China Wants To “Liquidate” US Treasuries: top adviser comes close to calling America a basket case

from The Daily Bail

A key rate setter-for China’s central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.

“Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries,” said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.

To my knowledge, this is the first time that a top adviser to China’s central bank has uttered the word “liquidate”. Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France and the hard core.

We don’t know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank’s FX arm. The figure is thought to be over $2.2 trillion.

The Chinese are clearly vexed with Washington, viewing the Fed’s QE as a stealth default on US debt. Mr Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.

Mr Li, one of three outside academics on China’s MPC, described the debt deals on Capitol Hill as “just trying to by time”, saying it will not be enough to stop America’s “debt dynamic” turning dangerous.

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