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Prominent Chinese Economist Advises Country To Sell Its $500 Billion In GSE Holdings Before QE2 Ends
Add one more pill to the daily Oxycodone consumption by the Chair Central Planner. In what is about to become the latest headache for Bernanke, popular Chinese economist Lu Zhengwei, a senior economist at China's Industrial Bank Co., has advised that China should promptly sell its GSE holdings on concerns that continued "blank check" writing by Congress to the GSEs will be "almost impossible" as well as fears that as soon as QE2 ends, the entire US bond complex will see a major sell off. In other words welcome to the world of game theory defection: he who sells first, loses the least.
From Dow Jones:
A popular Chinese economist on Thursday said China should be aware of risks in its holdings of debt issued by U.S. government-controlled mortgage giants Fannie Mae (FNMA) and Freddie Mac (FMCC), and suggested that China sell the securities soon.
The report by Lu Zhengwei, a senior economist at China's Industrial Bank Co., doesn't represent the views of China's leadership, but it does highlight persistent concerns about the security of Fannie Mae and Freddie Mac securities among Chinese civilians and some influential thinkers.
Lu's warning comes just ahead of a report from the Obama administration, which could come as soon as Friday, that will outline options to gradually phase-out the two companies, reducing the government's footprint in the U.S. mortgage industry.
Although an outright default is unlikely, Lu said that the end of the Federal Reserve's program of quantitative easing could cause the price of the securities to fall. He suggested China sell its Fannie and Freddie holdings before the U.S.'s quantitative easing ends in June.
If China were to sell its GSE debt how big would be the damage? Pretty big: $500 billion worth of big.
Lu estimated in the report that "Chinese organizations" hold around $500 billion of debt backed by the two companies. In a telephone interview with Dow Jones Newswires, Lu said "Chinese organizations" was a reference to holdings by the Chinese government in their foreign exchange reserves. Lu said he based this estimate on Chinese media reports, as the Chinese government has never confirmed the size of its holdings in the two agencies.
According to the U.S Treasury's report on foreign holdings of U.S. securities, China held $454 billion of long-term U.S. agency debt as of June 30, 2009. That includes $358 billion of "asset backed securities???backed primarily by home mortgages," and $96 billion of other long-term agency debt.
The bulk of those holdings are likely in Fannie and Freddie bonds and securities, though it also includes debt from other U.S. government agencies such as the Government National Mortgage Association.
And as all those who follow the shady dealing of the "Direct Bidders" and the UK-based buyers, the number is likely far, far greater:
The U.S. Treasury data may understate the true extent of China's holdings, as they don't include purchases made through special units based in Hong Kong and in other locations outside China.
As Zero Hedge has been reporting with every single TIC report, China has continued to sell its agency debt, as well as lowering its US Treasury holdings.
According to separate figures from the U.S. Treasury, China has been
steadily selling its holdings of agency securities since mid-2008. It
sold a net $24.67 billion worth of agency securities it 2009, and $27.35
billion in the first 11 months of 2010, according to the data.
So if China decides to not only not buy any incremental debt issued by the US, but to fully commit to selling, this virtually guarantees QE3, as the only way to find a buyer for the debt will be to prime the Fed's printer. Which in turn will activate the timer fuse on the 21st century's first Wiemar Republic recreation. And to think of just how much of a coward Tim Geithner was forced to appear last week when he announced that China is not a currency manipulator: it will be so very fitting for the country to add insult to injury and literally take a bond dump on Geithner's front lawn.
h/t Papa
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This is becoming one crazy chess board
The only way to not lose is to not play; "not playing" is the role of precious metals, and it is increasingly evident that more people are waking up to this fact.
http://jessescrossroadscafe.blogspot.com/2011/02/showdown-in-metals-mark...
The Chinese hold $500,000,000,000 worth of Fannie Mae & Freddie Mac securities, but only $44,000,000,000 worth of gold?
Man, they're a lot dumber than I thought.
Or they will demand all the "gold" from Ft. Knox in exchange for said securities, or they'll make them sorry by dumping that shit on the open market.
Don't forget the billions worth of copper, iron ore, etc they have been stockpiling.
They ain't that dumb.
On the contrary - They have been steadily divesting their
profits by buying mining companies, agricultural lands, even housing
real estates all over the world.
They ain't dumb... and who knows how much gold they have?
They're "absorbing" internal gold production before it hits the open market, so no-one sees the transaction and nobody knows their inventory.
They're playing for time right now 'cause it'll take a while to unload all their holdings of Uncle Ben's Minute-Money calmly to avoid a sudden crash. The bag they're holding is still way too big for them to let that happen.
I'd guess that when all the shit shakes out it'll turn out they have WAY more pm reserves than anyone guessed...
They're not playing short term to set themselves up for re-election in 4yrs - they're playing for the long haul. Tactics that our western politicians are clueless about.
Tic Toc Bitchez !
Thank Keynes!
The Huffington Post dipshits are celebrating him: http://www.huffingtonpost.com/ann-pettifor/happy-anniversary-mr-keyn_b_821471.html
Pawn to pawn all kings and queens and castles and knights. Let em keep the bishops till next year.
BETTER HOLD ON TO THAT GOLD AND SILVER BOYS AND GIRLS!!!
I think I hear Brzezinski and Kissinger cackling. Out of chaos, order, and the phoenix rises. I just hope we can keep it together in the thick of it so to shoot their bird down.
Buy F***in' Silver!
The Players have moved their last piece
Just waiting for QE to cease
When China screams "sell"
It all goes to hell
Then cooked will be all of our geese.
Hahaha, actual LOL.
+1
I am glad you picked up on this story. Supposedly tomorrow, Geithner will present options for the future of Fannie and Freddie. Stories like this should send a message of "never again" to our wise leaders - the public/private model was a failure.
However, no doubt they will try to recreate Fannie/Freddie in another form.
Yesterday I said that I am surprised that China still buys their bull. By "heir bull" I mean the UK/US/EU's bull. The great instigator of this whole fiasco can be traced back to... drum roll please... the EU! If I was a Chinese PM, I'd say, to hell with "mutually assured destruction" and dump all of the EuroTrash holdings, then the UK's worthless toilet paper followed by the US's worthless trash. But it MUST be done in that order or else it won't work.
Sell them to who?
No no.. Hu already owns them.. Hu needs to sell them to someone else.
Who's Hu and who are you?
SOMEBODY GIVE THOSE GUYS SOME NAMETAGS BECAUSE THIS IS GETTING CONFUSING!!!
We all know who will buy them... your friend and mine, The Bernank.
It will be sold thus: "These securities actually represent American homes! Do you want a Chinese to come and move into your house with all his pigs and ducks? Not to mention his disgusting, hideous, evil yellow betentacled family? Of course not! That's why we are repatriating these little parcels of America back to where the belong - back into that bosom of American-ness, The Federal Reserve!" (sound of trumpets)
LET'S CELEBRATE THAT WITH SOME ROASTED BALD EAGLE AND A BOTTLE OF WINE!!!
Lets dance. I have to trade europe wisker bisket!
Who made Hu?
It all comes back to AC/DC.
http://www.youtube.com/watch?v=ztruDvW2Rj8
Hu's daddy is who.
Bang Da Ho will buy from Hu....?
Hu's on first
Ho's on second ....
Ben's third base .... ?
Hu Will Bang Da Ho?
Hu Will Ben Dover?
Who's on first if Hu's already on second? This is confusing!
.double post- sorry guys
.
Har
More properly asked, "Sell them to whom?" The answer would be, The Federal Reserve. I am pretty sure the chairsatan has no problem buying up all that paper.
That is correct, the Federal Reserve is not the lender of last resort anymore, they are the buyer of first resort now. The Fed crossed that line with QE 1 and they cannot go back. Welcome to reality Ben, and he studied the great depression and concluded the Fed did not do enough. LOL.....
The Fed will probably buy them as part of QE3. Off the books, of course.
Can't whackamole this much longer.
Exactly right, lets see how this 1 way pump in an empty market holds up when theres a rush to sell $500 billion of something. Good luck Hu!
The problem is that the Chinese are dumping $500B in crappy bonds for $500B for a crappy currency. Tough problem.
Currency markets are a lot more liquid. They will be able to trade that currency for real things pretty quickly, though if they move too fast, they will wipe out all the offers and we'll get overnight hyperinflation.
Which they promptly use to to buy PM's in the EU, convert the dollars and get physical, they have been doing this for 2yrs, semi clandestinely.
Why do you think when the PIIGS started squealing, they were first up to volunteer to take care of Spain?.
Simple, buying time, and cashing Frns.
Who do you sell to when no one is buying....oh wait Ben will buy it.
Ben will buy them...
... but you, your children and your children's children with pay for them through taxation of their labor.
Yes. Or they'll pay with a smaller inheritance (either nominally or in diminished purchasing power). Or lower standards of living as capital flees and growth is subdued. The bill will be paid one way or another -- right now we're just trying to shift it around, squeezing the balloon.
This is great news! One step closer to the end of the Fed and the EU!
good stuff. too many stories to follow. my head is going to explode.
A Chicom bond bail out assures QE3 - and so does every other possibility.
Anyone who argues that QE will end needs to cite who is going to pick up the 300 billion a month of US debt.
QE is not a economic stimulus, it is a way to fund the Arab Genocide Program (war on terror). If QE were going to end in June there would have already have been troop drawdowns.
http://www.monstersandcritics.com/news/southasia/news/article_1617809.php/Karzai-confirms-US-seeking-permanent-Afghan-bases-Roundup
Maybe that is why the USA wanted to use all of their oil first, before our own domestic oil.
Chinese fire sale before the American CB fire goes out.
More power Timmay. I've got to have more power.
to the shields, or to the phasers?
Phasers set to kill, shields set to repel Fed CD (currency disease).
I think QE4 has already been planned; "Wiemar Republik" is right. The sad part is that it's all figured in as the highest and best use for the common.
AAPL just flash crashed
Ouch!
It's the sudden stop that will kill ya. No sudden stop yet.
Where are the long lines for the Verizon iPhone4?
they all ordered online
I was one of those who ordered as an existing customer. Received mine on Monday.
I blame Banzai7 for infecting me. He's been talking iPhone4 this and iGag that for months via our daily email exchanges. Once I finally let myself go and took the Verizon iPhone4 plunge, suddenly he goes silent and now iBuyers remorse is seeping in.
I feel so used. :>)
But the stuff is addictive he? :)
I've got a I4 and a Ipad recently and it's like I have the more often with me then my wallet or my wife :)
The wife is happy you left the wallet with her.
If 4 bucks is 200,000 shares. What's 10 million shares sold look like.
Easy come, easy go.
You are going to to buy the bottom of this inverted trade? Right! Look for a neck line (aka} handle in the bottoming pattern, on a slightly stretched (or longer scale) chart. Trade candles, not depegs. Use colors. Trust me, I'm a recovering rookie. Also you might want a short term rsi chart, with a MORE than zero line.
Director of National Intelligence, James Clapper, says the Muslim Brotherhood is a "secular group."
With people like this whitewashing the Muslim Brotherhood for GovCo we know what our own government is trying to do over there. This is not good for anyone, especially the Egyptian people, who have a long history of secularism and tolerance. They're going to go medieval.
Re China: We're all Chinese now, even Robottrader. SELL! SELL! SELL!
Going medieval? Like with some hard core pipe hitting niggaz, a pair of pliers and a blow torch?
lol thank you!
It's really not a bad play for them, it's not like the domestic "useless eaters" are going to stop buying cheap Chinese crap from Wal-Mart with their fully-subsidized incomes, and as a crash in RE securities would more or less force the Fed to shrink their book at least 35-40% (and the Fed book = the dollar supply), this would drastically strengthen the US dollar relative to the yuan, thereby defeating Chinese inflation problems.
It'd really be pretty fucking stupid for them not to initiate a sell-off cascade in RE securities.
Boys and Girls - I think the wheels are coming off as we speak. Equity market may be on verge of major shanking to chase money back to T's???
First the EU will crumble. Check. Then the giant EU banks. Check. Then the US banks... tic tic tic
My head is about explode also! But at least now I know that QE3 is a distinct probability not a posibility. maybe NTFLX is still a good buy.
QE3 would do what? Cause commodites and metals to instantly rocket up 25% along with a 50% lower dollar? This party is over. Its not exactly 2008 anymore with Bernank on the Time cover.
This is it, start of bond dumping. Remember this day. Look out Bernokio, Timmah, et al ...pension fund managers too.
Well that's the problem ganging up to make huge corporations. You too fucking big to get out of the door. All the little insignificant people can just scurry right the fuck out while king kong and godzilla just stand around stomping feet and thumping chest.
Calm down Haphy. Here. I made you some postum.
50B budget deficit in Jan? Not good for a Jan, not good at all.
http://www.marketwatch.com/story/us-runs-50-billion-budget-deficit-in-ja...
That? That's nothing a high speed printer can't fix. Watch Ben run!
I think he meanth that he expected the US deficit te be about 150 bil. $ in jan... AT LEAST!!
I really wonder how much they have printed in total...
From a currency in circulation standpoint, we're at $921.1 billion dollars as of last count. Roughly double where we were at near the beginning of 1999. Median average earnings were at $535/week back then. They're at $752/week now. In order to have retained real earnings, the average should be $1,070. Quite the gap, eh? So, if anyone tells you that income has been keeping pace with inflation (as in, inflation in the legal means of exchange of value), feel free to punch them square in the face without comment, because that's effectively what's already been done to you.
Gas was only $1.29 in '99. It's now $3.29. I have already punched every basturd like that in the face.
QE3 already on it's way. This will be the GSE bond bailout. QE4 is being planned to be the muni bailout.
I think the name will change....
HE1 for exampel: Hidden Easing 1
You again! Eat your crackers and milk, and sleep tight.
QE3 = immediate collapse of whats left of the dollar. Hey, go for it Ben, whatever.
The chinese are getting mad and this is a bluff. They know we have them by the short hairs and there is nothing they can do. Notice he didnt say sell treasuries or quit buying as a "hidden" indirect buyer. That might be a great little pick up for pimco. The government being unable to fund a total 700 billion loss on gse mbs portfolios over the next three years is the least of our worries. For better or worse this mbs/agency debt is fully insured by the taxpayers. China is getting desperate because they are trapped and lose no matter what they do. Expect increasingly belligerent speech.from them until their economy.comes completely unglued from inflation worse than ours and a completely insane.real estate bubble. Google erie china ghost cities. Also look.at their real estate metrics. Totally insane. They make our real estate bubble look rational.
Yup. If they sell GSE paper, they've got to buy something else that can absorb $500 billion, to keep their currency manipulation going.
And that something else will most likely be Treasuries.
Let them blow up the gold and silver market. Traders will gouge them all the way up and all the way down. We are watching the death throes of the chinese malinvestment bubble and pegged, subsidized industries. It will be spectacular if they really try to commit suicide to hurt us, but we survive as a viable economy and they dont.
the look on your face when you realize they will be forced to sell them......
survive as a viable economy???? You mean ...........ha ha ha!!!
priceless!
they buy eurobonds, europe defaults, china wants payback in gold!
Exactly, B. Just as once the ECB is authorized to paper over the 1 trillion in euro bank debt the issued new money will go straight into Bernank Deficit Bonds. regards CI
Yep, they are just like us, except.......................they have 2.5 Trillion in reserves.(Color them Black)
Wait a minute! What will a Chinese sell-off of agency debt & MBS do to the value of the Fed's balance sheet? Is this a further DV01 moment? Actually, what I'm enjoying is the steady permutation process in the Chairsatan's name. We're up to Archchairsatan now, I believe. May I suggest, paradoxically, that German military ranks be considered for ideas, such as Obergruppenarchchair satan, Oberhauptsturmsatan. Trying to help the process along, is all.
Clearly this calls for something incredibly irresponsible and completely futile on someones part ;-)
Irresponsible and futile? That sounds like the chinese trying to cut off their nose to spite their face and ending up cutting up their face and missing their nose! The chinese deserve what is about to happen to them.
as do you my friend.
mud pies .....i think you may find the taste a little disagreeable, them , old hat.
ZHers are just the ones to do it too.
This is like trying to sell a polished turd.
Who in the hell, other than Bernankenstien, would want to by them.
Can't we force them to prove they still have the laundry ticket for all those GSEs?
fun tickets ...
show us
the fun tickets.
Selling before QE ends sounds like a damn good idea for all investment classes!!
Looks like China is going to have to buy lots of food to feed it's population (drought, ground water depletion etc...) give the historical low level of global food reserves and the escalation in food commodity prices, which is going to climb even higher once China starts purchasing. I think China is liquidating some assets to purchase some very expensive food this summer.
and what happens to the dollar...straight to the moon? If you are selling US debt, you are long US dollar.
But honestly, who would buy that cat yack?
"and what happens to the dollar...straight to the moon?"
Oddly enough, yes. It makes about as much sense as the last time the dollar nearly touched 90.
http://www.finviz.com/futures_charts.ashx?t=DX&p=w1
But for whatever incomprehensible reason, the USD is the "flight to safety" when shit gets real. No, it makes no fucking sense whatsoever. Yes, it will happen again.
TU, PA. It does make sense. Billions borrowed in USD to invest in Euro denominated issues. ECB prints and Euro falls and now carry trade must buy more expensive dollars to liquidate obligations. Rapid upside may occur. Regards CI
LET THEM SELL! They will find out (like the retail investor) that the unicorns were not real. Americans will once again depend on their own ingenuity and neighbors once again. Have, gold, silver, plenty of ammo, a well, septic, and a year of canned food. Sell it bitches! By all means SELL IT!
Oh yeah, I have no loans either. Ha ha ha ha ha, My neighbors are debt-free and like-minded as well.
Ha ha ha ha ha.
Go ahead, sell it bitches!
This coming from a country crawling all over themselves to survive. Let them sell. They will take the bigger haircut at the end (just like the banks, they made a bad loan) of the day and make what dollars and PMs I have worth more. Call their bluff idiots, let them sell!!!
Is it just me...or just who the F!@# would China Sell its $500B in agency debt to?
Europe - Uh Nope...they are buying their own debt
Japan - Uh Nope...they are slowly selling too.
India - P-Leze!
Russia - Not a snowball's chance in hell, too small, AND they Dumped US Debt last year
UK - Nope...they are issuing their own debt.
So...Who....Who buys ANY US-Debt that ANY foreign nation holds?
Were in Grid Lock right now...I contend, the US has, or is atempting to position itself as "The Last Man Standing" we know we're screwed, and we wont come out unscathed, but we will (or are hoping to) come out better than the other 90%.
And we have better Nukes than China (opps did I just blurt that out)
Oh Yeah, One other thing on China...concerning their Population. We keep hearing China has like 1.1-1.2 Billion people. But I doubt they do. China's official City Populations show a combined City/ and City-Pre-fecture State Population of around 650M. and in the past 50 years, just like in America, much of the population has moved from Rural areas to Cities.
They simply Count the new imigrants who move to the cities, but dont reduce the rural population effectively counting them twice. (Look at soem google maps of China outside the cities...its Far more barren and sparsly populated than the US Midwest) Its an old communist trick to make them feel more powerful than they are. Theyve built entire Ghost Cities, not just Ordos, but entire areas in Shanghai sit empty...devoid of actual tenants.
We did this in Phoenix too...from 2001-2006 Suburbs of Phoenix stated their populations growing by 10, 20, 30 50% year over year, based on new home starts and sales. In Actuality nobody new was moving in, half the homes sat empty, and the towns discovered they had nowhere near that new population base they publicly claimed.
Why do I say this: Cuz China can Bite me! They bought Debt cuz the greedy bastards dont pay workers Sh!t and they thought they could turn their "surplus" income into even more money. Ha - Bitches!
Huuuuuu are you? Hu, hu. Hu, hu.
http://www.youtube.com/watch?v=l_FZVD5lsAw
Hu's you're Daddy !!!!!!!!!!!!
We are going to see worldwide Hyperinflation with economies who are tied to the dollar.
Mmmm...Peking Goose....can hardly wait!