The US needs China to finance its deficits, or does it?

Of course you recognize this building, right? It’s the Bank of China in Bejiing. These are the boys that the US is afraid to annoy with rants of undervalued currency, balance of payment issues, human rights abuses, Tiananmen Square, North Korea, intellectual property abuses, theft of patents  and technology, carbon pollution, you know, the works. The US can’t unsettle China with anything economically threatening. We have been told by  the Economists in the State Department as well as the Globalized Banks( a branch of the State Department) that raising these sorts of issues with the Chinese might tick them off and that would be bad, right? After all, it’s the Chinese who fund our debt. It’s the Chinese who fund our  ability to run big budget deficits. Sure, other folks fund the deficits besides the Chinese like Japan, Asian countries and rich individuals in the US and elsewhere, collectively known as the bond market. So imagine my surprise when I saw this headline in the Financial Times:

Fed passes China in Treasury holdings

By Michael Mackenzie in New York

Published: February 2 2011 00:01 | Last updated: February 2 2011 00:01

The Federal Reserve has surpassed China as the leading holder of US Treasury securities even though it has yet to reach the halfway mark in its latest round of quantitative easing, according to official figures.

Based on weekly data released on Thursday, the New York Fed’s holdings of Treasuries in its System Open Market Account, known as Soma, total $1,108bn, made up of bills, notes, bonds and Treasury Inflation Protected Securities, or Tips.

According to the most recent US Treasury data on foreign holders of US government paper, China holds $896bn and Japan owns $877bn.

“By June [the Fed] will have accumulated some $1,600bn (!!!)of Treasury securities, likely to be in the vicinity of China and Japan’s combined holdings,” said Richard Gilhooly, a strategist at TD Securities. “The New York Fed surpassed China in the past month as the largest holder of US Treasury securities,” he noted.

Whoa horsey!  Talk about cognitive dissonance. !! You may remember before the bernank showed up replacing the last guru of financial psychobabble, Senor Greenspan, the US Government had to raise money to finance it’s budget by issuing debt, but no more. I guess we don’t need China and the bond market any more.  Maybe there is something I don’t understand but is this yet another sign that we are nearing our economic "” End of Days?” Can we now demand:  Mister  Chinaman, Tear down this wall!”