The Dollar, Postscript

An interesting article in today’s International Hearld Tribune, U.S. debt is losing its appeal in China, with some information I have not seen brought up elsewhere.

The thesis:

China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home – a shift that could pose some challenges to the U.S. government in the near future but eventually may even produce salutary effects on the world economy.

Essentially there is less capital in China available to send back abroad.  The three trends the article cites:

The first, little-noticed trend is that the monthly pace of foreign direct investment in China has fallen by more than a third since the summer. Multinational companies are hoarding their cash and cutting back on the construction of factories.

The second trend is that the combination of a housing bust and a two-thirds fall in the mainland Chinese stock markets over the past year has resulted in moves by many overseas investors – and even some Chinese – to get money quietly out of the country. They are doing so despite China’s fairly stringent currency controls, prompting the director of the State Administration of Foreign Exchange, Hu Xiaolian, to warn in a statement Tuesday of “abnormal” capital flows across China’s borders; she provided no statistics.

A third trend that may further slow the flow of dollars into China is the reduction of its huge trade surpluses.  China’s trade surplus set another record in November, at $40.1 billion. But because prices of Chinese imports like oil are starting to recover while demand remains weak for Chinese exports like consumer electronics, most economists expect China to run trade surpluses closer to $30 billion a month.

It’s a good article worth reading.

UPDATE:

It seems this information may also be getting traction at much higher levels as well.  From the Associated Press:

Obama gave his first ballpark estimate of the total amount of the stimulus package expected to emerge from negotiations between his team and Capitol Hill, saying it is likely to hover around $775 billion over two years. That’s about $400 billion less than outside economists have said might be needed to jolt the economy but at the top of the range that Obama aides and congressional leaders have discussed publicly.

The president-elect said concerns about increasing the deficit to unmanageable levels swayed him against the higher figures advocated by some.

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