China Has Lost Over $100 Billion In Dollar-Adjusted Terms On Its UST Holdings In A Few Short Months
As readers will recall, at the end of July, which was the most recent TIC data update, China owned $847 billion in US Treasury bonds. Since then, the world's reserve currency, which is what said Treasuries are denominated in, has lost 4.7%, or $40 billion in real terms. Yet an even more jarring observation is that from its June highs, the USD has dropped 12.4%. Expressed in real terms from the perspective of China's State
Administration of Foreign Exchange, this means that our biggest creditor
has lost over $100 billion when adjusted for the purchasing power loss
in the dollar.
But what about the actual absolute price increase in bonds skeptics will say? Well, since the dollar peak, the 10 Year has increased by "only" 5.75%, meaning that the real loss is more than double the capital appreciation (we ignore the fact that Treasury's expressed in gold have lost 5% year to date: that would really piss of Beijing).
Of course, for China to be able to capitalize on the absolute increase in values over the time period from the dollar peak, it would mean it has to find a willing buyer for over $800 billion worth of USTs, which can only be the Federal Reserve. And for that to happen, would mean outright monetization of everything by Ben Bernanke, which would also mean an active devaluation of the dollar, and something like a total loss to all our foreign creditors.
So the question is: how much longer will Beijing tolerate the USD devaluation by Ben Bernanke? Instead of Congress being so focused on getting China to revalue the Renminbi, perhaps they should be more concerned what happens when China realizes its investment in US securities now carries the threat of total loss at the pace Bernanke is destroying the reserve (for now) currency.
And this calculation should also be applied to the Fed as well: instead of parading how much money the Fed has made on behalf of taxpayers on its $2.4 trillion UST holdings, perhaps Bernanke can adjusted this number for the dollar value loss. Somehow we think the result would not be quite as attractive.