Beijing is not the biggest buyer of U.S. government debt, though you would scarcely believe it from reading the public prints. U.S. money market funds bought three times as much of U.S. Treasuries and Agencies last year as China, $942 billion vs $283 billion, according to Brad Setser at the Council On Foreign Relations. “I am waiting for a round of stories pondering whether money market funds will continue to buy Treasuries and Agencies at their 2008 pace,” he wryly notes.
The comparison may be an anomaly. The credit crisis has disrupted the markets for money market funds’ usual fare, CDs and commercial paper. The oversubscription of this week’s U.S. Treasury auctions suggest that the forced flight to safety is continuing.
Despite misgivings about the dollar, China is also continuing to buy U.S. debt though it is buying only Treasuries now. At some point, Setser reckons, “the reallocation of China’s portfolio toward Treasuries will eventually run its course – and China’s Treasury purchases will start to track its reserve growth”. The bigger question for the U.S. will be whether Americans will stop buying Treasuries.