US Treasury Dept running secret debt sales to China, bypassing Wall Street entirely

Wednesday, May 23, 2012 by: J. D. Heyes
Tags: China, Treasury, Wall Street

(NaturalNews) In another sign of America's increasing debtor status to China, the Obama administration is allowing Beijing to bypass Wall Street entirely when it comes to buy U.S. Treasury bonds, the first time a foreign country has ever been afforded such special treatment.

In a recent exclusive, Reuters said that, according to documents examined by its reporters, the arrangement means China - since June 2011 - has been able to purchase U.S. debt directly, which is differently than any other country in the world. That's significant because of the secrecy surrounding the deal.

Why weren't Americans told China has a direct pipeline to their treasury? Is Beijing running U.S. fiscal policy too?

According to the report, the People's Bank of China, the country's central bank, once had to buy treasury notes through Wall Street banks designated by the government to handle them, like other central banks. The Wall Street banks are primary dealers of sorts for the U.S. Treasury bonds; they bid for them at Treasury auctions on behalf of central banks around the world who buy them. The United States sells these notes as a way to finance its spiraling, growing debt.

China still buys some of its Treasury notes that way, but it's not necessary. Reuters says the U.S. Treasury Department "has given the People's Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011."

And by the way, this could not have happened without the approval and blessing of President Obama, the man who - in 2008 - campaigned on a promise to end China's currency manipulation as a way to protect U.S. interests. Of course, he never said he would do anything to stop China's manipulation of our currency.

Nothing but silence from those who are supposed to have your back

The policy change, which was not announced publicly and was not disclosed to dealers, means China has been able to participate in auctions without placing bids through those dealers. Beijing just can't sell them without a dealer. Oh.

And, of course, no one at the Treasury Department is talking.

"Direct bidding is open to a wide range of investors, but as a matter of general policy we do not comment on individual bidders," Matt Anderson, a department "spokesman," told Reuters.

Timothy Geithner is the Treasury Department secretary; there's been not a peep from him or his boss, Obama, either.

There is no specific prohibition against direct bidding for U.S. Treasuries, the department says. But analysts note that the Chinese connection is "unique," to say the least. For one, the privilege will allow Beijing to buy treasury notes at a much better price than competitors and other large holders of U.S. debt who are actually allies, such as Japan, which holds the second highest level of notes behind China.

Making the Chinese more comfortable than you

Secondly, the arrangement makes it possible for China to hide its purchases from the Wall Street dealers. "By bidding directly, China prevents Wall Street banks from trying to exploit its huge presence in a given auction by driving up the price," said the report.

This after Treasury officials caught China in 2009 concealing its bond purchases through special arrangements established with the dealers. While the department changed some of its rules to outlaw the practice, it turned right around and "relaxed a reporting requirement" to make the Chinese "more comfortable" with it.

Even then Treasury was trying to conceal its special treatment of China. "The Treasury tried to keep its motivation for the 2009 rule change under wraps," Reuters reported.

China was already a competitor to the United States, but now, as our biggest creditor, Beijing holds monumental sway in Washington. That lawmakers, department heads and even the president try to hide such important financial transactions tells you all you need to know about whose interests they value most - and it's not yours.

The next time you hear some hack in D.C. complain about the "undue influence" of Wall Street or U.S. corporations, you'll know who's really holding our purse strings.

Sources:

http://www.reuters.com

http://www.reuters.com

http://www.nytimes.com

http://www.politifact.com