China drops to second largest holder of US debt
Foreign demand for US Treasury bonds and notes fell by a record amount in December as China reduced its holdings.
The Treasury said foreign holdings of US debt dropped by $53bn, surpassing the previous record set last April.
China cut its holdings by $34.2bn - meaning it is now the second-biggest US debt holder after Japan.
If this keeps up it will get very interesting. At some point the dollar has to begin to fall and US interest rates rise if this continues. China is carefully managing their money supply. They want to keep their currency down but they also want to minimize their exposure to US debt.
If interest rates really shoot up it could be very bad for the US, but as long as all of the global economies look questionable, there won't be a money flight from the US. There simply isn't anyplace that can take that kind of money that looks that much better then the US right now. Europe look like it's on the edge of another crisis, China looks like a bubble ready to burst and isn't safe for that kind of money anyway, Japan isn't in good shape, the Oil States even less safe and the rest of the world is too small to absorb it.
Jay