Brad Setser recently pointed out that PBoC has over $500 billion in US agency debt…that is to say in US mortgages. So they are going to lose their shorts on this investment due to foreclosure/defaults. If they stop buying agencies, the price drops sharply and they get a big loss on their current holdings. Chinese financial authorities have boxed themselves in rather tightly, it seems.

Financial intermediaries (MMFs) lend existing money which has been saved, and all of these savings originate OUTSIDE of the intermediaries (depend on an inflow of savings to finance loans). The utilization of these loan-funds, or the activation of monetary savings held by these financial intermediaries, is captured thru the velocity of their deposits (bank debits/withdrawals), and not thru the volume of their bank deposits. I.e., from the standpoint of the economy, MMF deposits never leave the MCB System. And the growth of the MMFs is prima facie evidence that existing funds/savings have already been saved/invested/spent, i.e., transferred/transmitted by their owners/savers/creditors to borrowers/debtors. I.e., this currently (but not for ever) represents a double counting, and will continue to be so, as long as these intermediary financial institutions don’t practice/conduct a transaction’s deposit business.

It’s not, and the food and inflation riots in China is a testament.

But hear this – it will take a lot more than voices of the disenfranchised citizens for China to change their ways. It’s not in their culture to admit a major f-up, losing face is worse than death.

Therefore, as long as there is Asia, nobody should worry about the mythical bond vigilantes.

i’m a little confused

i can see the argument pro and con regarding M3 growth…does or not matter.

but the fact is M3 is soaring

and so is M2…469 billion dollars in the past year

http://www.federalreserve.gov/releases/h6/current/

so why the argument…or rather the emphasis on M1…yeah it’s been static this year…so what

M2 is up over 7% y o y

M3 is arguably twice that

meanwhile the commodities we MUST have (no not running shoes and plasma tv ) food and energy are skyrocketing.

M2 M3 growth and rising food and energy costs spell inflation

slowing economy at home is stagnation

STAGFLATION is our future. NO?

Finally, the U.S. economy now faces the prospect of inflation and recession at the same time, “partly because the dollar has ceased to be accepted as the reserve currency it has been” in the past, Soros said.

The evidence of inflation is represented by “actual” prices in the marketplace. The “administered prices would not be the “actual” market prices were they not “VALIDATED” by (MVt)

LOL, that’s the stupidest thing I’ve ever heard. China will always hoard US bonds at whatever price.

As dumb and irresponsible our Fed may be, they are a distant second from the Asian governments.