Monday, April 18, 2011

China trims holdings of US securities in February

China, the biggest buyer of U.S. Treasury securities, trimmed its holdings for a fourth straight month in February and Japan boosted its holdings one month before a devastating earthquake hit the country.
China cut its holdings by $600 million to $1.15 trillion, the Treasury Department reported Friday. Japan, the second-largest foreign holder, boosted its holdings by $4.4 billion to $890.3 billion. There have been concerns that the March earthquake and tsunami may cause Japan to scale back its purchases in order to use the money for reconstruction.
Total foreign holdings increased 0.5 percent to $4.47 trillion. However, as the government moves closer to the $14.3 trillion debt limit, it will have to scale back sales unless Congress moves to raise the limit.
Treasury Secretary Timothy Geithner has said that the government will hit its current limit no later than May 16. But Geithner said it will be able to avoid an unprecedented default on the national debt through various accounting maneuvers for possibly another two months.
If the government failed to pay bondholders the interest that they were due, it could drive borrowing costs higher not only for the U.S. government but also for consumers and American businesses.
Republicans in Congress contend that they will not agree to a new debt limit without further concessions from the administration on government spending. President Barack Obama put forward a new plan in a speech Wednesday that proposes to trim the deficits by $4 trillion over the next 12 years. But Republicans objected to Obama's approach because it would raise taxes on the wealthy.
The Treasury borrowing report showed that in February the looming debt ceiling battle was not having an impact on foreign demand for Treasury debt. The 0.5 percent gain in overall holdings that month followed a 0.3 percent increase in January.
After China and Japan, Britain is the third-largest holder of U.S. Treasury securities. The British holdings jumped 63 percent in February to $295.5 billion.

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