Is China quietly dumping US Treasuries?

From the Telegraph:

Is China quietly dumping US Treasuries?

A sharp drop in foreign holdings of US Treasury bonds over the last five weeks has raised concerns that China is quietly withdrawing its funds from the United States, leaving the dollar increasingly vulnerable.

Data released by the New York Federal Reserve shows that foreign central banks have cut their stash of US Treasuries by $48bn since late July, with falls of $32bn in the last two weeks alone.

"This comes as a big surprise and it is definitely worrying," said Hans Redeker, currency chief at BNP Paribas.

"We won't know if China is behind this until the Treasury releases its TIC data in November, but what it does show is that world central banks are in a hurry to get out of the US. They don't seem to be switching into other currencies, so it is possible they are moving into gold instead. Gold is now gaining momentum across all currencies and has broken through resistance at 500 euros," he said.

While the greenback has been resilient over recent weeks - even regaining something of a 'safe-haven' role as banks scrambled to buy the currency to cover dollar debts - most experts believe that America's $850bn current account deficit will eventually cause the dollar to resume its relentless slide.

If China is dumping bonds the real question in my mind is why? I've spoken before on the dangerous possibilities our gargantuan debt to China leaves us open to. If the TIC data shows that China is in fact dumping bonds you'll suddenly see our "leaders" kick into high gear to change our countries financial habits in order to avoid a total economic poop storm.

h/t to Obsidian Wings

Of Dollars and Dragons

File this one under I told you so:

From the Telegraph:

China threatens 'nuclear option' of dollar sales

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds. more

Now the odds of China dumping that much at once are slim to none as they need our market to be reasonably healthy and our investment capital to flow freely to fuel their growth However the fact remains that we have allowed ourselves to be put in a position where our economy can be held hostage. We're now in a position where China can easily dump a billion dollars worth of bonds and shake our economy up a little as a negotiating technique. Not a pretty picture.

By allowing China to bankroll the war on terror we have effectively given them the ability to conduct economic terrorism against us at will. Not exactly what I'd call a fair trade.Its another way in which this war has been conducted in a very shortsighted manner. Because as any CFO will tell you diversification of debt is almost as important as diversifying one's investments. Especially if your loan shark happens to be a dragon.

H/T to Memeorandum