"Just a matter of time, I suppose."
Posted on 02/10/2011 11:50:50 AM PST by FromLori
Add one more pill to the daily Oxycodone consumption by the Chair Central Planner. In what is about to become the latest headache for Bernanke, popular Chinese economist Lu Zhengwei, a senior economist at China's Industrial Bank Co., has advised that China should promptly sell its GSE holdings on concerns that continued "blank check" writing by Congress to the GSEs will be "almost impossible" as well as fears that as soon as QE2 ends, the entire US bond complex will see a major sell off. In other words welcome to the world of game theory defection: he who sells first, loses the least.
From Dow Jones:
A popular Chinese economist on Thursday said China should be aware of risks in its holdings of debt issued by U.S. government-controlled mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC), and suggested that China sell the securities soon.
The report by Lu Zhengwei, a senior economist at China's Industrial Bank Co., doesn't represent the views of China's leadership, but it does highlight persistent concerns about the security of Fannie Mae and Freddie Mac securities among Chinese civilians and some influential thinkers.
Lu's warning comes just ahead of a report from the Obama administration, which could come as soon as Friday, that will outline options to gradually phase-out the two companies, reducing the government's footprint in the U.S. mortgage industry.
Although an outright default is unlikely, Lu said that the end of the Federal Reserve's program of quantitative easing could cause the price of the securities to fall. He suggested China sell its Fannie and Freddie holdings before the U.S.'s quantitative easing ends in June. If China were to sell its GSE debt how big would be the damage? Pretty big: $500 billion worth of big.
Lu estimated in the report that "Chinese organizations" hold around $500 billion of debt backed by the two companies. In a telephone interview with Dow Jones Newswires, Lu said "Chinese organizations" was a reference to holdings by the Chinese government in their foreign exchange reserves. Lu said he based this estimate on Chinese media reports, as the Chinese government has never confirmed the size of its holdings in the two agencies.
According to the U.S Treasury's report on foreign holdings of U.S. securities, China held $454 billion of long-term U.S. agency debt as of June 30, 2009. That includes $358 billion of "asset backed securities???backed primarily by home mortgages," and $96 billion of other long-term agency debt.
The bulk of those holdings are likely in Fannie and Freddie bonds and securities, though it also includes debt from other U.S. government agencies such as the Government National Mortgage Association. And as all those who follow the shady dealing of the "Direct Bidders" and the UK-based buyers, the number is likely far, far greater:
The U.S. Treasury data may understate the true extent of China's holdings, as they don't include purchases made through special units based in Hong Kong and in other locations outside China. As Zero Hedge has been reporting with every single TIC report, China has continued to sell its agency debt, as well as lowering its US Treasury holdings.
According to separate figures from the U.S. Treasury, China has been steadily selling its holdings of agency securities since mid-2008. It sold a net $24.67 billion worth of agency securities it 2009, and $27.35 billion in the first 11 months of 2010, according to the data. So if China decides to not only not buy any incremental debt issued by the US, but to fully commit to selling, this virtually guarantees QE3, as the only way to find a buyer for the debt will be to prime the Fed's printer. Which in turn will activate the timer fuse on the 21st century's first Wiemar Republic recreation. And to think of just how much of a coward Tim Geithner was forced to appear last week when he announced that China is not a currency manipulator: it will be so very fitting for the country to add insult to injury and literally take a bond dump on Geithner's front lawn.
Related story’s
Unlimited credit for GSEs seen as backdoor bailout
http://www.reuters.com/article/2010/01/05/us-usa-housing-bailout-idUSTRE6044YU20100105
Is Fannie bailing out the banks?
http://finance.fortune.cnn.com/2011/01/03/is-fannie-bailing-out-the-banks/
"Just a matter of time, I suppose."
One for the Economic Holocaust pings
courtesy ping
How about this one for the Economic Holocaust pings?
Here Comes Executive Order 6102 For The QE Generation: Dutch Central Bank Orders Pension Fund To Sell Its Gold
I was reading that ealier.
I check out ZeroHedge early and often.
The risk of default at least in the reasonable short term is not an issue. We have almost unlimited ability to print dollars to cover our debts. The risk is the value of the currency and the value of the bonds as the interest rates increase and the dollar value declines. The days of free government spending are over. The only question is who exerts discipline on our government spending. If we allow external forces to provide the discipline, we are headed for economic ruin. Given the freeloading mentality encouraged by Democrats, I see little possibility that fiscal discipline will be internal. No politician can tell the truth about entitlement programs except for perhaps Obamacare.
We’re all gonna die.
Probably. Or maybe not. Who knows.
I can’t even read this crap anymore. It’s like I’m on a train headed for a brick wall. I’m tied to the train, and even if I untie myself and try to jump off, I will have no option but to jump into a deep ravine, and will still die a horrible death, but might get to watch the trainwreck as I fall into the hole.
I didn’t tie myself to this train, nor did I even board it voluntarily, but I’m still on it.
It was reported that China in order to curtail inflation just reduced all housing pricing by 30% The comment from this report to explain the effects “that is what is called a hard landing”. If China can tell us what to do is this our future?
“but I’m still on it.”
Me too!
That’s a good analogy!
“I can’t even read this crap anymore. It’s like I’m on a train headed for a brick wall. I’m tied to the train, and even if I untie myself and try to jump off, I will have no option but to jump into a deep ravine, and will still die a horrible death, but might get to watch the trainwreck as I fall into the hole.
I didn’t tie myself to this train, nor did I even board it voluntarily, but I’m still on it.”
I don’t view it like that I look at it as an opportunity to prepare. The same could be said for a lot of us we didn’t tie ourselves to this train but none the less we are on board and if we know our destination we can prepare for our arrival.
If it is really upsetting for you perhaps it would be better if you just ignored these kinds of threads and focus on happy thoughts. I don’t mean that in a snide way some people just have a different amount of stress they can handle.
(Thanks for the ping NeoCaveman)
It's not the fall that will kill us, it's that sudden stop at the end.
hmmmmmmmmmmm
Banana Ben comes clean...
“Bernanke said China holds at least $2 trillion of U.S. government bonds. That is more than double the widely cited official figure, which is published monthly by Treasury.”
“The dollars it has purchased in pursuing that policy now expose it to big risks: Scissors notes that China stands to lose hundreds of billions of dollars on its Treasury purchases should the yuan appreciate significantly, as U.S. policymakers would like.”
“Of course, there is also the question of just how the U.S. will pay off on all its promises. Testifying before the House Budget Committee, Bernanke said in response to a question from Rep. Tom McClintock that China holds as much as a quarter of outstanding U.S. government debt – “more than $2 trillion” of Treasury securities.”
http://finance.fortune.cnn.com/2011/02/09/our-dollar-chinas-2-trillion-problem/
Lets give them the video link ... http://www.hulu.com/watch/110317/saturday-night-live-china-cold-open
It is sad that the Free Trade Communists have made America so weak when dealing with Communist China
You slap high tariffs on the Communist Chinese, they will behave.
One thing banks understand is that if they have a client so deeply in debt with them....they cannot just “call in the loan”....for fear the debtor will default...such a default will bring down the bank.
The Free Trade Communists...in our government and here on FR...pander too much to the Communist Chinese. The ChiComs know that a US leader with some backbone....that is not some Free Trader Commie Globalist....can rock the Commie Chinese in so many ways
Its time to end the Free Trade Communism towards Communist China....time to slap 25% to 50% tariff on all Communist Chinese goods. Its time for America to take the lead....not be wimpy like the Free Trade Commies want us to be
That free trade certainly wasn’t fair trade and it was very short sighted IMO it allowed our enemies the money to build a well equipped military.
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