Source, US Census, Trade, Source, Treasury, TIC report
From ’00 to ’11, China had (on average) recycled 50% of its trade surplus dollar reserves into Treasury’s. However, as noted above, China has been a net seller since July ’11…why is this date important? It was the month of the US debt ceiling fiasco…and the date when China’s purported gold purchase binge began. It’s also August ’11 that gold hit its peak price and has fallen since. I don’t think these happenings were a coincidence.
- From ’08 could China have been performing the thousands of years old gold window activity of recycling excess US dollars and officially purchasing US Treasury’s but quietly and in secret being paid in some sort of gold arrangement? This would certainly serve both parties nicely allowing US deficit spending in an economic downturn without spiking interest rates. China for it's part would continue its export driven economic miracle.
- China increased its holdings of US Treasury debt from $65 billion in ’00 to $1,315 billion ($1.3 Trillion) in July of ’11…and in particular, from ’08 to July ’11, China increased its Treasury holdings by $850 billion while the US ran massive budget deficits flooding the Treasury market with new supply…and China’s trade surplus with the US ebbed on lower US consumer demand during the ’08 through ’11 economic slowdown (said more plainly, China bought more when they had less to make those purchases).
- Since July ’11 China has net sold $71 billion in US Treasury debt on record dollar trade surplus in excess of a trillion dollars.
- China as of July ’11 suddenly and violently change course with their dollar surplus even as their trade surplus with the US reached new records annually over ’12-’14? Did China suddenly decide gold was valuable and begin buying in the open market? My guess is China believed gold was of value all along but once the gold was no longer available (perhaps the US ran out or simply determined, like Nixon in '71 (who watched almost 60% of US gold depart in the prior decade) that closing the gold window, was essential to save whatever gold and prestige the US had left.
- Put it all together…China, the largest buyer of US Treasury’s ceases buying Treasury’s…and US Treasury yields collapse. The Chinese (and others) buy record amounts of gold and create an imbalance of demand over available supply…and prices collapse. These are clearly not the actions of a market attempting to find a balance between price, supply, and demand.