China Secretly Dumping US Treasuries?

(Zerohedge) China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

The relationship means the People’s Bank of China buys U.S. debt using a different method than any other central bank in the world.

The other central banks, including the Bank of Japan, which has a large appetite for Treasuries, place orders for U.S. debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions…

I have some disturbing perspective on this ‘development’ – that secure direct link is not so that China can buy securities at a discount, or to hide their purchasing activities from the rest of the world, as has been suggested elsewhere.  The primary purpose of this private, secure link is so that China can sell bonds which it already owns *back to the FED* quietly and directly, so as not to cause panic in the greater market. 

Why would China selling US T-Bills back to the FED cause panic?  Because that would most likely be perceived in world markets as a vote of ‘no confidence’ by China against the US economy.  The alternative interpretation is that the PBOC was selling because China’s economy is in so much trouble that it now needs liquidity urgently.   If word got out under either interpretation,the result would include massive sell-offs, and ultimately bring us to another “Lehman Brothers moment” in the global market.

Since it behoves both China and the US to conceal these transfers, they made an agreement to establish this secure, direct link.  The fact that the banks designated as ‘Primary Dealers’ by the FED aren’t screaming bloody murder about such a manuever to cut them out of these profitable transactions only proves that they understand the implications, as well.  Thus, “Mum’s the word” on reality once again…

The negotiations probably went something like this:
US – we need you to keep buying our bonds, it gives confidence to others
China – we don’t want any more US bonds, we want to sell them
US – you know that saying such things publicly would be disastrous for us both
China – agreed, so let us do it privately, no one ever need know
US – but what about new bond issues? We need to keep selling you, so others will buy
China – We will buy them publicly, but you have to buy them back through the private channel immediately
US – of course.  And you will protect us from disclosure on this deal?
China – of course, destroying you would also destroy us.  we are not fools…
US – Great. thanks


~ Those who discard Liberty, do so at their own peril!

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