Friday, February 19, 2010

Jerking the chain: China preparing a proxy US bond dump?

A few days ago on the Broad Oak Blog, I referred to Brad Setser's theory that China has been using the UK to make purchases of US Treasury securities, and that this may offer a different view of what has been happening recently (the apparent reduction in Chinese support for US debt).

In response to a comment, I suggested that the reason for this supposed system of proxy purchases was to allay the fears of the American public.

It occurs to me now, belatedly, that the recent reduction in direct Chinese holdings, coupled with the increase in holding by the UK, may be a preparation for a self-protective (or even punitive) dump of Treasuries using the same intermediaries. If their direct holdings remained relatively unchanged, the Chinese could (if their nominees stayed quiet) deny responsibility and forestall a backlash from American public opinion.


Gary said...

Is it possible that the Federal Reserve is the party using the UK as a front for these treasury purchases?

Sackerson said...

Hi, Gary. This goes well beyond my competence, but (a) Setser correlates UK & Chinese purchases in a way that suggests that's the connection, and (b) isn't there some scuttlebutt about the Fed using the Caribbean banking centres (e.g. here: Bit closer to home, and more secretive.