Serious investors happen to be very concerned right now about the value of their investments. The concerns are magnified for institutional and governmental investors.
The crisis in Greece, which could spread across the the EU's Mediterranean nations of Italy, Spain and Portugal, is not helping. Neither do the stagnant economic conditions in the US. The housing market continues to fall, the stock markets are unable to rise anywhere close to the level of the peak Dow of October 2007, and the continuing employment difficulties are worrisome. To sum that concern up, Ian Gordon of the Longwave Group declares that "the real number on U.S. unemployment is somewhere around 17%...That to me is a depression."
He's not alone in his vexation. The much more accessible columnists at The Motley Fool are also, including one who advises investors to take their capital offshore and invest in profitable companies which do business in currencies other than the dollar. It's attitudes like that which have made it harder for U.S. corporate debt to find funding. It isn't much different for businesses from the situation faced by individual homeowners seeking modification of their mortgages.
But for the Federal Reserve, there is some good news. Longer-term T-Bills have attracted additional investment as the troubling issues for foreign currencies frighten investors into seeking safer harbors for their value. These increased funds, and the repayment of TARP funds by Citigroup, Bank of America, and Wells Fargo, have made it possible for the Fed to pay down existing T-Bill exposure and temporarily stay under the debt limit. Said limit has since been raised — again, and the longer term prospects don't encourage investment.
China appears to be taking advantage of The Motley Fool advice. China has complained both about the security of its dollar-denominated assets over the past year as well as about U.S. policies regarding planned arms sales to Taiwan which go against Chinese government wishes. It isn't much different than when the US objected to Russia basing nuclear-armed IRBMs in Cuba in 1962.
For every action there is a reaction. In this case it is senior Chinese military officers recommending that Beijing "dump" some U.S. Treasury bonds to punish Washington. China's officials in charge of foreign exchange holdings have given no sign of any intention to do so.
But this doesn't mean that China's government has done nothing to express their displeasure in a way that affects the US. China has been selling short-term Treasury bills (maybe it was these that the Fed was able to pay down?) and reducing its T-Bill holdings by $34.2 billion to $755.4 billion. China has also not made any moves to buy longer-term notes as other international institutional investors have done. Alan Ruskin, chief international strategist with RBS Securities Inc., calls this "bad news for the U.S. dollar and the Treasury market."