Here’s a stark warning to Barack Obama and Tim Geithner, courtesy of Zhu Min, deputy governor of the People’s Bank of China.
ShanghaiDaily: IT is getting harder for governments to buy United States Treasuries because the US’s shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.
The comments by Zhu Min, deputy governor of the People’s Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.
Strictly speaking, this shouldn’t be a problem. Foreigners don’t technically fund our Federal deficit — what they fund is our current accounts deficit, and if that’s shrinking then the need to fund that debt diminishes.
Still, the message Min is trying to get across is clear.
In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.
He then addressed where demand for that debt would come from.
“The United States cannot force foreign governments to increase their holdings of Treasuries,” Zhu said, according to an audio recording of his remarks. “Double the holdings? It is definitely impossible.”
Read more: at Shanghai Daily >>
And don’t miss: How China is already dumping the dollar >>
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