China is Running Low on the Dollars it Uses to buy US Treasuries

Americans are increasing their personal savings and as a result the sales of imported goods are decreasing. This means that the rest of the world has fewer US dollars to spend on, among other things, US Treasuries.

The problem is the shrinking US current-account gap… Zero Hedge explains:

“With the entire world embarking on an unprecedented spree of domestic bubble blowing to mask the collapse in global GDP, everyone forgot to trade … with every country intent on merely printing more of its own currency, whether it is to build bridges or to make the stock of electronic book fads trade at 100x earnings, said countries ran out of non-domestic cash. Alas, this is most critical for the United States, now that Treasury monetization is over, as the US needs to constantly find foreign buyers of its debt to fund unsustainable deficits. Foreign buyers who have US dollars. And according to Shanghai Daily, this could be a big, big problem.

“Here is what the BOC’s Zhu Min said earlier:

“‘The United States cannot force foreign governments to increase their holdings of Treasuries,’ Zhu said, according to an audio recording of his remarks. ‘Double the holdings? It is definitely impossible.’

“‘The US current account deficit is falling as residents’ savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world,’ he added. ‘The world does not have so much money to buy more US Treasuries.'”

America’s fiscal problems are going to get worse much more quickly if China begins to slow its purchasing of US debt. Read more of the detailed and insightful explanation from Zero Hedge of how there are fewer foreign dollars with which to buy US treasuries.

The Daily Reckoning