thereby advancing their personal interests and those of the Nation.

Become a Member

Become a Member

An annual sustaining membership entitles you to 22 issues of our Research Reports, which is published twice a month, and to our monthly Economic Education Bulletin, which will vary in length from a four-page letter to more than a 150-page book, depending upon the topic. A digital sustaining membership entitles you to 22 email alerts with links to the latest Research Reports, special sales and coupons, and headlines from Research Commentaries. These alerts come free with an annual sustaining membership.

Shop Online

Shop OnlineWith over 40 publications available, our bookstore has everything you need when you're looking for answers to important personal finance and economic issues. Our all-time bestseller, How to Avoid Financial Tangles, provides solutions to questions ranging from "Do you know how to title property" to "Do you know what financial records you should keep?." Other titles include How to Choose Retirement Housing, The Estate Plan Book, How to Invest Wisely, and What You Need to Know About Social Security.

Affiliates

Progress Foundation

Progress Foundation is AIER’s sister organization located in Zurich, Switzerland. Like AIER, Progress Foundation was founded by E.C. Harwood and serves the public by conducting and disseminating independent research that foster greater understanding of the factors that contribute to human progress.

American Investment Services, wholly-owned by AIER, is registered with the SEC under the Investment Advisors Act of 1940. AIS shares AIER’s facilities and applies AIER’s fundamental research procedures and findings. Follow the link to learn more about AIS’s diversified, disciplined, and cost effective investment management approach.
Make a Donation
 
Become a Member

Login or Create an Account

Why register?

It's free and you'll gain the ability to easily make forum posts, comment on recent articles, track your order history, and receive an email alert when a new Research Commentary is published.

Create an Account

Close



Powered by Core Design

Cost of Living Calculator

Bookstore Sales

Poolside Prosperity Package

© 2008 American Institute for Economic Research. All rights reserved.