It comes as no surprise to our clients that the US is entirely too dependent upon China in order to maintain our standard of living. China has been buying our Treasuries and Fanny & Freddie bonds for years. At the same time it has been building a war chest (maybe poor choice of words) of foreign reserves- about $2T. For years we have been warning clients that sooner or later China is going to slow or even stop the purchase of our debt. When this happens we will have to drastically cut government spending (defense, social security, medicare), and raise interest rates on newly issued bonds in order to attract someone else to buy them.

It is beginning. In January & February, China’s reserves grew by just $8B. The same period in 2008 saw it increase by $154B. Perhaps China bought a considerable amount of US treasuries (thus increasing their reserves) in early 2009 and then used up most of it in spraying money to finance their own country’s financial rescue. We cannot be sure from the data we have, but one interpretation is that China is losing its appetite for US debt.

China is openly criticizing the US for its monetary & fiscal policies- and the impact they are having on the value of treasuries (China’s investment).

The timing could not be worse. The US will be competing with other countries in floating trillions of dollars in federal bonds in order to finance their recent spraying of money out of cannons in order to stall an international finance system collapse.