Getting Hard to Buy U.S. Treasuries

From Reuters:

It is getting harder for governments to buy U.S. Treasuries because the United States' shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said on Thursday.

The comments by Zhu Min, deputy governor of the People's Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of U.S. government bonds.

Chinese officials generally are very careful about commenting on the dollar and Treasuries, given that so much of its $2.3 trillion reserves are tied to their value, and markets always watch any such comments closely for signs of any shift in how it manages its assets.

China's State Administration of Foreign Exchange (SAFE) reaffirmed this month that the dollar stands secure as the anchor of the currency reserves it manages, even as Beijing seeks to diversify its investments.

In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.

http://www.reuters.com/article/idUSTRE5BG1W620091217

From Zero Hedge:

Critics of this line of thought can point out that China still has trillions in foreign exchange reserves. However, even as China has been selling mortgage backed securities almost as fast as PIMCO, it has not been buying treasuries: China's Treasury holdings have been flat at exactly $800 billion since May 2009. In the lesser of two maturity evils (the instantaneous, dollar bill, and the long-dated, the 30 Year) China has followed in the footsteps of so many millions of High Frequency Traders opting for that which can be liquidated instantaneously.

A different read of Zhu's statement is that the US should no longer rely on China for funding its bottomless deficits. And if that is the case, things are about to get much worse as the Fed has no choice but to turn the monetization machine on turbo.

http://www.zerohedge.com/article/dark-gray-swan-no-more-foreign-dollars-which-buy-us-treasuries