Because maybe they can’t borrow as much as they’ll need:
China takes a pass on U.S. Treasuries
Two countries, the United States and China, are playing financial poker, with the U.S. Treasury and the Federal Reserve on one side and China on the other.
On one side, wearing a visor and dark glasses, we have Ben Bernanke of the U.S. Federal Reserve, who must fund our $1.8 trillion deficit. So the U.S. Treasury and the Fed are issuing record amounts of treasury securities. Last week alone the Treasury issued $200 billion of debt securities. The results of at least two auctions were a bit shaky.
At the table, opposite the U.S. Treasury, are the Chinese players, also wearing dark glasses. When the play went to China, China took a pass on two of last week’s auctions. The Chinese are worried about the high level of U.S. debt and are uncertain if they should keep buying U.S. Treasuries.
There is also the prospect that China can’t buy any more US debt because they aren’t selling enough in the US to obtain the money to buy US debt (it is a cruel ring of economic fate binding China and the United States together).
But whether its “can’t” or “won’t”, it all works out the same – if we can’t sell our bonds, then we can’t finance our spending and that means either massive cuts or massive increases in the supply of currency. Obama, being a liberal Democrat, simply won’t cut – in a pinch, he might cut a bit out of defense, but a lot of those defense workers pay union dues which supply Democrats with campaign cash, so there’s only so much which can be cut…and certainly not enough to cover things like hundreds of billions, or trillions, of dollars of new spending.
A rather tricky situation for which, as long as we’re governed by Obama and his liberal Democrats, there is no way out.
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