Posted on 04/17/2009 5:30:54 PM PDT by traumer
Back in the early stages of the financial crisis, wags joked that our trade with China had turned out to be fair and balanced after all: They sold us poison toys and tainted seafood; we sold them fraudulent securities.
But these days, both sides of that deal are breaking down. On one side, the world’s appetite for Chinese goods has fallen off sharply. China’s exports have plunged in recent months and are now down 26 percent from a year ago. On the other side, the Chinese are evidently getting anxious about those securities.
But China still seems to have unrealistic expectations. And that’s a problem for all of us.
The big news last week was a speech by Zhou Xiaochuan, the governor of China’s central bank, calling for a new “super-sovereign reserve currency.”
The paranoid wing of the Republican Party promptly warned of a dastardly plot to make America give up the dollar. But Mr. Zhou’s speech was actually an admission of weakness. In effect, he was saying that China had driven itself into a dollar trap, and that it can neither get itself out nor change the policies that put it in that trap in the first place.
(Excerpt) Read more at nytimes.com ...
The reason China has a problem is that their decisions are made by government bureaucrats, not by markets. Free markets would not have placed such large unbalanced bets on US debt securities.
Why would you blame China for dumping USD? China like any investors look for good returns for their investment. If they don’t see it, they leave. The fault lies with the US government who overspend, overprint, making dollars less valuable
When the Federal Reserve has to step in and buy Washington`s T-Bills is that the beginning of the end? Is the USA going to end up on the trash heap of history in the same manner the sun did set on the British empire?
This past weekend China’s central bank made a stunning reversal. According to this report from Wall Street Journal backed Livemint.com, the Chinese have slashed their purchase of US Treasuries.
Reversing its role as the world’s fastest growing buyer of US Treasuries and other foreign bonds, the Chinese government actually sold bonds heavily in January and February before resuming purchases in March, according to data released during the weekend by China’s central bank.
Take the figures reported by the Chinese central bank in the article above and compare them to official figures from the US Treasury Financial Management Service and the simple analysis is telling.
In the first quarter of 2008, the Chinese purchased $153.9 billion US Treasuries funding a massive 74.7% of our $205.9 billion in deficit spending for that period. In the first quarter of 2009, the Chinese purchased a net $7.7 billion US Treasuries funding a mere 2.7% of our $276.3 billion deficit for the period.
Although many have raised the specter of the US Federal Reserve printing dollars to buy US Treasuries no one knows for sure how much money the Fed has been printing.
The Federal Reserve and Treasury has refused to release detailed information resulting in Fox Business News filing a Freedom of Information Act lawsuit last year. FBN recently won the lawsuit over government objections, but most of the 10,000 pages released to FBN in late March were redacted. The litigation over the information is likely to continue as the Fed and Treasury try to keep this out of the headlines.
http://www.americanthinker.com/blog/2009/04/china_slashes_new_purchases_of.html
“The bottom line is that China hasn’t yet faced up to the wrenching changes that will be needed to deal with this global crisis. The same could, of course, be said of the Japanese, the Europeans — and us.”
Yup, Paul. It’s a witch for the Chinese buying up enough commodities, including copper, the metals and just about everything else with those FRNs. Last thing I heard was that the Chinese now have created a 50 year supply pipeline around the world of low priced commodities to prepare for the upswing.
*Also a great way to ditch the US holdings.
As far as I can judge with my limited knowledge is that the FRN is toast.
Even if we suffer through this recession - if it takes down China - it was worth it !
:o)
Uh, you mean how free market U.S. brokerages and banks placed such large unbalanced bets on real estate CDOs?
Face facts...the Chinese Communists look like fiscal conservatives next to the Bush and Obama Administrations.
Sounds a lot like home.
china questions the value of the dollar which would require of the u.s. to save more money.
americans saving money, ironically, leaves china with less exports.
It won’t.
Krugman thinks he’s awfully clever. Somehow, though, I don’t think we have China where we want them, and where we are isn’t a very good place to be.
A 'Copper Standard' For The World's Currency System?
Hard money enthusiasts have long watched for signs that China is switching its foreign reserves from US Treasury bonds into gold bullion. They may have been eyeing the wrong metal.
[snip]
We can get China out of the TRAP. The Creatures from Jekyll Island can build another TARP and bail them out. /sarcasm
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