China's Dagong Sees No Threat Of Fed Monetization Ending, Believes "World Credit War" Is About To Escalate

Tyler Durden's picture

Starting to get doubts about QE3? Don't tell that to the official Chinese rating agency Dagong, who in traditional uber-pragmatic fashion, has the following summary observation on US monetary policy, and any imaginary changes thereto: "The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011." What does this mean for China and the rest of the world: "The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system." Any questions?

Full selection from Dagong's report on the question of US monetary policy:

The United States, as the biggest country involved in sovereign debt crisis around the world, will continue its  quantitative easing policy when the country is in danger, and the world credit war will be escalated due to the overflow of US dollars

The second round quantitative easing policy ongoing in the United States can not change its weak domestic demand in the short term. In fact, it can only lower the interest rate of US Treasuries so as to maintain stable interest rate in the capital market in the long term, playing the indirect role of clearing some obstacles for a stable recovery. However, the plan of purchasing 600 billion US dollar Treasury bonds can not realize its predicted goal; and therefore, the United States will hardly change its predetermined monetary policy in 2011. The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system.

First, the trend of long-term depreciation of US dollar will result in haircut of international creditors’ debts dominated in US dollar. As the interest rate of US government debt is lowered due to the quantitative easing policy adopted by  the United States, creditors can not obtain the investment return commensurate with the risk status of US Treasuries. At the same time, the depreciation will also cause continuous exchange losses for the international creditors. Since June 2010, the US dollar has significantly depreciated compared with the currencies in emerging market countries and some developed countries, and the depreciation is 3.0% against RMB, 12% against Brazilian Real, 14% against South African Rand, 19.5% against Australian dollar and 11.4% against Korean won. The trend will continue in 2011, and international creditors will lose all their profits of the US dollars in exchange for the export income under the gradual depreciation of the currency. The behavior that the United States ignores international creditors’ legitimate interests indicates a dramatic decline of the country’s willingness to repay the debt.

Second, rapid inflow of capital will cause risks regarding inflation and asset bubbles in the emerging market countries, which is unfavorable for those countries to maintain their debt repayment credit. As a result, emerging market countries, including some developed countries and regions with good economic recovery, will have to withstand the economic and financial impact arisen from the inflow of capital in 2011. If the capital inflow exceeded the capacity that the domestic economic and financial development can absorb, some of the capital will flow over in the real estate market, capital market such as stocks and bonds and some commodity market to raise the asset price in the domestic market and eventually accelerate the inflation. Most of the countries have transferred to neutral monetary policies and will speed up the contraction of their monetary policies; however, due to the viscosity of the currency and imbalance of capital inflow in different industry, and yet the policies and measures will exert general restrictive effect on capital in the overall domestic market, the healthy development of the domestic economy will inevitably be damaged. Some Asian countries, for the purpose of eliminating the damage to the export in case of rapid currency appreciation, take some intervention measures, which bring increase of foreign reserves at a faster speed, and the consequent hedge cost is not favorable for the inflation control. While the capital retrieves quickly, the fall of asset prices will impose adverse impact on the robustness of the banks, domestic consumption and stability of the exchange rate.

Third, the issuance of US dollar encourages numerous speculative capitals into the global commodity market, leading to an increasing pressure on global inflation. The quantitative easing policy conducted by the Fed in a continuous way failed to promote the expansion of domestic credit scale; rather, the liquidity accumulated inside the financial system, in addition to flowing to foreign markets, has been used for financial speculative investment, causing surge of prices of global commodities including energy, raw materials, and foods; and almost all countries, as a result, have suffered losses arisen from the imported inflation to different extent. In EU and the eurozone countries where see the slowest recovery, the annual inflation rate has increased to 2.6% and 2.2% respectively by December 2010, the figure for countries with serious inflation, such as Romania, Greece and Hungary, has reached 7.9%, 5.2% and 4.6%  espectively.

The anti-inflation measures make the weak economic recovery even worse. In general, the capital inflow and inflation pressure that emerging market countries are experiencing will, on one side, directly affect the governments’ capacity for repaying local currency debt from the perspective of its influence on the value of local currency, and on the other side, indirectly and more seriously threaten the governments’ credit based on its adverse influence on healthy development of macro economy and financial security.

Currency system is the carrier of credit system, and therefore, the value of the currency determines the quality of credit system. International currency is the carrier of international credit system, and the instability of the currency value and the depreciation trend arisen from the over issuance make the function of the US dollar as the value scale distorted, which make other countries in the world pay an undeserved cost for their subsistence and development. The strike of shortterm capital dominated in US dollar to the emerging economics has made the excess US dollar capital become the destructive factor to the healthy economic development in different countries. The international credit system established on the basis of US dollar as the intermediary has been twisted in a way that the impartiality and reasonable aspect of the current international credit relations gradually vanish. Different countries, in order to avoid unpredictable losses on their own interests, will have to seek for adjustment of international credit relations, and the global credit war, no doubt, will become the turning point of reforming international credit relations in 2011.

Full report link

h/t Cate Long

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Tyler Durden's picture

As observed many times already, here is the maturity schedule of all Fed securities maturing within one year:

Rolling this will add maybe 1 point in Netflix.

Sudden Debt's picture

You should add the forecasted deficits with that and the chart gets pretty interesting.

A trillion here, trillion there and you get a real picasso :)

TraderMark's picture

Just an amazing statistic.

 

1 in 3 defaulters in homes have not made a payment in 2 years or more. 1 in 2 have not made a payment in 18 months or more!  Talk about stimulus.  Ponzi baby.

http://www.fundmymutualfund.com/2011/03/nearly-13rd-of-home-owners-in-us...

Tyler Durden's picture

That's amazing? It has been highlighted for over 6 months here. Just today: "the average U.S. loan in foreclosure now having been delinquent for a record 537 days" delinquent means nobody pays the loan. It also means the liar banks probably have the loan market at par.

medicalstudent's picture

magnesium deficiency.

 


Enhancement of learning and memory by elevating brain magnesium.

Slutsky IAbumaria NWu LJHuang CZhang LLi BZhao XGovindarajan AZhao MGZhuo MTonegawa SLiu G.

Department of Brain and Cognitive Sciences, Massachusetts Institute of Technology, Cambridge, MA 02139, USA.

Comment in:

 

Abstract

Learning and memory are fundamental brain functions affected by dietary and environmental factors. Here, we show that increasing brain magnesium using a newly developed magnesium compound (magnesium-L-threonate, MgT) leads to the enhancement of learning abilities, working memory, and short- and long-term memory in rats. The pattern completion ability was also improved in aged rats. MgT-treated rats had higher density of synaptophysin-/synaptobrevin-positive puncta in DG and CA1 subregions of hippocampus that were correlated with memory improvement. Functionally, magnesium increased the number of functional presynaptic release sites, while it reduced their release probability. The resultant synaptic reconfiguration enabled selective enhancement of synaptic transmission for burst inputs. Coupled with concurrent upregulation of NR2B-containing NMDA receptors and its downstream signaling, synaptic plasticity induced by correlated inputs was enhanced. Our findings suggest that an increase in brain magnesium enhances both short-term synaptic facilitation and long-term potentiation and improves learning and memory functions.

it was always a war on our brain anyways. thanks for your work, td.

bob_dabolina's picture

If you like this website wait 'till you check out

http://www.webmd.com/

The_Dude's picture

Wow...are there any American born students in our PhD programs anymore?  Either the American education system drove off a cliff (which is likely) or the liberal agenda to reshape America using the tool of the University system has gone into overdrive.

Sophist Economicus's picture

Slutskey of 'Slutskey et al.' sounds American -- Probably one of Robo's pin-ups too

strannick's picture

The university thought police prefers to have its population thoroughly indoctrinated before opening the floor to free speach. Otherwise who knows what those kids might say??

Afterall, you cant have people watching Obama's Pravda broadcast and wondering  why his hypocritical doublespeek is met with millions of progressive drones  nodding their heads in unicent, mumbling in monotone 'yes we can'

NidStyles's picture

Well that makes sense when you look at the fact that purified sugar and short chain carbohydrates sap the magnesium out of your system. Nothing worse than an over sugared person. Either they can't slow down enough to listen, or they are falling asleep after the sugar wear's off.

adeptus's picture

"Limitless" NZT48 baby! Ok, maybe NZT03 or so...

Sudden Debt's picture

I think he doesn't have 4 hours time a day to keep up with all the posts you put on here T. :)

 

perhaps he has a social life? just guessing here...

Reptil's picture

In any war, there's propaganda. Is it about "consumer expectations"?

They all know their backyard is BBB-, and they know the other side knows it.

http://www.bloomberg.com/news/2010-08-04/chinese-regulator-said-to-tell-...

 

Pladizow's picture

To: Tyler Durden

The incredible thing is even while the bank is not collecting from the mortgage they still are allowed to show it as income on their books.

It's not until the forclosure takes place that the bank writes down the asset.

This is just another reason for the banks not to expedite forclosure.

Nice accounting scam, huh!

 

crazyjsmith's picture

You need to post more often. 

Pladizow's picture

Wish I could, but I have to feed the kids and milk the cows!

Boxed Merlot's picture

Doesn't this just show the plan is progressing nicely in that the fed's mother ship's directive to increase title to real estate holdings as assets increase substantially? 

 

Owning soveriegn governments is not enough unless you can get the serfs to be obligated to grind the meal.  It may just be that the serfs in the US may end up telling the fed's foriegn authority to pound sand, that the deed / mortgage paper they hold has the same intrinsic value as the currency they're flooding the earth with.

 

The US foundation is still intact.  The sticks and straw that have been used since 1913 are deteriorating rapidly due to a severe lack of trust.  I'm willing to rebuild, but not with these inferior materials.

 

Establish weights and measures.  Coin intrinsically valuable currency.  Provide for the common defense.  Assure domestic tranquility.  Establish uniform laws of bankruptcy.  C'mon folks, this isn't nuclear science ya know.

 

 

 

 

 

 

 

PulauHantu29's picture

Good post. Sure makes a "sucker" of those who pay. Banks have no incentive to foreclose since they are getting "free money" from the Fed on the backs of the Middle Class Savers.

Shame.

MonsterBox's picture

maybe this has been already asked.... but "Who is paying the property taxes?"  the bank?  some insurance co?  some TARP clerk?

just seems really, really odd that counties are not seizing property yet, with all the state & municipalities sucking wind.

Innocent Bystander's picture

Yes the tipping point is behind us, however, something doesn’t add up, with all the noise from FED sock puppets, of ending QE2 sooner and no need for QE3 and now this from China, of all places

The continuous implementation of such unconventional monetary policy in the United States will lead to the escalation of world credit war and inflict greater losses for related parties in the world credit system."

 

I have fro sometime thought Dr.B has lost control, and now I think there is another piece to this puzzle, something is brewing and it makes me uneasy not able to figure it out.

I feel there will be cease fire from Dr. B’s monetary cannons for a some time, but make no mistake he is under siege and will have to start firing incessantly and in the process take the system down with him … but I’m not able to figure is who is going to be taking the slack when there is no flak, from Dr.B.. and why this statement from China.. now?

 

MachoMan's picture

No loss of control, rather the onset of diminishing returns (early/mid stages of loss of control).  The entire lot right now is directed at spooking the herd towards austerity...  they need a pullback to blow off steam from commodities and give themselves more room to operate...  think numerous cycles, all stair stepping downware...  an attempt at a controlled demolition...  well, in order to maintain control, you need to keep ambiguity alive...  how long the world tolerates it is anyone's guess... 

Innocent Bystander's picture

"they need a pullback to blow off steam from commodities and give themselves more room to operate"

agree,

but with looming short term maturities.. how long can they give themselves room to operate? with statements from Bull and Co. aren't they painting themselves in a corner.. you maybe this may be a slow downward stairway hell.. IB

MachoMan's picture

Conceptually, if you create the stampede from equities (rise in the dollar), you can get at least some bonds sold... 

Also, not really sure how the FED would just now be painting itself in a corner...  I'm pretty sure this happened decades ago...  the end of the dollar is a certainty, the only question is when and the intermediate monetary method(s) chosen...

hambone's picture

Yeah,

I don't get today - actually totally baffled.

How in the face of supposed cesation of massive QE liquidity, corporate margin compression, housing slow down, blah fucking blah and the market runs up? 

I don't know what I'm looking at - looks like somebody is simply buying stocks with money from nowhere, from nothing, and simply removing them from existence. 

My econ 101 book didn't have a chapter covering this!

 

eddiebe's picture

Well, how about the bond is down=stocks are up?

Yield2Greatness's picture

Insanity never looks the same as before.  I just shake my head and keep buying gold and silver.

JonTurk's picture

are coupon payments from long-term bonds included in these flows?

Tyler Durden's picture

Those are remitted back to the Treasury. Hence - ponzi

hambone's picture

I don't think this is a Ponzi - a Ponzi requires ever greater new investors to bring a limited supply of money for maintaining the scheme.

Fed is not looking for investors any longer.  Fed nor banks need your "money" (capital) any longer.  "Money" (digital credits) is created from nothing and digitally circulated to PD's (who else?) buy things of "value" be they T's, MBS, stocks, etc.  These are effectively retired from circulation thus lessening the supply of goods to buy and increasing the "money" with which to buy those remaining.  This process is very effective pushing prices up and would likely also have the effect of reducing volumes as these retired goods never return.  Fed doesn't care cause they can always create more "money" to reduce outstanding assets further.  In fact will actually require significant new corporate / T's issuance to maintain a semblance of a market.  Roundy roundy.

Not a Ponzi - needs a new name altogether...or just call it "fiat gone wild" or plain vanilla hyperinflation.

hedgeless_horseman's picture

Not a Ponzi - needs a new name altogether...or just call it hyperinflation.

I see it more as a protection racket.  I am looking at you, oil exporters.

strannick's picture

The Treasury Ponzi doesnt need new investors when its one investor, the FED, can print money without end.

davepowers's picture

perpetual motion machine paired with a check kiting operation

 

Howard_Beale's picture

Rickards seems to be under the impression that the Fed can do stealth QE by reinvesting that which matures + (and this is where he is wrong) the P & I income from MBS and Treasury et.al. coupons.

If you listen to the interview that is what I take away from it. But the revenue the Fed receives clearly goes to the Treasury and cannot be reinvested as Rickards seems to think. I don't know where he is getting this idea that keeping the balance sheet at 3 trillion will allow stealth QE of any significance.

Bendromeda Strain's picture

He is getting that idea from the Fed itself. Did you listen to the interview where he dissected the Stock vs Flow presentation regarding the Fed balance sheet?

http://www.federalreserve.gov/pubs/feds/2010/201052/201052pap.pdf

Howard_Beale's picture

Thanks for the post. I have not listened to the dissection but I will find it. Read 5 pages of the Fed Babble.. Here is my main question:

Does the Fed only pay Treasury once a year? If the Fed can reinvest monthly income (from all coupons and MBS principal) and payout at the end of the year (as they did a few weeks ago) then I can see that there would be additional liquidity injected. 

I don't know the intricacies of the Fed's swap lines so lets just deal with a hypothetical of $2 trillion in ABS, Agencies, MBS, Treasury's, etc. With the back end loaded with MBS (which for some idiotic reason they claim are 10 years or longer assets when everyone knows they average a 7 year duration) we'll give them 4.5% on $1 trillion. That's $45 billion in yield. Let's be generous and give them $20 billion on the rest.

That would imply that there could be roughly $65billion that could be put back into the system in addition to runoff reinvested. So next year runs off $110 billion plus this possible $65 billion and we have a rough stealth QE of $175 billion. A pittance compared to what QE2 is.

How does keeping the balance sheet at 3 trillion allow stealth QE of any significance more than the above stated amount? Additionally, do they pay the Treasury monthly? The only link I found for payments to Treasury was this from last week:

http://www.nytimes.com/2011/03/23/business/economy/23fed.html?_r=1&ref=business

Can anyone clear that up?

Bendromeda Strain's picture

It's Rickards contention that the Fed isn't going to QE(x) to monetize the debt per se, they still expect to gin up conventional debt sales in the future the old fashioned way (coercion and fear). The purpose of the QE flow is to present a credible threat to cut the bond vigilantes off at the knees should they get uppity. The size of QE2 was necessary to get the balance sheet stock up to where flow could operate.

tom a taxpayer's picture

"The purpose of the QE flow is to present a credible threat to cut the bond vigilantes off at the knees should they get uppity." My vote for the quote of the day or week or month or year. Thank you, Bendromeda Strain, this is the best explanation I have heard for the Fed's QE behaviour.  

Howard_Beale's picture

Your explanation makes sense but I don't think anything will hold off the vigilantes if higher rates are truly warranted.

When I traded MBS on the street in the late 80's and 90's, the old fashioned Treasury way was called the quarterly refunding (7's, 10's, 30's) and open market operations every day at 11am eastern.

Now it's the daily or weekly funding. Times have changed so much it's just unreal. However, if the Fed really thinks they can control the yield curve when all hell breaks loose then I would be thrilled to see that academic turd of a chairsatan get a teach from the market.

davepowers's picture

don't know how often they pay the Treasury, but the FED's new accounting policy announced on jan. 6, 2011 adjusted accounting treatment to allow the FED to offset losses on it's balance sheet against $ owed the FED on a daily basis. Formerly this adjustment was done annually. Perhaps, both the offset and paymt to the Treasury is now daily.

davepowers's picture

Howard, I checked it out.

Per the below FED policy change announcement of Jan 6th, the remittance to the Treasury occurs weekly.

http://www.federalreserve.gov/releases/h41/20110106/

Howard_Beale's picture

Thanks so much Dave! That tells us a bit more about the "flow" and that Tyler is most likely the one who is right as far as the Rickards debate goes. If the Fed has to transfer their coupon and principal payments every week to the Treasury, then that leaves the Fed with only the ability to reinvest runoff. For Rickards to say that the Fed can swap maturities and make deals with the Morgue or the Squid is possible (of course at our expense) but if they were to outright sell what they have that would be soaking up liquidity. So, unless they continue QE to infinity they have pretty much shot their wad.

crazyjsmith's picture

Nothing like satisfying a short term need with a long term liability.  Isn't that the definition of an addiction?

Crack?  Heroin?  Meth?  QE..............

None of those ever have a happy ending do they? 

willien1derland's picture

Good point CrazyJ - perhaps we should recommend that Ben & Timmah be candidates for the Cable TV show INTERVENTION - that would be interesting 12 Steps & the Federal Reserve - Hi, I am Ben & I am an Addict -

crazyjsmith's picture

There are all kinds of good drug analogies here.  Like keeping the Crack/Debt cheap just long enough to get everyone addicted.  Once that is done, and it is done, it is all over but the crying.   

Bendromeda Strain's picture

As observed many times already, here is the maturity schedule of all Fed securities maturing within one year:

The way I heard Rickards explain it, the longer maturities are in play at any time. The Fed just has to shuffle the deck and make some offers that can't be refused. Capice? Since he referred to ZH by name, (Rickards is reading? Congrats) I have to assume you did take the time to listen.