Tuesday, 24 March 2009

China to Keep Buying Treasuries, Top Official Says

China’s top foreign-exchange official said the nation will keep buying Treasuries and endorsed the dollar’s global role, supporting the U.S. as the Obama administration increases spending to revive growth.

Treasuries form “an important element of China’s investment strategy for its foreign-currency reserves,” Hu Xiaolian, director of the State Administration of Foreign Exchange, said at a briefing in Beijing today. “We will continue this practice.”

Hu’s remarks came as Treasuries extended the worst start to a year since 1996 and less than two weeks after Premier Wen Jiabao said he was “worried” about the safety of the securities. U.S. President Barack Obama is relying on China to keep buying Treasuries as his administration sells record amounts of debt to fund a $787 billion stimulus package.

“China’s so heavily invested in U.S. Treasuries that to stop buying now would have a negative impact that would see China’s investments fall in value,” said Dwyfor Evans, a strategist with State Street Global Markets in Hong Kong. “It’s pretty important for the U.S. that the main buyers keep making purchases.”

Although this practice is propping up the markets and stopping a sudden collapse the fact remains that the US economy is still debt ridden and still stagnating.

Things will be going backwards, but drawn out over a longer time period.

[Posted at the SpookyWeather blog, March 24th, 2009.]

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