China currency reserves vs US budget deficit

Following this report on Bloomberg and many other market cheerleaders:

July 16 (Bloomberg) -- China’s foreign-exchange reserves are surging again, helping the Obama administration sell unprecedented amounts of debt as it seeks to drag the world’s biggest economy out of a recession. [...]

[This is 100% nonsense: it's not because they are piling on USD that they have to buy bonds from the US Treasury. They could buy gold, oil, the whole Dow Jones Industrial, etc.]

The cash holdings are growing as the central bank sells its currency, the yuan, to prevent an appreciation that would make the country’s exports more expensive. The yuan sales mean for all the calls by China and other emerging markets for an alternative to the dollar as the world’s reserve currency, it has little choice but to keep buying U.S. government assets.

[This is 100% nonsense: printing money just creates a transfer of wealth from the the money holders to the money printers, nothing more, nothing less. Again, nothing to do with buying US Gov Assets, and worst than anything, there's no causality between the two parts of the sentence.]

Speaking to Al-Arabiya television yesterday, U.S. Treasury Secretary Timothy Geithner expressed confidence that the dollar “will remain the principal reserve currency.” The dollar rose 0.2 percent to $1.4083 per euro at 3:11 p.m. and has declined less than 1 percent this year.

[Anybody ever thought Geithner might actually say anything else? Or even express any worries about their own currency? Did Gideon Gono, Zimbabwe's Central Bank Governor ever express worries about their currency?]

Now, how do the Chinese look like with their $2 billion when you see the budget deficit of the US in 2009 and the projected one in 2010? Note: These are White House estimates. Which means they are highly understated. With a planed deficit about $1.8 trillion in 2009 and $1.3 trillion in 2010 (the 2010 figure probably includes higher income-tax revenue thanks to the V-shaped recovery), even if China would give back all their dollars to be treasuries, their reserve would be completely depleted before the end of 2010.

Once the US have recycled (actually, I should write 'wasted') all the US dollars held by the Chinese, Japanese and in the Middle East, they will be ripe for monetization at the Fed (super- to hyper-inflation).

To understand how I see this unfolding, please read my previous post.

WASHINGTON (AP) -- The government will have to borrow nearly 50 cents for every dollar it spends this year, exploding the record federal deficit past $1.8 trillion under new White House estimates.

Budget office figures released Monday would add $89 billion to the 2009 red ink -- increasing it to more than four times last year's all-time high as the government hands out billions more than expected for people who have lost jobs and takes in less tax revenue from people and companies making less money.[...]

As the economy performs worse than expected, the deficit for the 2010 budget year beginning in October will worsen by $87 billion to $1.3 trillion, the White House says. The deterioration reflects lower tax revenues and higher costs for bank failures, unemployment benefits and food stamps.[...]

Annual deficits [...] would total $7.1 trillion over 2010-2019. Even those dismal figures rely on economic projections that are significantly more optimistic -- just a 1.2 percent decline in gross domestic product this year and a 3.2 percent growth rate for 2010 -- than those of private sector economists and the Congressional Budget Office.