All the T-notes in China

Even Drudge headlined this story.

China Losing Taste for Debt From U.S. (NYT)

China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.

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But now Beijing is seeking to pay for its own $600 billion stimulus — just as tax revenue is falling sharply as the Chinese economy slows.

This is what Willem Buiter was warning about, although he put the time frame at 2 to 5 years.  If the Chinese ever realize that we intend to repay our loans with printed dollars, they might become less eager lenders.  That would be bad, and the day it happens, it will be huge news.

But today is not that day.  Brad Setster responds to the NYT piece, with actual, you know, data.

In some sense China’s purchases of US debt has to fall from its current level, as the current level of purchases is unsustainable in a context where China’s reserve growth seems to have slowed.

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That said, the available data from US suggests that China has yet to lose its appetite for either dollars or Treasuries, despite all the talk coming out of China.We don’t have data for November or December, so the US data are by now a bit stale. But China’s $67.9b of purchases of Treasuries in October were exceptionally high ($43.5b in September isn’t shabby either). That level of Treasury purchases suggests, if anything, that China was shifting funds into dollars, as China’s recorded US purchases almost certainly exceeded China’s October reserve growth.

Why is China so eager to lend us money in the first place?  Short answer: The U.S. is not the only major world economy dependent on U.S. consumerism.

Watching these competing forces play out over the next few years should be interesting.  But this is just a story to be followed, not a crisis (yet).