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Insightful commentary from Warren Pollock on how China is quietly getting the hell out of dodge.
Tyler gets some love:
Awesome. TD does awesome research, which eventually gets noticed.
I think the liquidity swaps were open market operations to sell the dollar (which Big ben did)..then if you look at all the earnings reports of "record trading profits" by the banks you will know who was implicit on the run up.
The funny thing is that who will buy this garbage on the way down? It will happens SO rapdily with HALBOT 9000 that stops will be BLOWN through like a knife through butter.
I left the dollar in MAY never to return ...
HSBC has a program that allows you to convert your currency in your savings account.
Remember if you have investments in US dollars you are getting paid with worthless currency.
What currencies did you buy? A basket?
If the swaps and derivatives themselves are built on no foundation, wouldn't the collapse of securities valued in USD crash and then lead to a dollar rally? Deflation?
The Dollar still has much more value than the RMB. The Dollar represents, at the bottom line, a unit of American labor. Americans actually export valuable technology and IP to the world, which is in fact developed in the US. THe Chinese export worthless crap that only stupid Americans want to buy. Once Americans get a little smarter (and I think they are), they will be left with the stronger unit of labor because fundamentally the stuff we export is much better than the stuff China exports. We win in the end until this reverses - unless we can't stop the run away spending in the government. I hope this stops soon. Even if it doesn't, we're years away from a collapse.
That's right... keep taking the blue pills...mmm... blue pills... mmm
"The Dollar represents, at the bottom line, a unit of American labor."
And that is, "Do you want fried with that?"
"Americans actually export valuable technology and IP to the world, which is in fact developed in the US."
Then perhaps you'd like to explain the large US trade deficit.
More delusion from the peanut gallery.
Yeah and got nominated for a Pulitzer..."Too bad Pulitzers aren't handed out for blog-entries. This year's award would go to Zero Hedge for its "The 'Money on the Sidelines' Fallacy" post."
OT: I'm getting really tired of the computer generated evonyonline chick. Can you have Google Ads replace her with some CNBC babes?
Bite your tongue! I love the Evony online girl, and if I ever play the game I hope to marry her!
She's a fallacy... you never see her again once you play the game. Evony is pretty much: you manage an economy by building cities up and then armies to conquer other player run cities until you (or your alliance) are the top dawgs on the server. If you don't like the idea of burning away hours of your life... then don't touch evony. Besides, even with the best cities in the game you never see her again. Was a horrible let down akin to the markets in a few weeks. She's just a prop to get you to go play the game. Fail.
Did you see the comedy writings in these ridiculous articles on the subject of the USD over at Clusterstock today?
No, America's Not Running Out Of Cash - Relax, China will keep lending us money (Aug. 4, 2009)
Best line? "There is almost no incentive for China to stop lending us money."
Stop Obsessing About The Dollar Decline (Aug. 4, 2009)
"Look, there's undoubtedly a lot to be concerned about with respect to fiscal and monetary policy, and it'll be painful if foreign investors really do lose confidence in the dollar. But that's not what's happening now."
Beautifully clear-headed analysis (right through the footnotes)! Thanks for the link . . .
Thank you for this article, it re-inforces my theory that the Chinese were contributing to the bidding up the insolvent banking stocks.
Thanks for this piece. I have been confused about this issue for 4 months. I now understand it enough to talk about it. Before I did not know what short end and long end had to do with anything. This explains some of the graphs used hear. I beginning to learn.
The other side of the coin
"The conventional wisdom has it that the massive foreign currency reserve held by China's government is primarily due to the US trade deficit, and that the US economy will be in big trouble should China ever decide to stop financing the trade deficit. As is often the case, this piece of conventional wisdom is wrong."
More here http://www.safehaven.com/article-14098.htm
Back tested garbage forecaster-
Not bad. He recommends RGLD at 32. About 30% gain in one year.
Do you know of any others that can forecast as well?
I guess the Coolie strategy failed....
"China's USD Exit," "hyperinflationary debt collapse" are looking like pretty crowded trades.
I have to laugh at this. This guy is a very smart guy but his logic behind the U.S. not being the world's reserve currency is laughable. As is his clear bias in supporting a position that the dollar is going to collapse and that somehow the Chinese are brilliant for getting out of the dollar. The reality is the Chinese government runs an idiotic economic policy fueled by corruption. They are going to be laid bare as the biggest fools in the global economy and if they are scaling out of dollars, it is for equally stupid reasons. That includes accepting foreign currencies in lieu of dollars and stashing commodities. Both are losing propositions.
This whole argument is one supporting personal bias and emotions rather than reality. This entire argument will be proven wrong.
I'm just glad that our economic policy is NOT fueled by corruption. Boy, we have it all over the Chinese. Thank God.
There are many bad things about a corrupt government, but it excels at capital preservation. It's their money, not their country's.
You need to wake up. The US has a growing structural deficit, crippiling debt liabilities, and an increasingly useless populace. They are no longer the beacon of stability they once were.
Let me rephrase this remark. I assign no intelligence or brilliance to the corruption of the US government. Assigning brilliance to the even more incompetent Chinese government is a greater fallacy. The dollar's future action is not going to be divined by the stupidity of whatever China is doing. It will be determined by a factual analysis of the data.
Debt for goods; does not seem to be a good deal to me.
If we were providing value then it would not be an issue.
In previous video's I talked about the two flavors of collapse;
deflationary default and a hyper-inflation.
Either one or the other would be possible.
this guy isn't so much talking about what's going on as he advocating china's abandonment of the dollar. we have to watch out for bias.
isn't the chinese economy one big humongous bubble in the making? so what will happen when that bubble deflates?
Don't get me wrong, China is a bubble. But it's also possible to grow into a bubble, they don't always need to pop.
I don't follow you line of thinking, are you trying to say China should invest in the US to save it from itself?
well the chinese do invest in the united states to save them from themselves don't they? what happens when those reserves turn to about zero worth? what happens then? there are a lot of things that go in china, that we never hear about. they have riots all the time. the chinese, unlike us, when they get pissed off, they hit the streets. i have to say though, that when the west, starts sneezing, the chinese catch a cold, there is no doubt about it. since the days that the chinese were given most favored nation status by our corrupt and treasonous government, back in the mid 90's, this chinese bubbble began. imho, it is all contrived. it is all manufactured. the chinses, are nothing less, than just another enemy created for us, by the same people who run the FED. So the chinese allowed some capitalism, per se, into their country and are attempting to control it all. so the peasants have tasted a bit of what it is like to be able to dream dreams. so the chinese government(communist party), in order to save themselves from themselves, must, i say, they must continue this big lie, the dream of the peasants that have bought into this big lie, called capitalism, and when that dream does not come true for them and they realize the whole thing was one big lie, because like us,(in the words of the late dear departed george carlin), in order to achieve the dream, you have to be sleeping. and the chinese peasant wakes up to a terrible hangover and the gross realization that it was all just a bad dream, a nightmare and now they are faced with the terrible consequences of what has happened and the gross realization that this dream of theirs will never come true, that they always will be poor and in their view, always without hope, then sir, may i ask you, what do you think will happen in china? by the way, the thing that is happening to them now, does it look similar to what has happened to us by chance? hmmmm?
I'm sorry but this is the stupidest thing i have read from any commenter on this blog over the past 5 or 6 months.
has japan "grown into" their late 80's bubble? have we "grown into" our dot com bubble? has holland grown into its tullip bubble? how many more do i need to name?
bubbles always pop. thats why they are called bubbles. ever watch a soap bubble spontaneously deflate back into just a drop of water+soap?
please think next time.
The US and to a lesser extent Europe, UK, and Canada are global reserve currencies because the strength of the legal system and general respect for property rights. As long as that remains the case- and this is not guaranteed- I don't see this situation ending anytime soon. Sure there is a long-term decline provided developing nations display the same traits (they have certainly come out appearing more responsible than western leaders) that Western nations have cultivated but I don't think this decline will be nearly as rapid as some others believe. That being said, I have been surprised how negligent our political and business leaders have been as stewards of our economy. But do I have enough confidence in the Chinese financial system to lend them money especially when doing so implies an open capital account and thus a strong RMB in the face of massive industrial overcapacity? Just how much domestic demand will emerge when so much of this "excess savings" exists on the government and SOE balance sheet?
"The US and to a lesser extent Europe, UK, and Canada are global reserve currencies because the strength of the legal system and general respect for property rights. "
The CAD is a global reserve currency? Why isn't the AUD, do they not respect property rights? Or the NZD?
The USD is a global reserve currency because most international trade is conducted in USD, which in turn came about because the US had one of the most robust and dynamic economies in history.
Now that that's over, having one country's currency dominate world trade no longer makes sense. We will eventually move to a single world currency, probably sooner rather than later.
I think history is pretty clear on how the hedgemony of the USD came about: The US economy was the only one standing after WWII and we pushed that advantage to the limit at Bretton Woods. If we had not allowed profligate incompetence and unrestrained gangsterism in the markets, we'd still enjoy a mammoth advantage that no one could arguably "exit" from by any means.
I don't believe the "crowded trade" argument is valid in the case of the falling dollar. It's more a self-fulfilling prophecy. In my opinion, the "crowded trade" phenomena was an orchestration of the banks who ultimately control the market. In other words, once they have your money (and everyone else's), the pull the rug out from underneath. In the case of China and the dollar, I don't believe China's going to play games. They will do whatever they do and the fact that a bunch of folks have lined up to protect themselves by piling on one side of the trade isn't going to mean squat to them. They are not trying to take our money but rather want to protect their own.
Of course they want to protect their own. The question seems to be how long they'll need to continue protecting us from the consequences of our own misdeeds to optimize their imperfect predicament.
This I found compelling:
I am a subscriber of Leap and must say they are often right.
Their sight is a bit different as the most anglo sights of things.
Maybe a few more buttons up on the shirt would be better..
For your consideration
Simpletons like me knew that we were within a housing and credit bubble. Just did not realize the magnatude. (Soft landing were a given)
I would argue that Wall Street and our goverment knew what was coming because in 2005 bankruptcy laws were changed to tighten the nose around consumers and their ability to walk away from debt. Lobbyists asked and our politicians agreed. So if Wall street and goverment knew than key financial players around the world knew. Especially those (Chinese) holding billions of dollars of our debt. It just seems obvious that something bigger is going on or is going to happen.
As my avitar suggests how many moves are we before check mate?
I agree with your characterization of the 2005 bankruptcy "reform". Central banksters who say thewy can't see bubbles coming need to be held accountable. RICO?
That would be interesting to know indeed.
On the other hand - if anyone tries to tighten their nose around me, they will soon find it bloodied and bruised!
The Texas government just gave the bankrupt Cowboys a 1.5 billion $ free stadium. when will Texas go bust? Does the stupidity never end? If the Cowboys cant afford a stadium, then let them go bankrupt. Make a product people want to watch and pay for.
I love how people assume that China can just turn their attention internally and cut back on sales abroad. Such thinking assumes that Chinese consumers have the ability to absorb the crap that we buy at WalMart on a daily basis - they can't and here's the proof. Walk into any WalMart and look at the imported stuff from China - has it been marked up or down in price? It's marked down because China is the ultimate price taker on the raw material side and on the end-user side. Price takers don't generate the surplus to expand consumption - that's reserved for channel members with pricing power.
Here's more proof - strong players don't need to take back paper for their efforts. China provides the US vendor financing at extraordinarily favorable terms for us. They do it because they have nowhere else to send their manufactured items.
In my estimation, China is destined for the economic dumpster once the effects of their stimulus package wears off. Imo, the Chinese are presently building for inventory as export demand remains low. Without a global recovery, China implodes.
Maybe they have a plan.
Maybe they are working on or have a new economic modell in mind because they know that this shit cant go on forever.
I have to chuckle at this given the way that the US is destroying the perceived strength of its legal system and many forms of property rights. Perhaps you realized the irony when you wrote that? Major businesses in international deals with usually not rely on US courts to enforce the agreement - either arbitration or UK courts (and commonly arbitration in London). This despite UK lawyers (at least, big name London firms) having rates about 50% higher than NY and DC lawyers. And the absurd spectacle of the Chrysler and GM "bailouts" (confiscations and handover to the UAW) really hurt property rights, both in fact and in perception.
The US does not have a bright future, right now. It could if we tossed 99% of our so-called elected leaders (Ron Paul could stay, and that's just about it) and replaced them with intelligent, honest, decent people who wanted real solutions and intended for laws to be obeyed without being oppressive. And I've got a nice bridge to sell you on the East River.
You conveniently left out the following sentence: "As long as that remains the case- and this is not guaranteed- I don't see this situation ending anytime soon."
I am as bearish on the direction of this country as anyone but it seems that the only non-Euro/Anglo country large enough in terms of trade to challenge for reserve currency status is China and I am not prepared to move all my assets into that country. Can someone tell me how the bankruptcy process would work with a stock in the A-share market?
Yes, I think we are all, globally, pretty much equally fucked.
Ramblings of an Ordinary Joe:
Wouldn't the devaluation of the dollar and the increase in the price of comodities since March account for a large portion of the stock market rally on a valuation basis?
The economy is not getting better, it is just getting less worse. But it is in fact getting worse.
There is no demand for goods, just dwindling supplies of finished products as inventories are being emptied.
Nothing being done by our government has been in the way of creating a sustainable solution to our systemic issues. They are simply trying to blow new demand bubbles using tactics such as cash for clunkers and foreclosure moratoriums.
Consumers are absolutely tapped out, now pulling dust bunnies from the bottom of their pockets. "Savings" has come from the fact that so many are no longer paying their mortgages and credit card bills. Now they're going to get kicked to the curb like an old French whore as corporations look for new, fresh Asian meat.
"Wouldn't the devaluation of the dollar and the increase in the price of comodities since March account for a large portion of the stock market rally on a valuation basis?"
give joe a cigar.
As a follow-on question for the less knowledgable, common sense from an average joe like me would suggest that at some point the rally has to die. There's no valuation or volume to suggest it's sustainable.
What happens to commodities when the stock market rally goes bust? Or does it ever?
These may be dumb questions, but even a couple of places to start looking for answers would be a great help.
Talk about cherry picking numbers. Looking at a year's worth of data (http://www.treas.gov/tic/mfh.txt) and the fluctuation in bill/bond purchases between April-May doesn't look all that special. His "theory" may be right, but he's got no real data to support it.
The small fishes can pull out (Brazil and Canada), but China is mixed up in a Ponzi scheme with the US and if they start pulling out it all falls down for them. Basically there's an event horizon for China. They can get close to it by selling off some of their bonds, but once the world sees what they're trying to do, they pass that horizon and pull all the remaining bonds they haven't moved down the drain.
Until there's a real reserve currency alternative, China ain't doing jack shit.
Oh, and China does nothing quietly.
Talk about cherry picking your facts....
Canada is not a "small fish". You obviously have little knowledge about where some of the US imports ARE from.
The rest of what you said is plain 'ol drivel.
A country with 30 Million people cannot provide the currency the world needs to operate.
Holy chest hair, batman!
Yeah, we may think we've got the Chinese in the USD equivalant of a SuperMax prison, but every system has its weaknesses . . . and a determined prisoner with lots of resources and potential friends on the outside will maximize them to the fullest.
I don't think their escape is much in doubt, it's just a matter of when. They're clearly working on it.
There is some great dialog here, yes Anonymous 23909 & 23913, great points. As for Anony 23907, I think you forget that there is such a large percentage of China's Manufacturing that is Not Owned by China/Chinese. Most of the Foreign Ownership being the US. Aside from the rest of the world getting an ever Increasing piece of the Pie, while our piece gets smaller, whose Factory, Manufacturing Facilities will be the first to be closed, should that become necessary?
In a way the US Corp's in China act as a form of collateral on the approx. $800BB in US Paper. Hasn't anyone considered this? Isn't that really the reason behind what I call "RED HERRING"
That is the call, the near Demand, for China to reValue the renmimbi / Yuan. This has been the job of all the Treasury Sec's, the FED, Big Business, you know the group...the job being to hammer the table for a 40% Increase. But why is it that nobody has pointed out that a 40% Increase in the Value of the renmimbi would result in a 40% Discount on all the Commodities, the Raw Material, that Manufacturing needs. The Commodities that China is already the big gobbler of.....so who gains, Cui Bono, isn't it the very same kruks.....they are asking China to make the Exchange Rate 4CNY to $1/USD, instead of the current 6.83 to $1.00, and make 4,000 renmimbi equal $1,000 USD, about the price of one ounce of gold right now, Cui Bono, the usual few. It was july 2005 when China removed the Peg of some 8.28 to $1.00/US, when it took 8,230 Yuan for each $1,000, how well did that work out and who gained, who lost..............................................................think about that please
RE: Red Herring. I've said the same thing. What could be more simple than seizing US assets in China as collateral should we manage to significantly devalue our debt to them by any means? Tit for tat, baby. Even a Wall Street banker could grasp that one. What could we do about it? We couldn't invade them. Could we rally the rest of the world against them? Yeah, fat chance of that when we've robbed the rest of just as much. Let's face it, we're gonna have very few friends in the future. Right now they're all maintaining appearances, the way the office staff always roundly laughs at the boss' jokes. Let us get "demoted", however, and we'll see how that goes.
Anon 23907 here: I believe you are referring to those joint venture "cost centers" as opposed to our domestic profit centers. You assume the value is in the industrial plant - I contend that you can move those plants anywhere.
If China really wanted to serve their domestic economy, they'd revalue the yuan upward and capture those great commodity prizes on the cheap like you content. They're not doing that. Why?
logic dictates that when you have the hot potato you want to get rid of it, nothing unusual about that.....just don't give it to me, i don't want it!
"I have to laugh at this. This guy is a very smart guy but his logic behind the U.S. not being the world's reserve currency is laughable. As is his clear bias in supporting a position that the dollar is going to collapse and that somehow the Chinese are brilliant for getting out of the dollar. The reality is the Chinese government runs an idiotic economic policy fueled by corruption. They are going to be laid bare as the biggest fools in the global economy and if they are scaling out of dollars, it is for equally stupid reasons. That includes accepting foreign currencies in lieu of dollars and stashing commodities. Both are losing propositions.
This whole argument is one supporting personal bias and emotions rather than reality. This entire argument will be proven wrong."
I think EQ makes an excellent point that a lot of pundits miss for whatever reason.
People are just assuming that the Chinese policy people are these clever, honest types who know what the fuck they're doing.
Yes, Europe and America are corrupt systems as well, but there is bigger accountablity, no matter what anyone here may think. China as a total system is still a good light year behind OECD systems.
Fuck if I believe Chinese econo stats. If they are manipulated and massaged in the USA, what the hell do you think they do in China?
I'm not American, and I will tell you this. There is a "mentality" gap that needs to be filled by the non Western World. When they do that, maybe I will then believe that this rally in Emerging Markets is the real deal.
The fact is that US and UK and European companies run the show everywhere after managing to globalise trade and finance.
China is headed head first into a Crisis Land Shitstorm, and trust me, the US government are NOT THAT DUMB to not know that.
It's conceivable that financial destruction may not be the whole story. See this writer, especially concerning the NATO operations near the Arctic and Eurasia, but also in every continent in the world. It's very revealing.
This activity suggests a return to Feudalism and raw power, where financial considerations are seconary to physically acquiring the world's assets. A first strike nuclear attack on Russia and China is not beyond a distinct possibility.
Talking heads are so annoying. Give me a fuckin transcript so I can skim...
Lest we forget...
Major trade within and without China is DOLLARIZED.
Shifts in the value of the Yuan:USD make one side of these deals an instant winner... the other an instant loser.
Imagine the pressure on the powers that be to keep all changes modest. Note how the Chinese have allowed the Yuan to creep up on the USD.
That policy should be continued, along with getting out of T bonds. The longest paper that China should ever hold is five years. Moving out on the yield curve makes no sense.
With her lousy 'courts' China will always require a massive reserve currency position to back up her trading. So her disposable overhang of excess USD is not as large as the gross numbers would lead you to believe.
It has to pain the CCP to know that BB's ZIRP means that her huge T'bill position is robbed of interest income. What ought to be 2% or more -- crisis rates tend to be crazy -- is 0% which means that China is losing $20 Billion right there. What a burn.
QE holds rates down AND debases the fiat currency. China is getting burned all the way around.
Ppl, these are all very smart folks. They all went to Harvard or LSE. They all know exactly what the situation is. If there was a way for them to be out of the dollar to their advantage, they would be out of the dollar. There isn't. They no doubt look for one every day, but no such way exists. The good news for them, with their rice supply over 600 miles away, is that dollars won't mean much when oil orders aren't filled, at any price. Then they can't fuel the rice deliveries. Then they starve. Then they start wars to take someone else's oil . . . and rice.
You people in the US are getting goods and paying the Chinese in IOUs. Too clever! At some point I'd rather be stuck holding the PRC-made DVD player than a bunch of worthless paper. At least I can watch my pirated DVDs while armageddon rages.
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