Japan Overtakes China as Biggest Foreign Holder of Treasuries
by Bruce Webb
I’ll let the other Bears comment on this one. I just thought the graphic useful. As always click to enlarge. For table plus footnotes click the link.
Major Foreign Holders of U.S. Treasuries
China’s trade surplus,as well as the US deficit has been collapsing over the past two years.
For example. the average
chinese trade surplues for
Nov, dec., Jan.
2009-10…. $17.2 B
2008-09…..$28.3B
2007-o8…..$31.1 B
2006-07…..$21.4 B
The 2009-10 balance is down about 40% from a year ago
and that was down about 10%.
I will not bother to drag in the US data, but you will see
a comparable drop.
The biggest untold story of the Great Recession is the
massive drop in US dependence on foreign capital that
the recession has generated. The flip side of this is that
the Chinese surplus they have needed to invest abroad
has also plunged.
That is all this data is showing, the impact of the Great
Recession on both countries external balance and the
massive drop in US dependence on foreign capital.
Japan has returned to its old position as number one because they
are a true capital exporter as compared to China where their foreign
investment is just shuffling funds from one account to another,
Do not fall into the trap of the budget peacocks and make a big deal of
something that is just a normal cyclical development.
Dragging spencer’s view into the future, the question raised is the extent to which the US savings rate has risen because of panic vs income and budget fundamentals. Lost jobs come back, but savings misseed during the period of unemployment take time to make up. Lost housing and stock value usually don’t “com back” in the sense that the old trend is recovered, even if the absolute high prior to the drop is recovered. An the savings rate was ridiculously low prior to the bust. So there are fundamental reasons the savings rate should rise over time, even as incomes rise. But, to the extent that people have put off planned spending due to panic, even a fundamental trend toward higher savings could be interrupted for a considerable period as spending plans are carried out as panic subsides.
The improvement in the US trade accounts inspired by the bust may falter. Timing will be critical, because a period of rapid “catch-up” spending would boost US demand, but also give China reason to delay restructuring in favor of greater domestic demand.