US Debt - Don't Rock the Boat!

The Federal Reserve fractures -

The US must fix its growing debt problems or risk a new financial crisis, Thomas Hoenig, president of the Federal Reserve Bank of Kansas City, warned on Tuesday, adding a mounting deficit could spur inflation.
Mr Hoenig said that rising debt was infringing on the central bank’s ability to fulfil its goals of maintaining price stability and long-term economic growth. “Stunning” deficit projections were putting political pressure on the Fed to keep interest rates low, infringing on its independence at the risk of inflation, he said.

If the Fed succumbed to pressure to increase the money supply, Mr Hoenig said, inflation would lead to a loss of confidence in the dollar and in the economy. Meanwhile, a potential stalemate between the fiscal and monetary authorities that govern the economy could allow growing imbalances to go unchecked, thus raising the costs of borrowing and of capital for the US.

Too late, the fat lady is singing an entire opera solo. AFP -

China's holding of US Treasury bonds has tumbled, according to US Treasury data released Tuesday, after Beijing expressed concern over the swelling US deficit and amid new US-China tensions.

The drop in China's bond holdings by 34.2 billion dollars or 4.3 percent to 755.4 billion dollars in December also fueled the biggest drop in foreign purchase of short-term US bonds, said the Treasury's latest international capital data report and based on comparative figures.

China's US bond holding decline was also its biggest drop since August 2000 and allowed Japan to regain its position as top holder of American government debt after a 15-month hiatus.

Japan's holding meanwhile increased to 768.8 billion dollars in December from 757.3 billion dollars the previous month, Treasury data showed.