Bad Bet

In China, politicians aren’t happy with bankers either, but for somewhat different reasons. Stratfor reports that China is awash in rumors that the head of the People’s Bank of China has fled the country:

Rumors have circulated in China that People’s Bank of China (PBC) Gov. Zhou Xiaochuan may have left the country. The rumors appear to have started following reports on Aug. 28 which cited Ming Pao, a Hong Kong-based news agency, saying that because of an approximately $430 billion loss on U.S. Treasury bonds, the Chinese government may punish some individuals within the PBC, including Zhou.

Stratfor doesn’t think the rumor is true. But still: a $430 billion loss on U.S. Treasuries? As best I can discern it, the Obama administration’s fiscal strategy is to ramp up borrowing from the Chinese to an unprecedented level. It doesn’t take a financial genius to suspect that the Chinese–and anyone else who may be thinking about investing in Treasury bonds–will, at best, exact a heavy price for such loans.
UPDATE: Several knowledgeable readers have written to express skepticism of Stratfor’s story. This email is typical:

Something does not sound quite right about China reporting a $430B loss on US Treasury Bonds.
Bond values have been rising with the decline in rates (they are inversely correlated).
Perhaps China bought some swaps or other insurance against rising rates, which one could not blame them for anticipating.
No one would have anticipated the quantity and quality of job killing efforts the Obama administration has actively promoted.


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