On the one hand, the demand by China that the US somehow guarantee its $682 billion in Treasury holding reads like a political and negotiating strategem rolled into one. It reenforces the idea that the economic crisis is the solely the fault of the corrupt, profligate West and it constitutes a demand that the US will have to deflect (at best) or trade something for.
While Yu, the source quoted in the Bloomberg story, is not a government official, China has a practice of sending messages via articles and public statements from authorized parties. Moreover, the article indicates that similar views have been expressed by some government officials. The only open question regarding Yu’s comment isn’t whether it has some official support (it clearly does) but whether the group holding this position is actually in the driver’s seat (the central bank and finance ministry have been loggerheads over China’s position as a buyer of US Treasuries; if the finance ministry’s position has been represented accurately, it is more than a tad schizophrenic).
What is weird is this particular threat is empty. Stop buying Treasuries? Great! The dollar will tank (which is what the Fed should want, the 40% depreciation of the dollar in 1934 played a major role in reviving the US economy) which would hurt China export competitiveness (Stephen Roach, a Morgan Stanley economist who now heads their Asian operations, contends that China needs to devalue its currency. It thus needs to buy even more dollar assets to effect that).
Or this may simply be an effort to blow smoke. “We want assurances you won’t weaken the dollar because it will hurt our FX reserves.” That is one way of dismissing Tim Geither’s demand that China quit manipulating its currency, and the result would be that the dollar would fall relative to the yuan.
So this broadside seems either to be a retort to US demands (“you want us to let the yuan rise? Not unless you improve the quality of the guarantees on the paper we hold”) or part of a long-term effort to move towards a new currency regime (China resents the way the US has abused its reserve currency standing, and also wants a fixed price currency regime, seeing that as producing more stability, which in turn is more conducive to trade).
China seems not to recognize the peculiar position it has gotten itself in. Even if there were no worries about the US economy, even if it wasn’t constrained by the need to keep buying Treasuries to hold the yuan down. China could not sell its holdings to a meaningful degree without having a serious, adverse market price impact.
But regardless of the logic, having China say bad things about the US’s credibility as a debtor is not exactly what the Fed and Treasury probably want broadcast right now.
From Bloomberg:
China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.
The U.S. “should make the Chinese feel confident that the value of the assets at least will not be eroded in a significant way,” Yu, who now heads the World Economics and Politics Institute at the Chinese Academy of Social Sciences, said in response to e-mailed questions yesterday from Beijing. He declined to elaborate on the assurances needed by China, the biggest foreign holder of U.S. government debt…
China may voice its concerns over U.S. government finances and the potential for a weaker dollar when Secretary of State Hillary Clinton visits China on Feb. 20, according to He Zhicheng, an economist at Agricultural Bank of China, the nation’s third-largest lender by assets.
“In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
Chinese Foreign Ministry Spokeswoman Jiang Yu said yesterday that talks with Clinton would cover bilateral relations, the financial crisis and international affairs, according the Xinhua news agency….
“The government will be a net buyer of Treasuries in the short-term because there’s no sign they have changed their strategy,” said Zhang Ming, secretary general of international finance research center at the Chinese Academy of Social Sciences in Beijing. “But personally, I don’t think we should increase holdings because the medium- and long-term risks are quite high.”…
A decline in reserves “isn’t likely because of China’s huge twin surpluses,” Yu said. China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign- exchange reserves is in danger of being inflated away by the U.S. government’s pump-priming,” he said.
China may try to link trade and currency policy disputes to its future investment in Treasuries, said Lu Zhengwei, an economist in Shanghai at Industrial Bank Co., a Chinese lender partly owned by a unit of HSBC Holdings Plc….
“China can also use this opportunity to get a promise from the U.S. not to make inappropriate requests on bilateral trade and the Chinese yuan,” Lu said. “We can’t afford more yuan appreciation as the economy is facing a serious slowdown.”
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No claims to deep insight here, but with the benefit of some experience it seems highly unlikely the ruling party would allow an unofficial voice speak for it on such a delicate and fundamentally important matter. Whatever their faults in Chinese politics, indiscretion in the service of boxing themselves in is not often one of them.
Nothing but posturing — and a little fun playing the “pile on” game. Could even end up with a wrist slap for the source for injecting himself where he does not belong. And if the comment were to have tangible effect the source would no doubt come to regret it deeply.
Hahah! Let’s give ’em California. Kill two birds with one stone.
A similar sentiment was in the Chinese language press last week, coming from an adequately official source (not sure exactly who.)
China is using its reserves to buy hard assets around the world, metals mines and such. They probably just want to keep the dollar propped up for a while, until they are done their buying spree (or as long as possible so their buying spree can continue a long time.) They may not have the illusion that the dollar stays strong forever, with the crushing debts in the US government and private sector.
This is not an empty threat. This is a deliberate response to Geithner’s announcement about them being guilty of currency manipulation.
It isn’t so much the economics of the situation, but a matter of pride. One thing that unites the Chinese is standing up to the West. The humiliations of the time from the Opium Wars til Mao still way heavily and they will not allow even a hint that they will be brow beaten by us.
If we want to persuade the Chinese to do something, we had better show great diplomacy.
Don’t bet on the Chinese being “forced” to buy Treasuries.
If they wanted a guarantee, they should have purchased TIPS.
F- ’em.
CTMM: Detroit. They will fix it up but good.
The Chinese are learning the banker’s maxim: If I owe the bank 10 grand, I have a problem….
At some point, the Chinese will be unable to support the US$. There’s obviously no guarantee possible that could actually compel the US government to perform on its obligation, and devaluation is what every economy does to get itself out of a hole anyway (as Yves’ link on the D-process notes .
Bob_in_MA, every non-European country despises its period of European domination, if it had one. There’s a difference between people who feel shamed and people willing to actually make sacrifices to harm the US.
I don’t want to be cavalier about this, but the realignment of a fundamental imbalance will be good for all of us. Especially the Chinese, who will suddenly find themselves wealthier in the world. Living well was always the best revenge.
“the realignment of a fundamental imbalance will be good for all of us.”
I second that
“If they wanted a guarantee, they should have purchased TIPS.”
I second that too.
I think the chinese government is doing its slow-motion counter strike against Geithners testimony a few weeks ago on Chinese currency manipulation. This is a form of counter manipulation.
The arguments on both sides would be laid bare with the counter-counter-proposal:
“The US government will start issuing government guaranteed put options on the US government for external funds who want to create synthetic TIPs while they unload their treasuries. Alternatively the fed will be glad to start purchasing any unwanted treasuries…”
Not practical, but a fun thought!
actually i meant currency puts, but the point works both ways.
Outsourcing is an unsustainable process!
Those of you who speak of cheap products as if it was a benefit. You know what? YOU CAN’T AFFORD SHIPPING JOBS OVERSEAS TO BEGIN WITH! The 10 Trillions dollars’ worth of deficit should have tipped you off!
The only reason you can afford the cheaper goods is because of EXCESSIVE CREDIT. In reality, as the years have been passing, your purchasing power has been shrinking continuously! You lived under the illusion that your purchasing power was growing because you were granted more credit. In reality, the more jobs were being outsourced, the smaller the purchasing power of Americans became, but easy access to credit hid the problem away.
Your purchasing power is the representation of the strength of your economy. You can’t escape the laws of physics and recessions and depressions are just the order of things manifesting themselves.
Today China are the ones producing cheap goods, but one day it will be their turn to see their jobs outsourced elsewhere, and they will be fed credit until they die, at which point they will have become irrelevant and the cycle will start once more. As long as nations can create excessive trade deficits, this cycle will continue!
Corporations are short-term thinkers, and globalization is a short-term process that can only lead to failure in a polarized world. It IS NOT the means to balance the world economy! The creation of massive trade deficits weaken the economy until it reaches a point where said trade becomes contradictory and unsustainable.
You don’t connect a computer to another one if it is infested with viruses. A parasitic economy is unsustainable. Just as in nature, no species can cheat its way out of the natural balance for its survival’s sake; it’s not that nature will not allow it, it would simply be contradictory to the system itself!
The only reason you have been able to afford massive amounts of cheap goods is because of credit. If it wasn’t for that credit you would have realized much sooner what you are realizing now; that you have no purchasing power because you lost too many jobs over time.
Time to wake up and realize that the only fix is to understand what is happening; life had become too expensive for you considering your purchasing power, and it is now trying to balance itself.
The sooner the US brings down the cost of life of its population, the sooner the crisis will end, and the sooner it will be possible to lend money again without generating another unstable economy that will crumble at the first sign of weakness due to excessive distribution of credit.
The crisis is not a crisis, it is a realignment that will make us see the true value of things, and show us what our true purchasing power is. You have two choices; a controlled landing, or a crash. But there’s no turning around. It is impossible.
“China “should diversify its reserves away from U.S. Treasuries if the value of China’s foreign- exchange reserves is in danger of being inflated away by the U.S. government’s pump-priming,” (Yu YongDing) said.
———————
He is telling the truth, i.e., he is telling the current thinking amongst the leading policy advisers in Beijing, at least that’s my interpretation. (Their thinking: U.S. leadership is incompetent in dealing with the crisis. And 1 Trillion dollar base money “Helicopter Ben” added so far will inevitably leads to hyperinflation in the world and crash of the dollar. Doesn’t matter what China does or doesn’t. Homework: given that, what’s China’s “rational” choice?)
And the leading expert on Chinese FX policy, Dr. Setser, believes there’s little risk that China will stop buying Treasuries. “They have no other choice.” We are told.
And people in the west buy into that story.
Go and reread three articles I posted below: James Fallows interview on CIC president Gao Xiqing, blogger China Matters’s post on Wen’s Davos remark, and former Morgan Stanley chief Asia economist Andy Xie’s advice for Chinese government. They appeared here before.
http://www.theatlantic.com/doc/200812/fallows-chinese-banker
http://chinamatters.blogspot.com/2009/01/china-to-obama-nice-t-bill-auction-ya.html
http://www.my1510.cn/article.php?fe84e39fcf5b411d
Over at Calculated Risk, there is a piece where Obama takes an ideological stand against nationalization.
I think at this point, we should stop deluding ourselves that this is going to turn out well.
Great choregraphed theater, exchanged between the commies fancy Olympic-sized dance steps, and then Geithner’s slick song with lyrics about how the Obama Administration “believes that China is manipulating its currency”.
The potentially great Oscar performance anticipated by Timmy, somehow was lost in the scripts delivery today, after great efforts of building up Great Expectations by delaying his press conference drama — and then failing to do anything besides demonstrate that he is clueless as an economic actor and only capable of reducing confidence in America’s future to a new low point!
Heck of a job there Timmy! Keep those sandbags a coming and say howdy to Mr. Obama, and when you do see him, dont let on that people are taking Obama bumper stickers off their foreign cars.
“Over at Calculated Risk, there is a piece where Obama takes an ideological stand against nationalization.”
I love Yves newspeak argument. The very fact that he is now saying nationalism is bad is a way of saying they are going to nationalize the banks. I actually believe that. And have placed trades today to that effect.
Silly Chinaman, you can’t have your cake and eat it too.
You can either have a strong dollar, or you can have your bonds repaid, you can’t have both.
How on earth did you think we were ever planning on repaying you, if we can’t simply print up the money to do so?
Oh, and I’ve been laughing at this one all week; it seems that you made a bunch of stuff for us and accepted payment in dollars, then you lent all the dollars to us. So, we ended up with all the stuff AND all the dollars. If you don’t know who the sucker at the table is…
How about we guarantee each worthless billion dollar of treasury bonds currently held by China with one plastic, led-painted can of contaminated baby formula imported from in China? Fair enough?
Vinny GOLDberg
amazing. someone has worse economists than us.
sold to yu!
BG: really, what makes you so sure?
RE: “In talks with Clinton, China will ask for a guarantee that the U.S. will support the dollar’s exchange rate and make sure China’s dollar-denominated assets are safe,” said He in Beijing. “That would be one of the prerequisites for more purchases.”
In that case, perhaps our prerequisite for more “purchases” should be that it reads “Made in the U.S.A.” on the back.
Ummm, what’s with the Asian mail-order bride ad beneath these comments? Very weird….
Pretty childish comments. There has been the biggest peacetime transfer of manufacturng power in world history and a lot of you are acting like the guy who loans a book from the library and thinks it’s “clever” to steal it (“see, I got a book and you’ve got NOTHING!”).
What happens when you can’t write and you can’t lend any more books? And what happens when the library closes?
It would have been good to keep a few more libraries open AND steal the books.
Get it?
Who’s the sucker now?
HA! Sold to Yu!
HAHA It’s the American way-you should’ve known better.
Best regards,
Tim and Hank.
P.S. BO says he’s told to tell you we’ve got big boats nearby so don’t start an economic war or you’ll learn the same lesson as Japan. You be like them and do what you’re told beetch. Ben says FU and see you at the next auction else he’s lubing up the presses.
China wants to play chicken. Go ahead and dump the treasuries. China will suffer more than the US and western countries.
I would offer to repay them immediately and in full if they promised to halt all future investment in US financial securities by all state or state-controlled entities.
At the level of individuals, money is something we struggle to earn and keep; at the level of economies and central banks money is a shared illusion which is created from nothing. We certainly don’t need their investments in our financial assets.
RE: Oh, and I’ve been laughing at this one all week; it seems that you made a bunch of stuff for us and accepted payment in dollars, then you lent all the dollars to us. So, we ended up with all the stuff AND all the dollars. If you don’t know who the sucker at the table is…
I second that. Well said.
You know, it’s amazing how some still give credence to the idea that a bunch of unsophisticated communist peasants educated at Beijing University could somehow outsmart the superior intelligence of the inhabitants of the U.S.A.
Get a grip on your envy, and see reality, dudes. We’re not getting anywhere. We still have Harvard, Yale, MIT, Stanford, Princeton, Northwestern, and you don’t. We put a man on the Moon, we gave you the microchip, we gave you nuclear energy. We gave you Coca-Cola, and you love it. We gave you Friends and Seinfeld and you watch it. We gave you McDonalds and you crowded it, while your own restaurants are empty. We have Silicon Valley, and you don’t. We have Hollywood, and you don’t. We have Apple and we have Windows, and you’re using it.
To he*l with the banks — we don’t need them. We are not Switzerland or Austria, who depend on banks. To he*l with the outsourced jobs – we don’t need them either. We have real value. Remember this, while you’re reading this blog on your Windows or Apple computer, which you bought from us.
Think of it this way: if Britain, a tiny island nation ran the world for 300+ years, we, a much greater power will run it for at least 1000 years. Get used to it. And, by all means, get a grip on your envy – it’s clouding your thinking…
Vinny GOLDberg
If you sit down at the poker table and don’t know who the patsy is, it’s Yu!
(stolen from someone far more clever)
I think somebody high up in the government, probably Geithner, should respond with:
“In the future US treasuries will be backed with the full faith and credit of the US government.”
And smirk.
It’s Yu!
LOL!
It’s time for the U.S. to prepare for the end of dollar supremacy.
Nothing is certain, but it would be foolish for the U.S. not to prepare for what appears increasingly inevitable.
Hey sorry guys, we’re broke.
Thanks for all the money, but its gone.
a former adviser to the central bank . . .
This is news?? Bloomberg must be desperate. Wazzamatta with you people, getting your panties in a bunch over nonsense like this? YOU HAVE NOTHING TO WORRY ABOUT — take it from me, a Former Advisor to CEOs, Heads of State, and the occasional extra-terrestrial visitor.
Off topic:
What does everyone think about the following video?
“Rep. Kanjorski: $550 Billion Disappeared in “Electronic Run On the Banks”
http://www.youtube.co/watch?v=_NMu1mFao3w
(at around 2:20)
Where did the money go? Who took it? And what’s the broader indication?
We have Yale, MIT, etc.
They have BeiDa, Fudan, etc.
People at the former respect the latter (and vice versa of course). Others may not know enough to respect them yet but they will.
It’s fair to ask them what they have invented recently (not like writing, paper, etc.) They are going to build their own commercial jets. They have quite a way to go yet on the learning curve and are acutely aware of it. But they are very smart. And when they need physicists, well they are right next to Russia which makes the very best ones.
China will come up. That doesn’t mean disaster for us. They don’t hate us, actually they like us. (It’s Japan that has much to worry about.)
Eventually the dollar will fall because we cannot bear these debts. I think China can see that and is trying to delay that moment as long as possible, while they hurry up to spend their dollars for hard assets around the world.
“What happens when you can’t write and you can’t lend any more books? And what happens when the library closes?”
That’s when truthiness will finally prevail!!!
I don’t think Yu Yongding’s opinion is official. After all, he stepped down from the PBOC monetary policy committee committee in 2006.
He is also the one criticising the Chinese authorities last year.
Just because the US saved Red China from a Japanese invasion doesn’t mean you guys have to be so cavalier in comments.
The whole fiat system is based on trust and faith. If Red China is worried about being paid back in inflated dollars ex. 50 cents on the dollar, we also should worry such like investments and retirement accounts (provided they survive) don’t suffer the same fate.
Your kids will be paying back Red China or your kids will be warring against their kids either way it’s ‘your kids’.
Reading between the rhetoric I’m thinking Red China is about to suffer a terrible year in wheat crops.
et Yu Mr. Sparkle?
“BG: really, what makes you so sure?”
Please reread my comments. I said “I really believe this (nationalization will occur)” and had “placed bets” accordingly. Neither of those is the same as ‘so sure’.
The reason I placed the bets was because there was so much unmet expectation built up by Geithner, and so much chatter about dissent in the administration last night in the press.
“bunch of unsophisticated communist peasants educated at Beijing University “
Have you ever met one of these unsophisticates? I have. And been mightily impressed. Be careful of your biases.
Sounded some desperation in this forum. Lol.
“bunch of unsophisticated communist peasants educated at Beijing University “
Have you ever met one of these unsophisticates? I have. And been mightily impressed. Be careful of your biases.
I’ll second bg here. I work in higher ed, and Peking University has the sharpest students I’ve encountered anywhere. The Japanese and American university systems are a bit… perfunctory at the moment. Building knowledge is still important, even if building resumes and connections is more lucrative.
If you know the People of China, that appears to be: a) a simple warning to U.S. b) a tit for tat strategy c) a notification that they may move out or already are moving out of Treasuries and dollar assets.
Nothing to worry about. The Rodhamster is winging her way there on the 20th. Recalling the danger posed by Mao’s widow, as leader of the ‘Gang of 4’, the Chinese will look into the cold, steely eyes of our former presidents wife and tremble.
She will remind them of her close ties to former Little Rock restaurantuer and international trade consultant Charlie Tree and the Supreme Master Ching Hai and dispensing bags of cash left over from John Huang and James Riady let them know there is plenty more of where that came from if they play ball.
the US’s credibility as a debtor
… was in the tank the moment they started borrowing from China. China was essentially the last resort – it was China’s own inflated ego that kept them in denial. Now they’re trying to save face.
Anon 12:41 AM: “Your kids will be paying back Red China or your kids will be warring against their kids either way it’s ‘your kids’.”
I’m not sure I agree with the warring part. Unlike Europe, the US, or Japan, China has never been a warring nation. When they were being attacked by foreigners, the Chinese built a Great Wall to keep them out. On the other hand, when the U.S. was being attacked by foreigners (as recently as 9/11), we went over to their country and destroyed it to bits. I don’t see China to have an imperialistic mentality.
ndk: “I work in higher ed, and Peking University has the sharpest students I’ve encountered anywhere”
I do too — I teach globalism-related courses (i.e., global psychology, etc). But I agree, Asian students in general are sharp, and provide a very interesting perspective. Yet, many come to the U.S. and choose to stay here. As long as we continue to attract the best and the smartest from other nations, we’ll do well. Now that we are finally through with Bushism, the inflow of great minds should resume.
Vinny GOLDberg
What is weird is this particular threat is empty. Stop buying Treasuries? Great! The dollar will tank (which is what the Fed should want, the 40% depreciation of the dollar in 1934 played a major role in reviving the US economy)…
But it's not 1934. If the dollar tanks, the price of diesel goes through the roof & an already stressed trucking industry collapses.
If that would happen, the American food supply will rot in the fields. In 1934, American food was produced, and consumed, locally. We imported zero oil. None of that is true now.
Somebody ought to talk to the food guys, find out what they think of the immediate future. Just so we know what the worst is, and that it can't happen here. Of course it can't happen. Why did I bring it up? You will excuse me….
I now return you to the fratricidal discourse, already in progress.
Artichoke is as close to the truth as anyone gets on this discussion today. Sad, really. It seems at present Americans cannot talk about China without a mouthful of resentment, anger, plain rudeness or even hysteria.
I’d just like someone who knows more than me about international finance to answer a question. Why do the Chinese have to sell dollars if they sell Treasuries? Can’t they just go into cash in some form, Cayman Islands, etc.? That way they would force US Treasury interest rates up and probably force the dollar up too. That might be just fine for them. Am I right off beam here?
Actually, the logical way for the Chinese to go is to starve the US of further financing of its debt just far enough that it causes big big problems for Geithner, but not so far that the dollar collapses. Then offer “cooperation”.
I’d just like someone who knows more than me about international finance to answer a question. Why do the Chinese have to sell dollars if they sell Treasuries? Can’t they just go into cash in some form, Cayman Islands, etc.? That way they would force US Treasury interest rates up and probably force the dollar up too. That might be just fine for them. Am I right off beam here?
I think you’re precisely right, mft. Or into commodities, or into Euros, and so forth.
Conflating liquidation of Treasuries with a break of the peg is a fundamental mistake.
The author seems confused about the historical developments of the 1930s. The FDR devaluation never led to a recovery of the US economy. The economy underperformed and unemployment stayed at high levels until WWII. Many people see the Chinese as being stuck due to their holdings but that is not really the case because a revaluation that has the Chinese currency gain in purchasing power will allow the Chinese to benefit as the US used to and will allow Chinese workers to produce the goods that they make. On the other hand the US would be in trouble because the devaluation of the currency would mean that American have to consume less at a time when American productive capital is insufficient to create enough wealth by producing goods that can be sold abroad.
Wealth comes from production, not consumption and if the USD is devalued Americans should be afraid of the consequences, not dreaming about new jobs and a better life.
Somebody please correct me if I am wrong, but isn’t a rapid devaluation of the dollar basically inflationary? As such, wouldn’t US banks have to raise the interest rates paid out to depositors to at least make up for the inflation? Thus, wouldn’t the Chinese be better protected from currency devaluation by simply depositing their cash into US banks right now?
Vinny GOLDberg
“…wouldn’t the Chinese be better protected from currency devaluation by simply depositing their cash into US banks right now?”
No. The Fed and Treasury are trying to devalue the currency and by holding on to it the Chinese are taking a big risk. Their best means of protection is to purchase large natural resource companies that have a great deal of debt outstanding. That way the collapse of the purchasing power of the USD is offset by the decline in the value of the debt those companies hold. It would also help the Chinese government if it permits and encourages its citizens to own more precious metals but there is no way that they could accumulate much without setting off a buying panic so I doubt that route will be pushed with any vigour.
VangeIV,
Thank you for the explanation — it makes sense. I suppose that same line of thought would apply to an individual investor who has cash on-hand. Purchase a small business that has a lot of debt in an industry he knows. The rest invest in gold and other hard assets.
Hmmm… As anindividual, I might be in a similar position to that of China… I better stop being so harsh on them in this forum :)
Vinny Goldberg
“VangeIV,
Thank you for the explanation — it makes sense. I suppose that same line of thought would apply to an individual investor who has cash on-hand. Purchase a small business that has a lot of debt in an industry he knows. The rest invest in gold and other hard assets.
Hmmm… As anindividual, I might be in a similar position to that of China… I better stop being so harsh on them in this forum :)”
I suspect that you know that for the individual the risk is much greater because of timing issues. For one, you can see the business go under because it cannot pay off debts before the debt becomes worthless. My approach is to hedge cash holdings with physical gold and to have a mixture of out of the money long dated warrants that can be acquired very cheaply.
You put your cash in the bank or CD for thirty day at 2% then pull it out to find everything you need has gone up 3%. After 5 years at 6%, you find everything you need is up 8%. You didn’t lose much.
You think you are saving but the bank is loaning out your money in bad investments where FDIC will back your deposit but you backstop the FDIC in tax money. (costs are always passed on to the consumer)
Then China worries their $1.00 investment could become worth $.50 (to bad there is no ‘gold cause’ in contracts anymore, huh China?)
We’ll be backing any $.50 loss for China.
So your savings is pretty much meaningless just ask the Japanese.
So when the forclosure process on the US of A will be started by China ? Or the US will mail in the key :-D
How many factories in China are owned by American corporations ? Would you consider that colaterals ?
All this bailout and pennies from heaven ends up being paid with higher taxes at some point. If taxes can’t cover the bills then the default scenarios begin to play out.
“All this bailout and pennies from heaven ends up being paid with higher taxes at some point. If taxes can’t cover the bills then the default scenarios begin to play out.”
It is interesting to think about how this plays out. We should begin by accepting the argument that we will see deflation and see what this means.
First, deflation means that the supply of money and credit contracts. That means that the fractional reserve based financial system becomes insolvent and the American credit markets fail. (So do most foreign credit markets but let us ignore that point for a bit.)
Who is the big winner out of a major deflationary episode? Who sees their purchasing power explode as Americans have to sell off assets at liquidation prices? The answer is clear. Foreign creditors see their treasuries explode in value as interest payments buy a great deal more than they used to and the redemption of their short term holdings permit to buy up huge chunks of the American economy.
But how does this happen in the real world? We all know that the Fed has access to the printing press and can use it to increase the money supply to Mugabean levels. We also know that there are more debtors who have votes and that foreign creditors don’t get to vote. This makes anything but a temporary contraction of the true money supply unlikely.
Of course, given the obvious course to prevent a collapse it is hard to think how high inflation rates can be avoided. That suggests that hedging by having a small percentage of one’s net worth in physical bullion or a fund that holds physical bullion makes some sense for most people.
Here’s your choices:
1. Default now
2. Default later
Depressions or depressed economies have a long time frame, ten years or longer. The Great Depression ceased only because of WWII not because of government intervention, probably made it worse.
We are dealing with larger debt numbers this time around on a worldwide scale.
I enjoy holding gold/miners and the badmouthing from skeptics has lessened lately.
I think it’s time for the Chinese to unload the US Dollar for good. The Chinese may initially lose money by dumping US Treasury Bills into the market, but they can cash out into gold bullion and they’re investment would skyrocket.
A sudden and unexpected drop in the US Dollar might also catch the big US banking thieves off guard. I’d definitely like to see those bastards lose their money for once. There’s currently huge world wide demand for gold coins. If the average person would just hold a gold coin in their hands they’d understand the difference between gold and fiat currency.
Wen Jiabao, China’s prime minister issued an obscure warning to America to preserve control over its economy. No one ever tries to hurt its best customer. China will be the first to be ruined with collapse of the US $ and world trade. Political upheaval and unemployment by tens of millions is something they cannot afford. A prosperous US is key to a prosperous China.
The last time [year 1421] they became introvert and secluded because they felt the world had nothing to offer them, they ended up being an opium-infested country, and it took 500 years to come out of the big sleep. Half the world was in China’s grasp, and the rest could easily have been, had the emperor so wished. But instead, China turned inward, as succeeding emperors forbade overseas travel and stopped all building and repair of oceangoing junks. Disobedient merchants and seamen were killed, and within a hundred years the greatest navy the world had ever known willed itself into extinction. The period of China’s greatest outward expansion was followed by the period of its greatest isolation.
‘China — both the modern state and especially its imperial predecessor — is usually portrayed as being isolationist, looking inward, shunning contact with other lands. There is undoubtedly a great deal of accuracy in that view. But China also has a tradition of seafaring and exploration of the outside world that goes back at least 4000 years. These two opposing philosophies — on the one hand, the Confucian attitude of keeping China self-sufficient and isolated; on the other a desire to reach out for trade, profit, or mere curiosity — have sometimes clashed throughout Chinese history.’
‘On the 8th of March, 1421, the largest fleet the world had ever seen sailed from its base in China. The ships, huge junks nearly five hundred feet long and built from the finest teak, were under the command of Emperor Zhu Di’s loyal eunuch admirals. Their mission was ‘to proceed all the way to the end of the earth to collect tribute from the barbarians beyond the seas’ and unite the whole world in Confucian harmony. The journey would last over two years and circle the globe.
Chinese have achieved today, uniting the whole world in Confucian harmony through free trade and generous sharing of it’s saving. Global free market economic structure is exactly like a house of cards; it is maintained traditionally on the basis of respecting freedom of trade and incentive. Recent Chinese prosperity is a result of free world trade and continuity of US imports; in turn they deposit their earnings in TB’s to support US consumerism.
The present deficit and import-export game is not a zero sum game, but a positive cycle; the US until the onset of this crisis remained the growth engine of the global economy with the aim of creating new markets, I call them ‘global consumers’ that adhere to the ‘American way of life!’ It is the equal lifting of all boats. The players in this trade cycle are engaged with each other respecting certain rules. Chinese enjoy their access to the free global trade without much impediment, the west imports price stability and exports its non-productive industry to nations where labour is cheap.
Of course, if the Chinese did seriously cut back on their purchase of US debt, that could be a real problem for the American government – which might have to sharply raise interest rates or thrust the printing presses buttons.
http://iqballatif.newsvine.com/_news/2009/03/16/2552767-why-should-china-not-withdraw-its-1-trillion-from-us-treasury-lessons-from-history