China's warning on U.S. debt

President Barack Obama rushed to reassure foreign lenders after China's Prime Minister Wen Jiabao cast doubt on the soundness of U.S. government debt last week. But the price of U.S bonds fell nonetheless, meaning the cost of financing the government's record $1.4 trillion deficit is going up. That is not good news.

It is not clear what Prime Minister Wen meant in asking the U.S. to "guarantee the safety" of China's holdings of U.S. Treasury bonds, estimated to be $727.4 billion at the end of last year.

But it is clear China thinks the United States is on the wrong path. It was not reassured by Secretary of State Hillary Rodham Clinton's visit last month to tout U.S. Treasury notes as safe investments. And it was apparently not reassured by President Obama's plan to borrow about a trillion a year for the foreseeable future.

The president can't say he wasn't warned. Back in December, after former Treasury Secretary Henry Paulson's last meeting with top Chinese finance officials, Mr. Wen's deputy, Wang Qishan, said the United States should take steps to "ensure the safety of China's assets and investments in the U.S," The New York Times reported.

A week ago, the Chinese prime minister underlined his concern in a meeting with reporters, saying: "We have lent huge amounts of money to the United States. Of course we are concerned about the safety of our assets."

In recent congressional testimony, Ben Bernanke, chairman of the Federal Reserve Board, warned that foreign appetite for U.S. debt could become sated. That may be happening faster than any of Mr. Obama's advisers expected.

The president said last weekend: "Not just the Chinese government but every investor can have absolute confidence in the soundness of investments in the United States. There is a reason why even in the midst of this economic crisis you have actual increases in investment flows here in the U.S."

We notice that the president didn't say which way the flows are going. Foreign investment in U.S. stocks and bonds fell in January, and China made its smallest purchase of U.S. debt since last May.

Those developments are like hurricane warnings. Mr. Obama and Congress should pay attention.