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China Promises Not To Use "Nuclear" Option And Buy Gold, Dump US Assets
China's State Administration of Foreign Exchange (SAFE ) is once again making waves, by reminding the world about its trillions in dollar-denominated holdings, and that these could be dumped in a heartbeat. Of course, in tried and true Chinese fashion, it is notifying the world it has no intention of using the "nuclear option" which of course is merely a reminder that the nuclear option not only exists but is certainly at the forefront of any "diplomatic" negotiations with the US. As Reuters reports, "In a series of questions and answers posted on
its website, www.safe.gov.cn, SAFE asked rhetorically whether China
would use its $2.45 trillion stockpile of reserves, the world's largest,
as a "nuclear weapon." Apparently, the primary focus of the Q&A was to allay fears that China may be stockpiling gold in the open market: "SAFE was lukewarm about gold as an investment. "It cannot become a main channel for investing our foreign exchange reserves," the agency said, noting the size of the gold market was limited and prices were volatile. Buying more gold would also not help much in diversifying China's reserves." Of course, with all this occurring in light of recent disclosure that the BIS has been involved in gold swaps to provide liquidity to unknown banks, immediately obviates this statement, since, as we have pointed out previously, the Chinese 7 and 30 Day repo markets are still sufficiently strained, and gold would certainly come in useful to allay fears that domestic banks have something beyond massively underwater residential loans on their balance sheets to fund trillions in liabilities. All the Chinese statement really is, is a warning to the US to avoid following the advice of such permaspenders as Krugman, and now Goldman, and to launch into another round of monetary devaluation via QE. We are skeptical that once Bernanke puts the presses into turbo mode once again, that China will theatricize the same kind of wholesome support for US-based assets.
More from Reuters:
"Any increase or decrease in our holdings of U.S. Treasuries is a normal investment operation," SAFE, the arm of the central bank that manages China's official currency reserves, said.
It said it constantly adjusts its portfolio to maximize returns, and any changes to its U.S. Treasury portfolio should be seen in that light and not interpreted politically.
"The U.S. Treasury market is the world's largest government bond market, and U.S. Treasury bonds deliver fair good security, liquidity and market depth with low transaction costs.
"The U.S. Treasury market is a very important market for China," the agency said.
China held $900.2 billion in U.S. Treasuries at the end of April, according to U.S. Treasury data released on June 15.
Bankers say China's total holdings of dollar-denominated assets are much greater, accounting for perhaps two-thirds of its reserves.
"We must recognize that any depreciation of the dollar is relative to other countries, and other countries or regions also have this or that problem," SAFE said.
SAFE is an easy target for domestic critics who question why China has amassed a mountain of reserves instead of investing more at home. The elucidations on its website appear primarily aimed at disarming those critics.
"SAFE will never be a speculator. It mainly seeks to protect the safety of China's FX reserves and ensure a stable investment return," it said.
The agency said it was a financial investor and did not seek management control when it made equity investments.
SAFE also gave a qualified vote of confidence to the dollar.The agency acknowledged that financial markets were very concerned at one point that massive U.S. government borrowing would drive the U.S. currency lower.
But it said economic conditions elsewhere were also a factor in determining the dollar's trend. The euro zone, for instance, was struggling with high government debt levels.
"We must recognize that any depreciation of the dollar is relative to other countries, and other countries or regions also have this or that problem," SAFE said.
One of the prime concerns of Chinese Internet commentators is that a long-term decline in the dollar or euro will erode the value of SAFE's portfolio.
To that end, SAFE called on the United States and other major countries to take "responsible measures" to maintain the value of their currencies. This meant withdrawing monetary stimulus in a reasonable manner and relying less on deficit spending.
Speaking of Chinese equity investments, whatever happened to those demands for extra funding after Chinese investments in US equities had suffered a dramatic loss in the past few months, and someone somewhere over in Beijing was scrambling to prevent a court martial. Surely, this is yet another indication of just how much China "trusts" the US.
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Freaking Captalists bastards. Playing hardball again.
Be sure to keep Sun-Tzu in mind as you consider this "news".
I'm with Turd.
Let me put on my reading glasses.
Hmmm..."deception." Hmmmm......
"Let your plans be as dark as night. Then strike like a thunderbolt."
Well, I agree with Turd too. The capitalists I was referring to were not the round eye variety. But I may disagree on who the real enemy is.
We have found the enemy and he is...
Paul Kkkrugman.
To China....
In the end you've got to ask yourself one question. Do I feel lucky? Well do you, punk?
http://www.youtube.com/watch?v=u0-oinyjsk0
More anti-China rhetoric from (who is becoming the leader of anti-China rhetoric);
Well from reading their comments it seems to me China is just saying theyre not so sure GOLD is the best investment to dump their dollar debt into!
Exactly, if anything china is announcing they believe the gold market is rigged. They are diversifying their assets and buying tangibles across the board. At the same time they are keeping us aware of their vast holdings of monopoly money that is the U.S. Dollar.
This is a chess game and I'm afraid they are winning. In terms of economic outlook for us, the U.S. Is gearing up to be a service sector economy. Ask yourself this, How many service sector countries in the world have citizens living well off and better than the rest of the world?
If you can't think of any it's probably because there aren't any and that should be something that scares the he'll out of you. It sure does me.
Right, while everyone is saying 'WHEW! What a relief China says theyre not goin all nuclear and turning their dollars into gold holdings, therefore all is well'!...meanwhile behind the scenes theyre sure as hell cornering every other real commodity! Buying up oil, building metals/materials and grains. In a world economic world war Id rather have stockpiles of the staples of basic function rather than the shiny stuff.
And youre right, this 'service sector economy euphoria' is just the biggest joke in the world! Service economy 3rd world USA? F%$# that Obama YOU go clean toilets all day!
I doubt his toilet-cleaning capability. Perhaps he could organize the community to clean them.
*
It would be nice if China would do the US taxpayer a favor and stop buying US debt and force the US govt to actually become fiscally responsible.
The Chinese have only bought $137bn of US debt over the past year. In fact, overseas holdings have only increased by $700bn (of which 25% comes from the UK, no doubt as part of a I-buy-yours-you-buy-mine kind of deal) - leaving another trillion dollars unaccounted for.
The cynic would suggest that Uncle Ben buys it.
http://www.ustreas.gov/tic/mfh.txt
If only the word "only" was defined as it was a few years ago. You know, the good old times. Say 2003 or 2004.
They could stop purchasing Treasuries and even start putting what they own on the block. Ships to America would stop leaving port, factories would have to shutdown in huge numbers, and the Chinamen factory workers would continue to move back to the villages like in late 2008.
It then goes from slow cooking death to instant microwave splatter.
Bingo Mako,
The Chinese are playing a totally different game. It's not about trading gains, but about keeping on top of their own rolling log in the river. Keep people working, keep potemkin banks propped up, etc.
When (if ever) they're ready to call in their chips, they will. Probably not before they have a more credible military deterrent.
Heh, good point. $700bn of debt represents like the GDP of the Netherlands. And that's only the part accounted for. If we say the deficit is $1.7tn, that's almost a hole in the budget the size of England.
Ho-hum, nevermind, I guess in a few years we'll have notes with higher denominations.
Yeah. I have a change bucket that I throw my loose change into every day. The last couple years, I started accumulating one dollar bills in my wallet, to the point where I have started throwing them in the dresser because my wallet gets too fat with ones. Ones are the new quarters.
Very astute observation..
Now look UK from Nov-09 (155B -> 321B) .. and then look at the grand total.
Half of the increace ~150B is UK !! (3674B -> 3957B)
the perfect game... How is the UK buying so much when they have big problems themselves. The other interesting thing is it seems UK were divesting for a while before the end of 2009.(Apr-09 152B -> Oct-09 108B)
Let the game .... continue ;)
Is there similar data for UK glits holdings ?
Uncle Ben's hoping no one will notice as he sits on the pot and Timmy's in the basement, printin' up the Benjamins. I'm on the pavement thinkin' about the guvmint.
(Thanks for letting out the genius, Bob!)
Absolutely nothing will force the U.S. government to become responsible about spending. This makes investment decisions remarkably simple--you can play in the markets for a while longer if you want. But at some point, ammunition/food/PMs/water source/arable land will be cheap to you at ANY price in fiat currency.
As John Derbyshire says, We Are Doomed.
Now that it has been announced it is already a fait accompli...
When will people realize that China has already divested itself of most/all of those treasuries by purchasing commodities etc. globally.
Whatever remaining treasury losses exist will be offset by the rise in their ever-growing gold.
Yes...watch what they do, as it is more important than what they say. Cough *melanine* cough *contaminated drywall* choke.
By the time it is made public it is already accomplished.
Those treasuries have been SWAPPED for global contracts - for things priced in U.S. Dollars (e.g. commodities, gold, etc)
If your gun has no more bullets, but you still have a BIG EMPTY GUN, do you want your ENEMY to know that the gun is as EMPTY as Bernanke & Geithner & Summers & Obama's HEAD?
They can dump the global financial credit system just like North Korea. The riots would start the next day and those Chinamen would be hacking away at one another. "Nuclear" option, hahahaha, would be a huge mushroom cloud right above every Chinese city.
The only thing these countries can do is expand to they peak then implode.
http://1.bp.blogspot.com/_GWZ5g764sqs/TCuseuVdINI/AAAAAAAAABU/MGhBEJsjTz...
China will shutup and get back in line.
The chart above should look familar.
http://4.bp.blogspot.com/_GWZ5g764sqs/TCut7uzEvYI/AAAAAAAAABc/RE44_b5eJC...
"Denial is the most predictable of all human responses. But, rest assured, this will be the sixth time we have destroyed it, and we have become exceedingly efficient at it" -The Architect
My God, you're stupid.
For one, China won't be nuked, because they have a MAD response in place, AND we can't track their subs.
For another, China will NOT get back in line, because they see themselves as the new boss, since they have us by the short and hairies.
And finally, who is the one in denial here? "Oh, they could never do that!"--Idiot.
"or one, China won't be nuked"
Did you not READ the article, are you an idiot? I would say YES.
You do realize what "nuke" was being used for? I think not. Retard, thought the article was about real nukes.
Can you not see that you are a wacko?
I love how idiots like you retract their statements, like an express statement like "mushroom clouds above Chinese cities" could be interpreted as anything other than "The US will launch a nuclear attack on China if they dump the dollar."
You fail at fifth grade communication. You also need your mouth washed out with soap, youngster.
Your picture should be in the dictionary under the term "clinically retarded".
Good news is you don't have to cat scan him. His brain looks like a ruptured testicle.
Mako, I agree. I think the Chinese know that their words move markets and so they use them tactically.
But, the reality of the implied actions (eg, 'dumping' Treasuries) would have extreme consequences and of course is a most unlikely and undesirable outcome. So they are reminding the world now, to be more cautious. Can't say I have a problem with any of this. No, of course they aren't going to do anything rash to upset the applecart immediately. They have time - why would they squander that? Time is on their side if things go slowly - if US Treasuries get 'dumped' fast, then it hurts everyone, including them.
Some of us are used to more hotheaded countries, which rush into extreme actions and regularly sit down to a banquet of consequences. It looks to me like the Chinese leadership style is one that many of us in the west are not used to and don't really know how to deal with, something which I think China often uses to its benefit.
china gotta big mouf. stfu already bitchez.
Looks like gold futures are trying awfully hard to punch through 1200 again this morning. Almost touched 1195 a minute ago.
They would never just dumpt the assets...that would prove them the fools and create the greatest buying opportunity of a lifetime...there not going to do that and anyone who is bullied by the belief they will can't be thinking straight.
So you wouldn't sell stocks in a soon to be bankrupt company just because you are a large shareholder?
Imma buy me sum Enron stocks--they're woefully undervalued.
Is it just me or does it seem like China actually has a clue about what strategic steps they are taking and our "leaders" here in the USA are completely out of touch?
"Is it just me..."
Read my PREVIOUS post...
Yeah, China has a clue. First they plan to douse themselves with insect killer then they plan to light themselves on fire. After that they plan to run around screaming and whining about shit for awhile. Oh yeah, China has a plan.
You keep thinking that, Round-eye.
Go take a cold toxic shower and stop dreaming about having sex with your mother. lulz!
You have to excuse him, he read so many Peter Schiff books about decoupling and he doesn't want to know that he was sold a bill of goods. Delusional. Thinks the Chinese are going to own everything like the Japanese did, opps forgot that never happened.
Every country will dropping into the ocean and they will still believe the lie.
http://stockcharts.com/def/servlet/SC.pnf?chart=$SSEC,PLTAWANRBO[PA][D][F1!3!!!2!20]&pref=G
Yep, that is a pretty chart. Like a dot.comer in 2002 thinking he is going to get his money back. Delusional people.
your logic is good but the only problem is you take your logic to the extreme and jump of the cliff. A contraction in credit will not be the end of the world, it will only be a shift. Chinese/Indians/Americans/all on seeing food inflation will find Agriculture more profitable and move from Cities to Villages. Of course there will be some friction, but things will eventually iron out. Ag will be a huge hit and profitable in the future.
And as it stands America will emerge the strongest because it is the bread basket of the world. Kansas alone can feed bread for 1/8 of the mankind. Also if it still has it's Gold, it can still collect all the gold for the food others want. The natural rivers - Missisippi/Missouri/snake rivers(natural God given Ag channels) and large Areable land offers America a far superiority over China/Russia/India....etc. BTW Iam not an American but I can clearly see it's advantages. God has truly blessed America.
You'll have to excuse him, he doesn't understand the difference between wealth and poverty, given his insistence that China, the world's largest creditor, is somehow like Greece, a major debtor.
He just wants to die, after all. Therefore, he has no use for his mind. He would rather spend his time trying to stop everyone else from using their minds with the ridiculous assertion that any and all systems of human interaction are doomed to fail after 80 years because of some imaginary equation.
tmosley, Mako does have a point. Ultimately, compound interest and its exponential growth will destroy any monetary system that it attaches itself to. He doesn't always explain himself in the most eloquent manner (gathering from his posts, I have to assume that English isn't his first language), but the basic premise he puts forth is correct. I disagree with him that the end of the equation means the destruction of humanity, it just means the destruction of the monetary system. Too many people are quick to equate that with the apocalypse and a Mad Max world. Humans are extremely resilient. We will make due with whatever we must. There will be a chaotic period where the change takes place, but other than that, we'll be fine. I think that the reason so many are calling for the apocalypse this time is that the monetary system is now GLOBAL. It used to be that each locality would experience its growth-stagnation-decay cycle in isolation, but now that the monetary world is truly global, the consequences will be magnified.
The scarier scenario is if at the same time that the credit market are reaching their peak, we are also hitting the limits of oil production. The MSM keeps telling us that peak oil is bunk, but if you look at the actions of all the players involved, you get a different story; tar sands and deep water drilling (logically, the easier sources of oil with the highest EROI must have all been discovered and must be close to exhausted before commercialization of these lower EROI sources makes economic sense), the invasion of key strategical petroleum countries by our nation, the creation of the biggest embassy ever created in Iraq (yeah, we're not ever planning on leaving...), the U.S.' alliance with Israel and the Iran saber-rattling, the obsessive need for our political leaders to pass carbon-trading schemes (a big double whammy - decrease oil demand by indirectly taxing the hell out of it, and stall the deflation death spiral by creating a whole new way to create debt - charge for the air we breathe!), etc., etc., etc.
Mako doesn't usually make the best case for his information, but that doesn't mean that his premise should be ignored.
tmosley enjoys spending the dollars flowing out of his trailer toilet on cheap chinese goods, leave him alone
You shouldn't get involved in stupid shit like this little fagfight between myself and Mako. It's stupid and pointless. The only reason I persist is because I hate nihilistic thinking to the point of physical violence.
So unless you are also a nihilist like Mako, just fuck off. No-one wants to hear it.
Yep looks captured to me.
Hank Paulson said he wouldn't use his bazooka either...
as long as they promise. they have our best interests at heart, right? here's an idea, let's make them take old fashioned paper bonds, and lace them with cadmium and lead.
China's got monetary stores of value purchased with USD's in quantity over the years; multi bullion billions beyond disclosure and other valued real monetary asset classes secreted beyond our freedumbed paper ponzi culture; not knowing a true monetary asset value buried in heaps of fraudulent paper pulped fiction!!!! !! USD is the U.S. Dumb waiter ready to take the laundry out; fraud and corruption in the district of corruptions mob circles! dead head fed goons won't even make it to nov 2 vote for change! Change will come naturally and vaporize ice castled ponzi'd dolls like Titanic destroying bergs, hurled into the suns center!! Other than that the Winter of discontent will have plenty of worthless paper to fuel heat in many homes for a season! Treason season!!
Its a bluff. China cant unload the trillions in treasuries without destroying its own economy. Furthermore, In the end the fact that China is a creditor means nothing unless the debtor can repayed. As much as I disagree with Krugmann, I have to accept that in this case the only way to save the economy from the coming deflationary spiral will be a trillion dollar QE. No its not a sane economic policy but the system has been corrupted to the point that it has no other choice at this point. We had the opportunity to let firms fail and file for chapter 11 done properly not like the whole Lehmaan fiasco but now its too late. We are in an Elliot C wave which will bring profund changes not only in the financial system but structural and social changes.
'Nuf Said
"The opportunity to secure ourselves against defeat lies in our own hands, but the opportunity of defeating the enemy is provided by the enemy himself."
The Art of War
The Chinese government is definitely hardball mercantilist, doing its utmost to hog the biggest possible portion of global growth, without sweating one drop over how it suppresses global growth overall.
The main issue is trade policy: suppressing imports of manufactured goods and services, ie refusing to let China's growth support anybody else's, and subsidizing imports and waste of raw materials, ie making growth more expensive for everybody.
China has also been cleverly exploiting the neo-Keynesian fad by supporting the expansion of developed country deficits. These purchases are not only useful as political leverage, especially for ensuring continued trade access, they financially support continued elevated consumption of Chinese goods.
Isn't there some saying about China... China will do what China wants when it wants...
I understand the public statement that they're not going to dump US Treasuries, saying that they were going to dump them would push the dollar to lows that would cause them severe pain. But why publicly state that you're not going to be buying gold?? Unless the objective is to keep the price down while you are buying it? I'm just saying, with China there are meanings behind the meanings. You can't take this stuff at face value.
You iz right.
China is always a buyer of gold and will not wish to upset the applecart (at least not right now). "What, me buy that stuff? But it pays no interest!"
Gold bitchez tell me that:
Either way, the bias is toward keeping the headline price on the low side.
I'm glad to see this is being more widely recognized as a real risk. I've speculated on these pages a few times before about China - maybe not dumping T's - but sitting out a UST auction or two and/or plowing those funds into gold or other commodities instead.
Of all the major league sovereigns on the planet I would bet that the Chinese are least impressed by the majesty of Obama's racial and ethnic heritage which has played no small part in this country in terms of investing the candidate/president with all sorts of preposterously high expectations and good intentions. Those rose colored glasses have faded a bit in the US and elsewhere but I don't think the Chinese ever had them on. In this case certainly I think that has been an advantage.
Of course they're worried about their book and their massive US Treasury position. There are only so many alternatives. I would imagine the vast majority of US government debt on China's sheets were purchased with the intent of being held to maturity much like an insurance company or other match-book account would. Therefore they really only care about default risk, inflation to a lesser extent and mark-to-market value little to not at all. This being the case, cutting potential losses by buying less or no additional US debt is the least unpleasant of several bad options. Plus that way they get to say: "well we didn't 'go nuclear'....just like we promised!"
Sure, and last week they broke the dollar peg. You betcha.
In China the color red symbolizes good luck, happiness and joy. Gold on the hand, represents WEALTH and PROSPERITY.
These colors are ubiquitous within Chinese culture and date back thousands of years.
Note. Green paper dollars have no deeper meaning.
On a side note... Mako I still see you are suffering from headinass syndrome. Get well soon!
The numbers and charts don't lie, only delusional people do. Good luck on your Chinese investment that is falling off a cliff.
Oh, well see little buddy. And rest assured, I've destroyed the market returns over the last 5 years.
You, on the other hand, have lost.
Sure you can trade, long-term investors are getting burned worldwide. Eventually you will have nothing left to short and all dead cat bounces will be done. So what?
You indicated China was the place to be investment wise, well, I am sorry that is just not the case. Unless up is down and down is up. China is not going to escape anymore than Japanese has been trying to escape the unescapable for 20 years.
The charts don't lie but people do. Go look at the charts of Asia, you think the US is bad, LOL. It's a global freaking system. Trying to hide in China is like jumping from pot of slow cooking water to the frying pan. Good luck with all that though, I am pulling for you.
Numbers and charts don't lie? Hahahahah!!!
They can say exactly what you want them to say - interpretation is everything.
Mako is ENTIRELY correct about China.
Idiots like you guys were saying the same thing about Japan 25 years ago.
China CANNOT dump US assets, they cannot decouple, there is no miracle going on there other than miraculous destruction of their ecology.
+1
Oh I just formed a mental image of two dogs locked after copulation,both volnerable because they can't seperate until the union is severed.
Maybe, but they could back their currentsea with gored.
Right, no-one can sell anything if we don't want them to. Why EXACTLY do you think that China can't sell it's dollars? You think there is some conspiracy in place to stop them? Has the CIA replaced their top party members with body doubles?
Idiots like you guys can't tell the difference between debt and savings. Japan accumulated debt, China has and is accumulating savings. Greece also accumulated debt, and it has brought that nation to its knees. The US accumulated savings in the past, and it elevated them from a colonial backwater to world superpower.
China can't follow through on its bluff. If they dump the treasuries, America is done for. If that happens no one will be buying anything Chinese made for a long time. The next logical step is that their factories will have to close since they will have slayed the goose that lays the golden egg (the US consumer that used to buy their junk). And just what do you think peasants who were promised the good life if they left their farms for the factories will do to the Chinese leaders if they get their pink slips and get told to go back home. That's the "mushroom clouds over every Chinese city" that Mako talks about. Sure, China has accumulated commodities with all those $ we sent them over the years, but you're talking about a country that prefers to build COMPLETELY EMPTY CITIES rather than have their workers be idle and do nothing. That's a big tell in poker parlance... Globalization was all the rage fifteen years ago. Well now it's here, and we're all in this stinking mess together. Sure, some are only up to their ankles, and some are in over their heads, but in the end we're all swimming in the same cesspool...
Double post.
China Promises Not To Use "Nuclear" Option And Buy Gold, Dump US Assets.....wait....
......I always figured the US held the upper hand.The US can NUKE Communist China anytime.Just declare all foreign held Treasuries are worthless,i mean they did this in '71.
Right...
A nuclear strike on China would be suicidal. Your assuming China doesn't have any nukes and that other nations wouldn't get worried about us just launching (Russia anyone?). Might not make us and our debt too popular.
Also default on that debt and all of a sudden there are no debt buyers. No debt buyers means the Fed and State govs collapse aka America collapses
The endgame of both of those "options" is a total disintegration of the US. Good Call.
Defaults usually result in not only (as you say) reduced access to international debt markets, but trade also takes a hit. You definitely want to avoid defaulting if you can.
NOT REAL NUKES!....JUST THE PAPER KIND.I bet the FED/USTreasury/PENTAGON/CIA have already looked into a DEFAULT OPTION by running extensive super computer simulations of this scenario.I presume if the US had to resort to this extreme option it would have to be prepared for the consequences by setting a very large margin of error +/- 50% perhaps?
But regardless, i reckon America would still come out on top.
Gentleman we have the technology.."WE CAN REBUILD IT,.....WE'LL MAKE IT BETTER,.....STRONGER.....FASTER"
rotflol wow you think the Pentagon/Fed/CIA/etc have the intrests of the American people at heart?!?!? HAHAHAHAHAHAHAHAHAH!!!
Yeah that must be why the pillage, because they love us so. That must be why they have aided the outsourcing of jobs and capital. So the dastardly plan is
1. Ship out all American jobs and tech
2. ?????
3. Profit
Let me get the Underpants Gnomes on the line, maybe they can help us out with #2
NOT for the vested interests of the poor american people.BUT the fear of China gaining WORLD MILITARY SUPREMACY and that damn it is worth fighting for.
Well,from the ELITEST's perspective anyhow.
We are all expendable as you well know.
So explain to me if they are so afraid of China then why did they move factories to China and directly aid China's rise? Would be a little silly to build up another nation while you blow up your host nation wouldn't it, unless you were planning on changing locations.
Don't think that the real peopel who have power on this planet are tied to any nation, or ethnic group. As you point out everyone is expendable.
Who knows what long term plans/intentions the ELITE have.
May be plan Plan A was moving smoothly and a slow realization set in as in "What the F*** are we doing"......time to implement Plan B.......i.e. "when in doubt kill".
It makes perfect sense. It was US corporations that built China to maximize their own profits. Free Trade Agreements assisted the transfer along with low import duties. China and the US are a single entity in the supply chain and not rivals competing for the same business. Now that profit margins are near zero, there is no need for US corporations to support China.
This also brings up an important point. My theory on the Gold reserves of these emerging economies has some connection back to the industrialized nations. I believe Gold was the collateral for western investment in these markets. The timing of sales by the west (1998-2000) and the accumulation by the EM's fits this theory well.
That's fine if you no longer need to borrow from foreigners.
It might also be the best option if your interest payments are greater than the loans you can get from abroad.
Ironic, isn't it, that socialist and communist nations have nearly all the real wealth in the world; whereas all the 'free-market' western nations wound up nose-deep in debt?
I think we should drop any pretense that their dollar holdings aren't a political lever: offer Taiwan straight up in return for debt forgiveness. If necessary, sweeten the deal by pulling out of Japan and Korea. It's nothing more than making a virtue out of necessity... a win/win for everyone, except, of course, the Taiwanese and Koreans.
China isn't a communist nation. Hasn't been since Hong Kong was absorbed.
Ironic, isn't it, that socialist and communist nations have nearly all the real wealth in the world; whereas all the 'free-market' western nations wound up nose-deep in debt?
Indeed.
The old-time commies are fuddy-duddies. They still believe in output of physical goods and haven't mastered the art of the financial shell game. Plus, the common folks know not to trust the government.
Old Soviet joke: 'Never believe a rumor until it has been officially denied.' Few Americans are at this level of consciousness.
Wow a creditor calling for the debtor not to renege on the debt, who would have thought? China would love for the Zimbabwe Ben not to print to the moon, this is just a gentle reminder that China is willing to sit in dollars unless Ben forces them out.
This is not entirely true, which is false.
The US is not creating enough new credit to fuel the system. China has said they have no other choice but to continue to see where this goes. Of course, China does have a choice, just no good choice.
China would love nothing better than the US consumer to start creating credit at a $4.7T rate like in 2007 and now at negative -$800B annualized. It is this missing new credit coming on line that is suffocating the system and the rest of the world, unfortunately or fortunately it is impossible to sustain.
China would just love to continue to move villagers to the cities and the factories and continue to replace the bicycles with new cars unfortunately the system maxed out globally in 2007.
100% correct.
Why cannot people see that the "miraculous" growth of China was driven ENTIRELY by the miraculous growth of DEBT HERE.
There is NO real, sustainable demand for China - it is a PONZI. The West has effectively strip-mined China. Look at the pollution, look at the low wages, look at the billion peasants.
The destruction of rivers, lakes, water, air, all to provide for DEBT-driven western consumption. And because of the complicity of the chinese "elite" who desired to get rich and live western.
China has entire cities nobody lives in, half their factories there is no demand for, the entire NATION as an institution is only marginally profitable now.
So I guess that the two of them (US, China) stand or fall together?
The whole system stands or falls, it's a global system. There is no seperate system unless you count North Korea.
There is really no difference between now and the last time. There was no way for the US to escape the peaking of the UK back then.
Europe collapsing now is just a symptom of the issue, debt/credit creation by the reserve currency nation is negative. Really all these systems can do is expand, peak, collapse and then liquidate.
There is no decoupling unless we are talking about a nation like Greece decoupling and falling into the Med. There is no backup system that just gets turned on which is what the decouplers are finding out, why this is a mystery I don't know but they continue on with this is just futile.
trav is correct there is no magic there anymore than there was magic here in the 30s.
Thanks Mako, your assertions are depressingly plausible.
I like to think that Benjamin Strong could have declined to try and maintain the pound/dollar exchange rate in the late 1920s, but perhaps he couldn't (having orders from higher up, and I don't mean politicians). I'm under no illusions about the current seat-warmer at the Fed.
I work with an Iranian guy who says that, although things in Iran are tough, there is no debt at any level, mainly because the embargo has shut Iran off from world capital markets. So maybe Iran was 'involuntarily' de-coupled. Instead of bombing them we should just offer them credit, maybe a super-senior tranche or two.
Nothing down, bitchez! Low monthly payments!
Iran still benefits... all that oil revenue comes from the exponential growth of the system. Once you remove that pulling forward there will be a huge hole to fill which won't be filled.
Not sure if I got you right, but there has been no growth since '05 for oil production, and I do believe, in the rest of the system.
I'm not saying China is not going to take a hit. It is. It has huge problems. However when the night ends they have a fairly young population, factories and building new infrastructure. when the day ends in the US, we have an aging population, call centers, and rotting infrastructure.
The whole system is going to take a hit, it's going to be who can scramble out on top. This will probably end in a resource acquisition. If you carefully read why Clinton has said in the past she has threatened cutting off China's oil, and likewise China has threatened to cut off America's ability to float debt.
The slow game helps China more. After all they will still have real assets, and can channel the unrest into a war machine to distract the people a bit better then the US Looter party can do so here.
You're not listening.
China has factories...so what? To produce WHAT, for WHOM?
You guys seem to be able to wrap your heads around the pulling of demand forward via debt growth in the west...where do you think that demand found supply? CHINA.
There is NO demand for China going forward. We don't need more shit and cannot make it anyhow. There simply isn't the energy supply. It's got nothing to do with debt, money, reserve currencies, etc. The world is LEAVING the Growth Era. This may be a transient condition, that's up to the future.
But the simple point of fact is that we aren't growing anymore. We are contracting. Whoever manages CONTRACTION best comes out on top. That is NOT China. China has grossly mismanaged GROWTH, how the hell does anyone expect them to do now that the poles have swapped? Everything they did for the past 30 years was predicated on rising western demand, growing their way out of poverty. Growth is over.
So what is China left with other than a TON of sunk-cost uneconomical "assets"? They have factories to produce junk that the world will no longer show GROWING consumption for. Therefore, China should be reducing factories because western demand and credit creation is in reverse.
Everyone, all the economists, all the politicians, every analysis, notice them, for the love of God, the word "growth" and a return to it is in EVERY single one. This is the fundamental problem, worldwide growth limits, headroom, the ceiling.
People assume that all factories in China are producing toxic toys for spoiled Western brats. This is not the case. They have massively overbuilt, I've never claimed otherwise. However look at the situation they will be in. Massive male population, low demand for their steel factories and the like, a castrated (financially) US. They are going to gear up a war economy to try to create the demand to keep the people from over throwing the CCP. I know there are energy limitations but it's not like oil is going ot turn off tomorrow, if nothing else I expect wars to be fought over resources that exist. China is going around buying up resources now, how can we say that they would not be willing to use force to grab assets they deem vital, the US is willing to do so.
The claim that there is no demand is downright silly. When we live in a demand that there is no demand for material goods then it will be either Kingdom Come, or Fallout: The Land of the Roach People. In either case I won't be alive. In a more realistic setting there will still be demand for goods, particularly energy efficient goods. It won't turn off. Sure the growth may go down, but guess what birth rates in developed nations are down below replacement. Taking out immigration and the West would be shrinking in size. The reduced pop would better allow us to deal with the contraction. Granted our wise leaders have opened the borders and piled on debt so we are forced on a growth or death model.
As to managing the turn down, how would the US do any better then China? In my estimation we would do worse since in a collapse the service economy will turn into a bad joke, and the people are accustomed to a rich energy intensive lifestyle. Turn off the gas and the cities turn into deathtraps.
You're right. No one can ever produce for themselves. They can only produce for other people, and as a result, underconsume, and collect little pieces of paper that say they have purchasing power.
Incidentally, the industrial revolution made England the poorest nation in the world, and all the other countries laughed at them as they traded the paper they printed for the goods they produced. Oh wait, that's not quite how it happened, is it?
Those who fail to learn from history are condemned to forever remain clueless.
Who keeps asking the Chinese this question, how many times do they have to answer it, and why does this matter seem to be exclusively reported by Reuters, a Rothschild-owned propaganda outlet?
China has been picked to be the next Big Enemy. When you have a big military, at least one of these is indispensable.
The job's been vacant since the USSR collapsed (global Islam is a puny and unconvincing enemy). The MSM is setting China up to be the bad guy when things go south in the US.
I disagree. "Terrorism" replaced "Communism". But anyway these China gold reserve stories are just ridiculous. China is not going to say "hey world, this is what we plan on doing".
Basically, someone at Reuters keeps asking Chinese officials, are you going to destroy us? How about now? Will you destroy us now? No? Are you sure? Okay, thanks. Wait, our leaders just did something stupid again, what about now? You're really just going to let me walk out of here?
It's not an easy question to ask, and there is no reason to ever trust the answer.
An aside, don't the people of China buy more gold than the government of China? So they may not be able to turn off the nuclear option. If the people there want change while the leaders have been sitting too pretty, look out Reuters reporter; It may be the people and not the government that we should be interviewing.
Typical Chinese double speak. They want nothing more than a devaluated US dollar. That's the whole idea of the peg. Unpegging the Yuan (most likely with intentions of devaluating it and NOT appreciating it against USD) risks run away inflation which China is already battling with (12% GDP with crashing BDI, please). It's a condition seen before with Japan. Inflation quicky swings into deflation (overcapacity) bringing their whole economy down for decades.
PS. Ironically, gold purchases by China to the magnitude of their UST holdings will place a squeeze on the dollar and strengthen it momentarily. It's a dangerous bet to trade appreciating dollars for gold when the entire world seeks the safe haven of the reserve currency that is still stable and more importantly, liquid.
"It would be nice if China would do the US taxpayer a favor and stop buying US debt and force the US govt to actually become fiscally responsible."
Doesn't this illustrate what's going on??
Make no mistake about it. The Chinese will do precisely the inverse. Our bastard banks are the largest vulnerability of the Western world (behind our arrogance/stupidity).
Don't tell me an empire with a memory over 1000 years is going to lay down and beg over someone else's silly fiscal problems - [insert American arrogance if you disagree].
The United States will be shallacked precisely by the Chinese using their newly acquired (and recently forefitted by the finance fags of the US) financial weapons of mass destruction.
Ask yoursellf, why would China even hold this garbage? Does anyone think that US labor can compete with totalitarian labor? Nope, not without sacrificing the republic (which is precisely the point).
...and all you think this is about currency, or gold, or the dollar - the joke is on you as you settle into your new zero employment police state of walmart courtesy of the Chinese who will own your money and rule with a boot on America's throat from 10,000 miles away.
Only a sucker trusts the Chinese.
GTFO with this Chinese exceptionalism 1000 year empire shit.
Where was this empire during the Boxer Rebellion or the Opium Wars? China was a backwaters as recently as 30 years ago. OUR debt game grew them.
There is no strategic mastery going on just because they have slanty fucking eyes.
Again, you're right. I'm sure their growth had nothing to do with the abandonment of Communist economic policy. We flew over, stuck our dollars into the ground, and factories sprang up. For some reason, the money that we fly over and stick into the ground in Africa never seems to take root. Must be they have bad soil or something. Or maybe it's because African countries adhere to socialist policies and destroy any amount of capital they can get their hands on? No, that can't be it. It must be bad soil.
"Where was this empire during the Opium Wars?"
Getting their asses put on pillows by Connecticutter blue-bloods.
China doesn't think like we do. Historically, they have not been conquerers though there are some notable exceptions. Seems to me that China has done a pretty effective job of securing commodity stockpiles to begin producing again at some point. Seems to me that China has forged relationships in Africa and Latin America that we never have. Seems to me that China doesn't really give a shit what we do one way or the other, because when you throw Europe into the mix we're still talking about markets of less than a billion people (EUR-NA) whereas their potential domestic market is 1.2 billion and their regional markets are easily 2-4x the size of their sunset markets. We are important to China only in the sense that we are a nuclear power and a force that could create havoc domestically for them. Based on history, I believe China wants nothing more than the assurance that we leave them the hell alone.
China does have to give a shit about the US.
The US still owns the international waters and China can’t trade anywhere without the US's implicit permission. If the US chooses to do so it could blockade any commodities import or export from China.
Remember Empire 101:
He who controls the trading routes, controls the currency. He who controls the currency, controls the banking system. He who controls the banking system, controls everything.
This is a statement of the bleeding obvious. China wants more gold but cannot say so openly. It has $2,500 billion in reserve assets (probably a lot more hidden outside SAFE) and converting that to gold at $1200 an ounce that would be 86,000 tons! The US has 8,000 tons, the ECB 12,000 tons and China 1,000 tons presently in its reserves. So it will increase its gold holdings by buying locally produced gold and probably in the international; markets if there is a sell off. But gold can only be a small proportion of the value of its resrrves - unless of course gold were to go to $10,000 say.
I promise I wont put this loaded gun in your mouth and pull the trigger.
My daughter will in home and in bed by 10pm, right?
Yes sir....
(whilst mumbling) ....and I'll be in the closet with a buddy and video camera
From the 'Don't Miss This Chart Blog'
http://blogs.stockcharts.com/dont_ignore_this_chart/2010/07/china-leads-...
Fact: These idiot-moron-stupid-numskulls, Timothy G, Summers, the Fed, Banarke, Wall Street, US Gov, Obama & co, et al. Cannot, will not, and won't not figure out China.
In other words, regarding Financial and Economic Aptitude China > US
/redundency*double negatives*bad grammar
Debtor service sector economies fail(USA). Creditor production economies(china) simply shift who they sell to and what they produce. Albiet with some transition pains.
Well, the Chinese always have had an affinity for gold, since the classical era. Used to be the only thing that went east on the Silk Road. Keep your trinkets, silly Romans, just send us the gold.
But the modern Chinese have discovered that by buying some peculiar paper called "Treasuries" they can persuade the silly Romans to over-consume. They don't seem to mind much that it's only paper, so long as the silly Romans keep over-consuming.
I fucking love Asian humor ;)
"Nothing is more sure of happening than when it has been officially denied."
Exacty Gordon, +1.
This argument is trite. First, the doelarr is worthless, so for them to dump worthless paper is insignificant at the end of the day. Second, they are in no better shape than the US, so what they implement will be as destructive to them as to the US. Third, they have been buying a massive amount of gold for at least a decade, so they have already begun on that account. Fourth, we are at the end of the rope, this why Kkkrugman and Stiglietz are once again whining for more milk (STIMULUS) and if the US makes waves soon, China must make waves soon. Both have property bubbles, both use worthless FIAT, one has no manufacturing, the other only manufacturing; this and consumerism is dead. So basically, nothing has changed. Zero sum game.
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