Rates actually got worse yesterday in mid-day trading b/c of a report that China is now the #2 holder of U.S. debt (behind Japan). China was #1. This caused fears that China is purposefully holding back on their purchases of U.S. Debt to express disapproval for both our fiscal and foreign policy. This is serious b/c without China’s demand/support, rates will have to increase to attract other buyers/investors.
The U.S. used the same type of bludgeon to force the United Kingdom to bend to our whims in the 1950s when Eisenhower refused to support the Pound (during the Suez Canal Crisis, in case anybody cares). But the point is that the concerns about China are warranted. We need China’s friendship so we can continue to borrow.
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