Both China and Japan Reduced US Treasury Debt Loads

Translated into English, this means one thing: Uh-oh.

Uh oh.

Here's a shocking and downright unpleasant development--you may not be familiar with this, folks, but right now there's a battle going on for number two. And I'm not talking about Austin Powers, either; I'm talking about the rank of second largest economy on Earth. Now, it won't surprise many that, despite the sheer crap sandwich we've been sucking back for the last year or so, the United States is still the largest economy on Earth.

Number two, meanwhile, has been for decades Japan. But China, current third, is eyeing the number two slot like a starving man eyes a cruise ship buffet. This is a topic for another time, but the part that means anything to us is that both China AND Japan are holders of a great whopping lot of United States Treasury notes. In fact, they're the two biggest foreign holders of US debt there are.

And they're selling.

Japan, third largest holder, sold off three hundred million in United States debt. China, meanwhile, sold off a whopping 5.8 billion.

This isn't likely to be an immediate problem, but if you've got an adjustable rate mortgage, you're going to need to watch your back. Because if debt demand goes down, interest rates will have to come up to get people interested in buying again. Basically, we'll have to pay more to get people to buy our debt. And if interest rates go up, so too do mortgage rates.

Coincidentally, so too would savings account rates and money market rates and CD rates, which have all been languishing in the "why should I even bother?" range for like the last three years.

But still, with the economy in the fragile state it's in, any move may be a crippling blow.

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  • Ben Gee

    March 19, 2010

    If you are holding a depreciating asset, would you not try to reduce it? It is not if the US currency is going to depreciate. It is when, how fast, and how low will it go? Of course, Japan and China can not get rid of their US holding too fast. That would be like shooting themselves in the foot. They know they have to take some loses, but they want to miminise their loses.
    Can the US do something about their problems? Yes, but the US is still at the denial stage. The US think everything will be fine once China appreciate its currency. Or the US know better but it can use an excuse. Spending is an addiction, like any addict, accepting it will be the hardest part.

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