How come China had 256 billion in US Treasury debt. Heh, is that different from the trade deficit?

Question

http://www.forbes.com/markets/feeds/afx/2006/04/03/afx2644229.html

China held 256.7 bln usd worth of US treasury debt as of the end of last year, making it the second largest holder. Last year, China's net purchases of US treasurys stood at 38.7 bln usd, accounting for half of all net purchases of US treasury bills and bonds.

Answer 1

Don't worry, you'll invade China and take it back. Thats how this Bush regime works these days. You want something, you go out and take it.

Answer 2

China sells a lot of products to the United States and at the same time purchases a lot of the U.S. bonds. Many ignorant alarmist have called for the United States to somehow force China to do something different. The problem doesn't lie with China. China is a poor country that's willing to work for less. There are many, many countries who are poor and are willing to work for less. Ethiopia, Congo, Panama, and many other poor countries who will certainly come in and fill China's shoes. We shouldn't be unhappy that another country is poor. In fact, we should be happy, because it means that the U.S. is rich!! Anyway, there's no way to stop the poor from working for less. So, what is the solution to the problem? The problem is the Giant Deficit. It means that we are spending money we don't have and keep borrowing money. The U.S. have cut taxes, but kept spending more money. The problem doesn't have anything to do with China. It has to do with our spending habbits. There is an advantage to China selling things cheaply to the United States and other countries as well. Because we are buying goods and service for less money, as a country, we have less expenses, which means we will have larger profits as a country. This is why no country that understand economics try to stop China from selling things cheap. Let's take an example to illustrate. Let's pretend that Canada and United States made the same amount of money as a country last year. However, this year, United States decided to tax China's products making them more expensive. Canada keeps buying cheap Chinese products. Because Canada will have less expenses, it will grow larger than the United States, because it had larger profits. Don't worry. China selling cheaply won't last. Just like any country the lifestyles and salaries of the country will slowly improve, making it impossible for them to make things cheaply anymore. It will happen slowly. However, once China's wage become too high to produce good cheaply another country, such as Ethiopia, will takeover the job.

Answer 3

The trade deficit is the difference in what we buy and sell from another country (for example we sell China $250 worth of steel sheets and buy $500 worth of Washing Machines our trade deficit is $250). US Treasury Debt is entirely unrelated to the trade deficit. The US Treasury Debt is what the US government borrows and issues interest bearing bonds as collateral. It then uses the acquired money from the sale of these bonds to meet its expenses and interest payments on its current debt (for example you borrow money from a bank and repay it with interest - China is the bank and The US Treasury is the borrower). China has largely aquired its wealth as a result of the difference in the trade defficit and its stratigic investments (including US treasury Bonds) over the past several years.

Answer 4

Although China is the largest international holder of U.S. Treasury debt, the vast majority of U.S. debt is owned by and owed to U.S. citizens. This debt can take on many forms, but it is primarily recognized as Bonds, T-Bills, and of course the big one: promised entitlement expenditures due over the next few decades (social security, Medicaid, etc).

China runs a trade surplus against the U.S. and the E.U. (and basically every country it trades with) so at the end of the day they have a lot of paper money left over. Since the U.S. is the major investor in China and the 2nd largest trading partner in terms of volume, China has an interest in maintaining a high value for the dollar. For this reason, they sell their Euros and Yen to buy more dollars. (More demand = higher price).

Because of this Chinese practice of buying as many dollars and dollar-denominated assets (ie: Treasury Debt) China is accused to artificially devaluing their currency. The flip side of that of course means that they are artificially overvaluing the dollar.

Our politicians want the dollar to fall, as you can see by extensive operating deficits, new plans and promises to spend hundreds of billions in new ways, and rock-bottom interest rates (which may be falling yet again). The main reason for this is just that it makes the debt easier to pay off. Unfortunately, China is buying too many dollars and this makes it tough for them to force the inflation D.C. really wants to achieve.

Remember though, the vast majority of this debt is owed to U.S. citizens. When China buys U.S. debt, its a "floor support" for the value of the debt. If the debt loses value like for example China sells off its dollar holdings, the government gets out of paying us back what our investment/ taxes were originally worth because inflation will beat the promised return rates (or in the case of social security, there is no promised rate of return).

Answer 5

Trade deficit leads to it.
If we buy $100 million dollars worth of stuff from China and sell them $10 million, then they have $90M of our money. What do they do with it? They could buy land, or buildings (as the Japanese did) or buy nice safe US Treasury bonds, which is what they have done here.

Answer 6

Well the trade deficit isn't government specific. It is the difference in imports/exports of our countries (good soldsand bought). The debt is actual money that we owe China because they bought our bonds.

Answer 7

Anyone can buy Treasury Notes, what is the point of the question? The only reason anyone would purchase them is because they see them as a solid safe investment.........

Answer 8

because we have an awful lot of debt, China can have 256 billion without people getting too worked up about it!!

unless one day they decide to make some money off of screwing up our entire market economy... any day now.... which would be a rather unhappy day

Answer 9

Yes

Answer 10

It is different (assuming they dont want us to buy them back), but the interest on those is racked up all day, and interest is part of the deficit.

China will expect us to buy it back 5 minutes before their capture of Tiawan and while their 5 million hacker military devision attacks our worldwide avalable financal systems.

Answer 11

This just means that when we get ahead, we buy them back and flood China with American dollars, instead of North Korea counterfeiting it for them.