China Can Now Monetize US Debt Directly

Tyler Durden's picture

The Treasury, apparently dissatisfied with the speed of indirect bank and/or Fed-inspired monetization of its exponentially rising debt-load at ever-cheaper costs of funds, decided in June 2011 to allow the Chinese, with their equally large bucket of USDs to bid directly for US Treasuries. As Reuters reports, China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury's first-ever direct relationship with a foreign government. The documents, viewed by Reuters, indicate that the US Treasury has given the PBOC a direct computer link to its auction system - which was first used in the 2Y auction of June 2011. Perhaps this helps explain the massive spikes in direct bidders July and August 10Y auctions (around the US downgrade). Interestingly, Primary dealers are not allowed to charge customers money to bid on their behalf at Treasury auctions, so China isn't saving money by cutting out commission fees; instead, China is preserving the value of specific information about its bidding habits. By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price. This, after the 2009 discovery (and relaxing of other reporting requirements to cover this) that China was using special deals to hide its bond purchases, seems like more pandering to the large-holder-of-Treasuries as "direct bidder status may be controversial because some government officials are concerned that China has gained too much leverage".


If nothing else, it changes dramatically any empirical interpretation of direct vs indirect bidders once and for all...


Chart: Bloomberg

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New England Patriot's picture

I wouldn't give China a direct computer link to anything.

dlmaniac's picture

The line is already too jammed by HFTs anyway.

The Big Ching-aso's picture



If the Chinese ever completely take over America they'll just keep our present leaders.

New England Patriot's picture

It's only illegal if the underlying activity is lawful in the first place. 

French Frog's picture

"China is preserving the value of specific information about its bidding habits. By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price"

Is there anyone in here who seriously believes that the Treasury will not leak said 'bidding habits' to Wall Street anyway?

Manthong's picture

“Documents dealing with China's new status as a direct bidder again demonstrate the Treasury's desire for secrecy -- in terms of Wall Street and its new direct bidding customer.”

We can all take comfort in knowing that secrecy is now an essential component of “free market capitalism” and that the US Treasury has a huge vested interest in seeing that the interests of its largest customer, China is served. 

The American people seem to be an expense now and on the wrong end of the business proposition here.

I am reminded of this:

"The very word 'secrecy' is repugnant in a free and open society; and we are as a people inherently and historically opposed to secret societies, to secret oaths, and to secret proceedings."
-John F. Kennedy

Cathartes Aura's picture

those who pull the many strings do not waste their minds with invisible "national boundaries" but instead work globally - the idea of nationstates is for the peoples to work within, it is not a problem for "them" to work around.

Let’s quit being polite and call this maneuver by corporate governments exactly what it is – treason. Nothing more, nothing less. Selling off pieces of America to a foreign government so that government can plant a sovereign city inside our country that is not subject to our laws amounts to treason.

"amrkn" corporations have been using "special economic zones" for decades now, in "other" people's nationstates. . . that they are anticipating China's arrival to set up shop here should be an eye-opener to anyone who still believes amrka is somehow more special than anywhere else in the world. . .

jeff montanye's picture

part of me sees what the above writers mean with "treason".  but part wonders if owing trillions to the next great power doesn't have its insurance policy aspects.

Cathartes Aura's picture

I'm sure some will defend their beliefs, whatever they may be - history proves this - but from my own perspective, "they" are just moving pieces about on the global "game board" - I'll lie low, watch, work towards preserving what my friends, community have put their efforts into, until I feel drawn to doing otherwise. . .

I don't believe there's much "choice" beyond becoming aware of their game, and have felt this way for a very long time.

Troll Magnet's picture

a bit off topic here.

i've been shopping for a new espresso machine.  with brand names like keurig, nespresso, breville, delonghi, i was hoping to find one that's NOT made in china.  


what a goddamn shame.

Almost Solvent's picture

Come ON!!!


Italians still know how the fuck to make espresso the right fucking way

El Oregonian's picture

Hey, if you would switch to Tea-Bills I can point you in the right direction...

Ag Star's picture

How about I raise your expresso machine, a box of surgical or N-95 masks.  None are made here, so when they drop that "contagion" -- Americans will drop like flies and the world will only laugh at us.   *If you duck tape your windows per homeland security--I'm sure everything will be fine.


GOSPLAN HERO's picture

It's treachery not treason.

pupton's picture

That comment was probably made sarcastily, but I find it really thought provoking.  Think about it.  How better to rule a people than to leave their old familiar rulers in place as puppets while you call the shots from the shadows?  Hell, who's to say it hasn't already happened?

Doubleguns's picture

What?! You in doubt of the men behind the curtains. Shadow govt, TPTB aint from round here are you. ZHers........well lets just say they dont have that problem.

vast-dom's picture

it's happened chigurh. 

flip a glot glum back fliday....

BenLightYear's picture

China calling the shots to the us? You can't be serious. China has nothing to offer the world aside from cheap labor. Which we exploit. I swear the comments here change daily based on the articles written. Yesterday the comments were china wants nothing to do with our bonds and is moving away from the USD to today where china is buying our bonds and directing US policy. I guess if ya throw a bucket of sand in the air and shoot at it your liable to hit some regardless of how poor a shot you are.

DosZap's picture


Wake up dude..........................its not HERE that is the issue, its called political chess, and we do not get to play,or make the rules.

We just comment on what we read, and dig up.Dont blame ZH folks for simply reporting the articles, or news.

Were that is was so CUT 'n Dried.

krispkritter's picture

Good. Because my understanding is when you buck the Party line or screwup in China, they walk you out back and put a bullet in your head. Then they harvest your organs and sell them to the highest bidder. With all the f-ups on Wall Street and in DC we might even get back to a surplus...

shuckster's picture

Doubt they would do us just such a favor, but it's a nice thought nonetheless

God Bless The Virtuous's picture

Nah, the Chinese would never put up with the ineptitude of a lightweight communist like "O", now Van Jones and Bill Ayers?

Different story...

GOSPLAN HERO's picture


Move along, nothing to see here.

cnhedge1's picture

Are concerns over a Greek Euro exit overdone ?

Is the Euro area Credibly on Target?

Djirk's picture

any chump can buy direct, just go into a Fed branch and fill out the form


dizzyfingers's picture

Does China have to pay the tax that US citizens do?

francis_sawyer's picture

 "any chump can buy direct, just go into a Fed branch and fill out the form"


Emphasis on the... "any chump"

LongSoupLine's picture

Geithner needs to be tried and hung for treason....hell, ya know what, skip the trial.

BenLightYear's picture

Wait...I thought china didn't want anything to do with our crappy bonds anymore? Hmmm...seems when you are blindly guessing with little understanding the tendancy to swing and miss increases.

StychoKiller's picture

Hmm, does this allow the Chinese to SELL bonds directly as well?

The_Nihilist's picture

China fake parts 'used in US military equipment'

We are truly and utterly FUBAR.

tu-ne-cede-malis's picture

Queue the Chinese hackers...

JPM Hater001's picture

Sort of reminds me of lawnmower man. Don't let them find the back door.

navy62802's picture

... unless you have the back door rigged with claymores.

Motorhead's picture

So, will we continue to hear ad nauseam that the Chinese are dumping US Treasuries?

malikai's picture

If they do; it will be directly, as opposed to via the bond markets. Ponzi away!

midgetrannyporn's picture

I'm glad the Chinese don't have to pay the maggot middlemen. It's bad enough having to compete against the fed. LMAO

Motorhead's picture

Maybe the Chinese didn't want to deal with them scoundrels.

LawsofPhysics's picture

right, just americans have to pay the middleman -  "Winning".


Fuck paper.

JeffB's picture

Doesn't sound like it:

"Interestingly, Primary dealers are not allowed to charge customers money to bid on their behalf at Treasury auctions, so China isn't saving money by cutting out commission fees;"

jez's picture

I don't suppose they are allowed to front-run their customers' orders either, but my wild guess is that the Chinese have at last realised that this is happening, and have insisted on being allowed to deal direct in order to cut these maggots out of the game and get the best deals they can


So in that sense, they are saving money.

JeffB's picture

I think you probably hit the nail on the head there, jez.

Hopefully they don't see it as some entry point for their hackers to work their way into the heart of our financial network.

SheepDog-One's picture

Fair and unfettered marketplace at work!! Sooooo sick of all this shit....