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A Suddenly Nervous China Tells The US To "Earnestly Take Steps" To Avoid A Default

Tyler Durden's picture


While the world's largest hedge fund, the Fed, may not care about the performance of its "bad bank" assets, and thus is largely ambivalent if the US Treasury defaults on the $2 trillion in US paper held by Ben Bernanke, others don't have the luxury of merely printing away any incurred MTM losses. Such as America's largest foreign creditor China, which at last check held at least $1.277 trillion in US Treasurys, which after realizing with a substantial delay that the US Congress is not precisely a "rational actor" and its bonds may be materially impaired in the case of a technical default, is starting to panic. In an oped in the largest media publication, China Daily, vice finance minister Zhu Guangyao, warned that the "clock is ticking" to avoid a US default that could hurt China's interests and the global economy. Somehow we doubt Boehner or Obama are particularly concerned about what happens to "Chinese interests."  Of course, if China so wishes, it can pen an Op-Ed in the NYT and tell the US just what will happen if $1.3 trillion in US Treasurys were suddenly to be dumped in a liquidation fire sale.

More from BBC:

China, the US's largest creditor, is "naturally concerned about developments in the US fiscal cliff", vice finance minister Zhu Guangyao said.


He asked that "the US earnestly take steps to resolve" the issue.


Mr Zhu said that China and the US are "inseparable". Beijing is a huge investor in US Treasury bonds.


"The executive branch of the US government has to take decisive and credible steps to avoid a default on its Treasury bonds," he said.


"It is important for the US economy as well as the global economy."

Zhu's parting words:

"We hope the United States fully understands the lessons of history," Mr Zhu said, referring to a similar deadlock in 2011 that led to a downgrade of the US "AAA" credit rating.

Well that, or perhaps some other history lessons, particularly those derived from Germany in the 1920s.

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Mon, 10/07/2013 - 10:17 | 4030068 SheepDog-One
SheepDog-One's picture

'Yankee keep printing money preeze'.

Mon, 10/07/2013 - 10:17 | 4030072 Stackers
Stackers's picture

The debtor is slave to the creditor

Mon, 10/07/2013 - 10:20 | 4030080 Headbanger
Headbanger's picture


Mon, 10/07/2013 - 10:27 | 4030103 GMadScientist
GMadScientist's picture

You misspelled 'wanton'.

Mon, 10/07/2013 - 10:28 | 4030112 astoriajoe
astoriajoe's picture

no. stop. you're both right.

Mon, 10/07/2013 - 10:44 | 4030184 I am more equal...
I am more equal than others's picture



Would the change in interest rate be called the 'death spike?' 

Mon, 10/07/2013 - 10:47 | 4030196 Max Hunter
Max Hunter's picture

Expand bubble: Check
Create Crisis: Check
Allow Collepse: Check
Blame it on political polorization: Check

Retire to island: Check

Mon, 10/07/2013 - 10:49 | 4030206 whotookmyalias
whotookmyalias's picture

I checked engrish.com for the implied definition of "earnestly" but couldn't find it.  Sounds like they mean business this time.

Mon, 10/07/2013 - 11:38 | 4030468 Manthong
Manthong's picture

Confucius say..  when you lend money to bum, do not expect to get it back.. especially to bum that considers  Constitution to be toilet paper.

Mon, 10/07/2013 - 11:58 | 4030552 Muppet Pimp
Muppet Pimp's picture

The message from the entire world (short of the domestic democrats, and paid off dictators) to DC needs to be the following, loud and clear all with one voice:


Until this message is resonating throughout the halls of our nations capital, we have a messaging problem to solve. 

Mon, 10/07/2013 - 12:00 | 4030559 kralizec
kralizec's picture

Sum Ting Wong

Wei Bi Phuc Toi

Mon, 10/07/2013 - 11:04 | 4030208 GetZeeGold
GetZeeGold's picture



China doesn't like American socialism all of a sudden?


You won't get your money back....but we'll sell you some wickedly expensive healthcare.


You can visit the First Lady's website....it's totally free and open for business. That outta be worth a billion to you right there!


Mon, 10/07/2013 - 11:15 | 4030336 Son of Captain Nemo
Son of Captain Nemo's picture

Yes nothin says lovin like keeping the AMBER ALERT website closed down for business but sending 400,000 Federal contractors back to work for the DoD while still saying there's a shutdown.

Wonder how the AMBER ALERT translates for the U.S. military and CIA when all those Syrian and African children who are being killed by our soliders or "proxies" or that are being kidnapped as child soliders?

Mon, 10/07/2013 - 12:17 | 4030632 Tim_
Tim_'s picture

Insurgents in Syria force children to fight for them

"Russian Committee for Solidarity with Syria underlined that the armed terrorist groups in Syria 'recruit children and force them to take up weapons and to participate in battles against the Syrian Army and state.'"

"In a statement published on Monday, the Committee pointed out that these acts contradict the international law that prohibits mustering or recruiting children under fifteen in forces or armed groups and considers misusing them in conflicts as a crime whether through the direct participation in battles or through reconnaissance, espionage and disobedience or using them as a means for information or camouflage."

"The statement pointed out that it is important for the world to know and be informed of the practices of this 'fake revolution' in Syria."

Child recruited in terrorist group: I've killed 10 soldiers and 13 civilians

"Child, Shaaban Abdullah Hamida, from Aleppo province narrated the details of his recruitment in the so-called 'Ahfad al-Rasoul' terrorist group by his uncle Yehya Aziz Aziz to commit terrorist crimes."

"He added that he hunted soldiers and civilians alike, while his uncle notified him of the persons who would cross by and whom he should not hunt as they were affiliated with 'Ahfad al-Rasoul.'"

"'I've killed some ten soldiers, thirteen civilians and nine gunmen, and I got used to killing any person without feelings,' the child said."

Mon, 10/07/2013 - 15:18 | 4031396 WillyGroper
WillyGroper's picture

How many of those contractors possess hollow points?

ruh roh---brackrater



Mon, 10/07/2013 - 11:18 | 4030198 Ham-bone
Ham-bone's picture

Treasury market is $17T...$5T of this is held in "intragov debt" meaning there is little risk that the gov won't continue to roll over this portion. So the actual public debt is $12T w/ average maturity of like 5yrs plus the $700B in new annual issuance. The Fed buys $500B annually (Fed is buying $40B monthly...the other $45B goes to MBS purchases) plus rolling over existing T holdings of over $2T. So, we have an outstanding $10T Treasury market that must be constantly rolled plus the additional new debt that the Fed doesn't buy ($200B).  

Of traditional intragov buyers, seems there will be little expansion here as SS is not running the kind of surpluses previously seen. China, nope as they move more towards Yuan based trade. OPEC and petro dollar and US increasing oil production...hmmm. As of now it seems Japan is the big foreign buyer w/ freshly printed Yen in a currency debasement scheme.  

Last thing to contemplate bout the Feds buying is it's focus on 3yrs issuance and up. This is the most sensitive part of the curve and absent the Fed's buying here, interest rates of new and rollover could rocket higher. So not simply how much Fed buys but where on the curve it buys that makes it so critical and so unlikely for a taper...so unlikely for another party to take over this buying at anything near the rates the Fed accepts.  Check the chart of Fed holdings of Treasuries by duration...pre-crisis Fed had $1T but over $400B was in 1yr or less...now Fed has nothing 1yr or less and massive holdings in longer durations...who else would buy @ these interest rates??? Shudder to imagine what would happen if Fed didn't rollover their holdings or absolute carnage if they ever began to sell...not that either will ever happen.  That the Fed is the only buyer of longer duration coupled w/ the interest rate sensitivity of our economy mean a taper will not be coming our way. 

Lastly, given that of the $5T in foreign holdings ($1T China and Japan apiece) they appear concentrated in the 1yr and less portion of the market...meaning a speedy exit (non-rollover) is very possible should US policy not be to their liking or agreement

Mon, 10/07/2013 - 11:28 | 4030404 Jumbotron
Jumbotron's picture

The Chinese version of Chucky Schumer telling Ben Bernanke...."Get to work ! "

Mon, 10/07/2013 - 13:08 | 4030644 Ham-bone
Ham-bone's picture

During 2012, Treasury issued following debt-

Notes (less than 1yr)- $708 B ($7.7 T in total public debt)

Bills (1yr to 10yr) - $137 B ($1.6 T in total public debt)

Bonds (30yr) - $178 B ($1.4 T in total public debt)

TIPS - $102 B ($900 B in total public debt)

Please note Fed purchased no Notes, and bought $480 B in Bills, Bonds (not sure on TIPS???) but Feds focus on longer duration means Fed is buying $480 B of a possible $417 B in new issuance...or put another way the Fed is buying @ 120% of Treasury longer dated issuance (if TIPS are not Fed purchased, then Fed is buying @ 160% of Bill / Bond issuance).  Think on this a little when tapering is being discussed.

Shit, there's only $3 T in public debt in Bills / Bonds...Fed already has $2.2T???  Is Fed now buying from intragovernment holdings??? 

Mon, 10/07/2013 - 13:49 | 4031065 HeadintheGame
HeadintheGame's picture


Bills <= 1 year

Notes >= 2 years,  <=10 years

Bonds > 10 years. 

Mon, 10/07/2013 - 18:03 | 4032048 Ham-bone
Ham-bone's picture

correct you are -  thanks for reading and keeping a poli sci / history guy straight...

Mon, 10/07/2013 - 10:26 | 4030109 remain calm
remain calm's picture

Little Chinese penis telling big black dick to get in line.

Mon, 10/07/2013 - 10:35 | 4030153 lakecity55
lakecity55's picture

At least the little chinese prick is not gay like the big black won.

Mon, 10/07/2013 - 10:43 | 4030186 Oldballplayer
Oldballplayer's picture

He is only half black, so his dick is not THAT big.

Mon, 10/07/2013 - 11:17 | 4030361 Hedgetard55
Hedgetard55's picture

He is half Irish so that means his dick is then just average, as Irish weenies are pretty small (from what I hear).  :~)

Mon, 10/07/2013 - 12:46 | 4030744 RafterManFMJ
RafterManFMJ's picture

If you'd stop riding donkey and elephant dick, you'd not be so desperate for bigger and bigger stimulus, nomewasayin?

Now come here and cuddle.

Mon, 10/07/2013 - 10:33 | 4030133 butchee
butchee's picture

Intlagovelnmetar Hordings!  Yankee sheeper have no crue...  http://www.treasurydirect.gov/govt/charts/principal/principal_govpub.htm

Mon, 10/07/2013 - 10:38 | 4030171 Freddie
Freddie's picture

Hey China Fruck Yu!  Obama is your boy.  You backed him and he bows to you, the Saudis and the tribe/red shield.

Mon, 10/07/2013 - 10:49 | 4030212 Idiocracy
Idiocracy's picture

Trump demonstrated that if the debt is big enough, the creditor is slave to the debtor

Mon, 10/07/2013 - 10:19 | 4030073 TeamDepends
TeamDepends's picture

You no like nervous China.

Mon, 10/07/2013 - 10:43 | 4030188 ArkansasAngie
ArkansasAngie's picture

Well ... if China would like to sell to me at 10 cents on the dollar I'll take $10,000 in T bills off their hands.

Mon, 10/07/2013 - 11:09 | 4030310 DaddyO
DaddyO's picture

Anybody remember the mysterious missle launch off the coast of Kalifornia a few years back?


Was that an implied threat of nervousness. I wonder?


Mon, 10/07/2013 - 10:20 | 4030074 Arius
Arius's picture

oooppssssy ... we dont want to upset the chinese now, do we?

go talk to mr. Boehner not to BBC.  interesting times indeed.

Proud Muppet

Mon, 10/07/2013 - 10:34 | 4030117 bigdumbnugly
bigdumbnugly's picture

Somehow we doubt Boehner or Obama are particularly concerned about what happens to "Chinese interests."  Of course, if China so wishes, it can pen an Op-Ed in the NYT and tell the US just what will happen if $1.3 trillion in US Treasurys were suddenly to be dumped in a liquidation fire sale.


doesn't statement two answer statement one?

they care... or if not them, their puppet masters do.

Mon, 10/07/2013 - 10:44 | 4030193 ArkansasAngie
ArkansasAngie's picture

Go ahead and dump'em on to the market.  Me no care. 

Mon, 10/07/2013 - 11:45 | 4030502 Anusocracy
Anusocracy's picture

It's nice to know that the world's two largest economies are run by high time preference morons.

Nothing good can come of it.

Mon, 10/07/2013 - 10:20 | 4030081 Zer0head
Zer0head's picture

"We hope the United States fully understands the lessons of history,"


actually Mr Zhu was referring to Rome (but for some reason the BBC didn't want to tell its audience that)

Mon, 10/07/2013 - 10:37 | 4030157 insanelysane
insanelysane's picture

China's worried because they can't figure out how that CT lady rammed a barrier, a cop car, and a guard station in DC and her air bags never deployed.

Mon, 10/07/2013 - 10:51 | 4030211 Zer0head
Zer0head's picture

 yours is not to question

but to believe

join with Cantor and Hoyer in thanking the Capitol police for their bravery


Mon, 10/07/2013 - 11:17 | 4030355 Osmium
Osmium's picture

Bravery?  Shooting an unarmed confused woman sound more like cowardice.  Cantor is an idiot.


Mon, 10/07/2013 - 11:41 | 4030486 Pure Evil
Mon, 10/07/2013 - 12:01 | 4030563 Anusocracy
Anusocracy's picture

Agreed, but nothing new there.

Everyone/every animal is a possible threat to the alpha-male in the alpha-male social hierarchy. In Homo sapiens, and due to the specialization of labor, the alpha-male is actually a mob of thieves called government.

Mon, 10/07/2013 - 12:44 | 4030730 Ying-Yang
Ying-Yang's picture

Is it better to live inside or outside the Evil Empire?

Mon, 10/07/2013 - 22:47 | 4032883 Anusocracy
Anusocracy's picture

My opinion is that it is better to live in a country that has good relations with, but not subservient to, Empire.

Mon, 10/07/2013 - 12:38 | 4030715 Freddie
Freddie's picture

Wasn't she driving a shitbox Lexus?   Shame she wasn't in a Tesla S - she could have put it in flamethrower mode.

Mon, 10/07/2013 - 10:51 | 4030216 rubiconsolutions
rubiconsolutions's picture

Memo to China

Re: Investing 101, Disclaimer Language

"Past performance does not guarantee future results"


Mon, 10/07/2013 - 11:34 | 4030262 Zadok
Zadok's picture

Translation: China not quite ready with new monetary system based in PMs for international trade (where we have to be honest) and devaluable fiat for the confined, domestic proles.
Please print Moar faster so China get couple more months to get international trade settlement system up and running.
Yes, when switch is flipped, it will be shockingly complete and frightenly sudden because we have to do it that way to make it work.
Look for an overnight on Thursday or Friday in US for execution timeframe.
After that, your on your own...suckars!

Edit: further down I see a lot of talk reflecting the idea that foreigners are still buying large quantities of our debt. This is not so. The same mechanisms of obfuscation and fraud that turned the stock markets into mere propaganda have been applied to bonds. The Fed is the main player. Expect QE to go up...by a lot.
It is even worse that that because redemptions have begun in earnest but it is in the interest of both parties to allow the charade to continue for now.
Transition to a PM based monetary system is in the very last tiny, scrambling phase of execution because the fall apart is accelerating rapidly.
Almost all discussion is about the propaganda fraud designed to keep you occupied so they can catch you off guard when it does execute.
Waste no time. Take joy in what you can now. It is very, very close to execution.

Mon, 10/07/2013 - 10:18 | 4030069 Devotional
Devotional's picture

Well, China should have not gone full retard in borrowing others money. Let this whole charade collapse baby!!!

Mon, 10/07/2013 - 10:28 | 4030111 GMadScientist
GMadScientist's picture

I'm not sure if you're confused about the situation or the definition of the word 'borrowing', but you're definitely confused.

Mon, 10/07/2013 - 10:34 | 4030127 Devotional
Devotional's picture

No need for sarcasm as it was a mistake. Lending is the correct term. Why did you not just point out the mistake instead of being sarcastic about it?

Mon, 10/07/2013 - 10:40 | 4030169 insanelysane
insanelysane's picture

I think you can get banned from ZH for not being sarcastic.

Do NOT follow this link or you will be banned from the site!