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Learn English Lesson #11 (Read + Speak + Study Questions)

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Uploaded on Aug 16, 2010

China cuts US treasury holdings

The largest creditor to the United States has reduced its treasury security holdings by $24 billion to $843 billion. This move comes after the US Federal Reserve announced it would be buying the treasury securities to "lower interest rates". In other words, "nobody wants to buy them". China has been wary of increasing its treasury holdings. Japan has been aggressive in acquiring more US debt to stabilize the financial markets temporarily. China has voiced concerns over the rising debt and decreasing production of goods in America. In fact, when Treasury Secretary Tim Geithner spoke in China, he was laughed at by students. If China quickly reduced its holdings in US debt, interest rates would rise, the US dollar would drop, leading to a greater budget crisis. Imports would become more expensive and inflation would run rampant. It would mean the end of the current US economy just as Russia's economy blew up in 1998.

Questions:
Why is China reducing its holdings of US debt?
China is reducing its holdings of US debt because of concerns about mounting US debt levels and reduced production.

What would happen if China quickly sold off its treasury securities? The US dollar would drop, the US budget deficit would rise, inflation would rise and the US economy would collapse similar to Russia in 1998.

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