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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Mon, 05/21/2012 - 15:30 | 2448542 New England Patriot
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I wouldn't give China a direct computer link to anything.

Mon, 05/21/2012 - 15:39 | 2448580 dlmaniac
dlmaniac's picture

The line is already too jammed by HFTs anyway.

Mon, 05/21/2012 - 15:51 | 2448609 The Big Ching-aso
The Big Ching-aso's picture

 

 

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

Mon, 05/21/2012 - 15:59 | 2448632 redpill
redpill's picture

Treason.

Mon, 05/21/2012 - 16:06 | 2448652 New England Patriot
New England Patriot's picture

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

Mon, 05/21/2012 - 16:39 | 2448764 French Frog
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"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?

Mon, 05/21/2012 - 20:36 | 2449310 Manthong
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.”

http://www.reuters.com/article/2012/05/21/us-usa-treasuries-china-idUSBRE84K11720120521

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

Mon, 05/21/2012 - 21:44 | 2449478 Cathartes Aura
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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.

http://farmwars.info/?p=6247

"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. . .

Mon, 05/21/2012 - 23:46 | 2449709 jeff montanye
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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.

Tue, 05/22/2012 - 01:47 | 2449923 Cathartes Aura
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.

Mon, 05/21/2012 - 16:14 | 2448680 Troll Magnet
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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.  

NO LUCK.

what a goddamn shame.

Mon, 05/21/2012 - 16:31 | 2448739 Almost Solvent
Almost Solvent's picture

Come ON!!!

 

http://www.gaggia.com/index_en.html

 

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

Mon, 05/21/2012 - 16:39 | 2448763 El Oregonian
El Oregonian's picture

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

Mon, 05/21/2012 - 19:11 | 2449126 BigJim
Tue, 05/22/2012 - 11:48 | 2451202 Ag Star
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.

 

Mon, 05/21/2012 - 16:40 | 2448768 Transitory Disi...
Transitory Disinflation's picture

Chang you can beleive in.

Mon, 05/21/2012 - 16:59 | 2448822 Comay Mierda
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Chang you can BERIEVE in

Mon, 05/21/2012 - 17:04 | 2448837 eaglefalcon
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Erection year politics

Mon, 05/21/2012 - 18:16 | 2449031 GOSPLAN HERO
GOSPLAN HERO's picture

It's treachery not treason.

Mon, 05/21/2012 - 16:09 | 2448663 pupton
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?

Mon, 05/21/2012 - 16:48 | 2448794 Doubleguns
Doubleguns's picture

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

Mon, 05/21/2012 - 18:20 | 2449043 vast-dom
vast-dom's picture

it's happened chigurh. 

flip a coin.........no glot glum back fliday....

Mon, 05/21/2012 - 19:59 | 2449237 BenLightYear
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.

Mon, 05/21/2012 - 20:55 | 2449355 DosZap
DosZap's picture

BenLightYear

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.

Mon, 05/21/2012 - 16:11 | 2448670 krispkritter
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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...

Mon, 05/21/2012 - 16:17 | 2448693 shuckster
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Doubt they would do us just such a favor, but it's a nice thought nonetheless

Mon, 05/21/2012 - 16:40 | 2448709 krispkritter
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FED=Fucking Evil Doers...

Mon, 05/21/2012 - 16:59 | 2448820 God Bless The V...
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...

Mon, 05/21/2012 - 21:37 | 2449466 GOSPLAN HERO
GOSPLAN HERO's picture

Call it BLACKMAIL DIRECT ... AND THIS IS NOT A NATIONAL SECURITY ISSUE.

Move along, nothing to see here.

Tue, 05/22/2012 - 06:06 | 2450167 cnhedge1
cnhedge1's picture

Are concerns over a Greek Euro exit overdone ?
http://www.cnhedge.com/thread-4852-1-1.html

Is the Euro area Credibly on Target?
http://www.cnhedge.com/thread-4838-1-1.html

Mon, 05/21/2012 - 16:24 | 2448716 Djirk
Djirk's picture

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

 

Mon, 05/21/2012 - 16:29 | 2448729 dizzyfingers
dizzyfingers's picture

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

Mon, 05/21/2012 - 17:11 | 2448864 laomei
laomei's picture

Hahah, no

Mon, 05/21/2012 - 20:49 | 2449345 francis_sawyer
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"

Mon, 05/21/2012 - 16:24 | 2448719 LongSoupLine
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Geithner needs to be tried and hung for treason....hell, ya know what, skip the trial.

Mon, 05/21/2012 - 19:55 | 2449223 BenLightYear
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.

Mon, 05/21/2012 - 23:34 | 2449685 StychoKiller
StychoKiller's picture

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

Tue, 05/22/2012 - 00:32 | 2449809 The_Nihilist
The_Nihilist's picture

China fake parts 'used in US military equipment'

http://www.bbc.co.uk/news/world-us-canada-18155293

We are truly and utterly FUBAR.

Mon, 05/21/2012 - 15:31 | 2448548 tu-ne-cede-malis
tu-ne-cede-malis's picture

Queue the Chinese hackers...

Mon, 05/21/2012 - 16:28 | 2448728 JPM Hater001
JPM Hater001's picture

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

Mon, 05/21/2012 - 16:56 | 2448810 navy62802
navy62802's picture

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

Mon, 05/21/2012 - 15:31 | 2448549 Motorhead
Motorhead's picture

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

Mon, 05/21/2012 - 15:44 | 2448596 malikai
malikai's picture

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

Mon, 05/21/2012 - 15:32 | 2448551 midgetrannyporn
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I'm glad the Chinese don't have to pay the maggot middlemen. It's bad enough having to compete against the fed. LMAO

Mon, 05/21/2012 - 15:32 | 2448554 Motorhead
Motorhead's picture

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

Mon, 05/21/2012 - 15:39 | 2448578 LawsofPhysics
LawsofPhysics's picture

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

 

Fuck paper.

Mon, 05/21/2012 - 17:06 | 2448842 JeffB
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;"

Mon, 05/21/2012 - 22:33 | 2449579 jez
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.

Tue, 05/22/2012 - 10:46 | 2450959 JeffB
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.

Mon, 05/21/2012 - 15:32 | 2448555 SheepDog-One
SheepDog-One's picture

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

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