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China Continues To Boycott Treasurys As Japan Prepares To Become Largest Foreign Holder Of US Paper

Tyler Durden's picture




 

In all the confusion over Pandit's resignation, the monthly Treasury International Capital data came out which showed a big jump in foreign purchases of Long-Term US Assets, with the total foreign LT purchases soaring to $78.5 billion in September, the biggest inflow since January's $102.6 billion. There were inflows in all categories, with Agencies and Corporate bonds benefiting the most, to the tune of $18.6 and $10.8 billion, respectively. Purchases of LT TSYs were in line with previous months at $42.9 billion. That said, hardly anything to write home about considering the far greater inflows of prior years.

Where there were notable developments was in the composition of buyers of US paper, which showed that for yet another month, there has been virtually no buying interest in US paper by the biggest non-Fed holder: China, whose total TSY holdings were $1,154 billion, down $12 billion since the beginning of the year, and down a whopping $125 billion from a year ago. Ironically that other massively indebted country, Japan, which has Y1 quadrillion in its own public debt to deal with, for a debt/GDP ratio will above 200%, continues to load up on US paper, as the biggest paper ponzi scheme continues going ever higher and nothing possibly can get in the way. In fact, as the chart below shows, the difference between total Chinese and Japanese holdings has declined to a record low $32 billion, and will likely see Japan surpass China as the biggest holder of US paper very soon. For some reasons on why China is not buying US paper, see here.

 

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Tue, 10/16/2012 - 10:04 | 2894472 dolph9
dolph9's picture

Is Japan committing ritual suicide?

Tue, 10/16/2012 - 10:05 | 2894475 CPL
CPL's picture

Supplies!

Tue, 10/16/2012 - 10:11 | 2894505 francis_sawyer
francis_sawyer's picture

Somebody has to print money to buy our debt... Otherwise it wouldn't make any sense...

Tue, 10/16/2012 - 10:13 | 2894520 GetZeeGold
GetZeeGold's picture

 

 

Clearly we need make our paper rainbow colored.....like they do in Europe.

 

Tue, 10/16/2012 - 10:14 | 2894507 MillionDollarBonus_
MillionDollarBonus_'s picture

This is a smart investment by the Japanese. US treasuries are in a clear uptrend, and there's plenty more upside from here. I anticipate negative yields on US treasuries in short order.. This will be the biggest wealth transfer in history and I want as many people to be part of it as possible, which is why my goal is to educate zerohedgers on the benefits of frequently compounded cashflows and risk free interest rates.

Tue, 10/16/2012 - 10:19 | 2894534 JonNadler
JonNadler's picture

my brother, can you also educate them about the evil of owning gold?

After all gold is backed by nothing

Tue, 10/16/2012 - 10:40 | 2894626 LawsofPhysics
LawsofPhysics's picture

Tell us MDB, how has the purchasing power of physical gold held up again?  Bah ha ha ha ha ha!!!

Stick to the satarical trolling idiot.

Tue, 10/16/2012 - 11:02 | 2894706 EatYourCornTake...
EatYourCornTakeyourPill's picture

Simmer down brothers, our day will come. Long USD, you fools. We will buy our gold for pennies shortly.

Tue, 10/16/2012 - 13:01 | 2895200 matrix2012
matrix2012's picture

the backup of the barbarous relic indeed lies beyond our system... need to wait another star pops up :D

Tue, 10/16/2012 - 10:20 | 2894550 Snidley Whipsnae
Snidley Whipsnae's picture

You consider US paper with negative yield a good deal?

Then 1983 US paper yielding 13% must be a moon shot?

BTW... 'risk free' doesn't exist in any paper assets.

Tue, 10/16/2012 - 12:43 | 2895123 WhiteNight123129
WhiteNight123129's picture

There are no risk free assets, the risk depends on the price. Cheap = less risky, expensive more risky, daily volatilty <> risk, daily volatility = white noise.

 

Tue, 10/16/2012 - 10:32 | 2894606 crusty curmudgeon
crusty curmudgeon's picture

The only thing better than selling gold (so I hear...it's not like I would have any of that barbarous relic) is buying FB stock and REITs.

Tue, 10/16/2012 - 10:46 | 2894645 Everybodys All ...
Everybodys All American's picture

Have you ever considered that some people might believe you're serious? For those people you are doing tremendous harm if they take your advice and you really need to stop and consider that outcome.

Tue, 10/16/2012 - 10:52 | 2894671 juangrande
juangrande's picture

Being stupid should be painful.

Tue, 10/16/2012 - 11:29 | 2894798 crusty curmudgeon
crusty curmudgeon's picture

Ouch.

Tue, 10/16/2012 - 11:08 | 2894724 EatYourCornTake...
EatYourCornTakeyourPill's picture

the people you're referring to who would ignore the entire comments section of people talking smack about fiat paper and take one guys advice who preaches the evil of gold and the strength of UST in the long term. Yeah they deserve what's coming to them. Keep it up MDB, Jon Adler made me Lol out of my chair at work today. Awesome. Love you guys.

Tue, 10/16/2012 - 11:17 | 2894758 TheCanadianAustrian
TheCanadianAustrian's picture

So what you're saying is if people are stupid enough to believe he's serious, they might lose money?

Stupid people? Lose money?

Has this ever not been the natural order of things?

Tue, 10/16/2012 - 13:05 | 2895168 WhiteNight123129
WhiteNight123129's picture

There are already negative in real terms. As long as the rates are negative in real terms, regardless of the prices, and regardless of the level of inflation you have hoarding. IF you want dishoarding you need real positive yields. If the Fed was to do that now, 20% of the US population would starve.

The Gold trade is both a printing trade (moving all assets up) and a negative real rate trade (hoarding) at this stage. For now equities and bonds move up along with commodities. But for different reasons. The financial assets move up because nominal rates have been wacked by expansion of medium. Commodities and Gold move up for a different reason, they move up because at the same time that nominal rates are down (financial asset bullish) real interest are negative.

 

At some point the nominal rates will increase (in order to prevent the yield to get too negative in real terms), while the real rates will keep being negative. This is where the long commodities short financial assets will be the most interesting. Commodities keep moving up when rates are negative even if nominally those are high (1970s).

High positive rates (2009), act as a lid on prices, and of course the Fed fought that by flooding the system with money which represses the rates, the rest is history.

So for those wondering why the commodities and the financial assets still move higher together, it is because we had at the same time nominla rates down and negative rates.

When the Fed stop printing, a lot of Gold bugs will be baffled because too many of us think the Fed will print to infinity. Re-acquire the baffle sell-off because the rates will be negative for years to come even if the nominal rates move slowly to the moon (finanical asset bearish), they will be behind inflation as long as nominal GDP to debt is low.

When nominal GDP to debt is high again, the Fed can re-engineer a new high real rate change of direction, then circulation start to be flowing back into financial assets and we start a new leveraging cycle (it will take years to get there). Do not hold Gold at that time (years away anyway).

 

Sun, 10/21/2012 - 00:29 | 2907328 MeelionDollerBogus
MeelionDollerBogus's picture

LOL - SMRT like rock

In case you hadn't noticed the cashflows are near-zero or effectively negative which is pointless. I'm not a giant fund pledging re-hypothecated Treasuries for leverage across several outfits all owned together but not publicly or clearly stated as such, hence one giant leveraged trading keiretsu.

Treasuries are risk-FULL, a guaranteed loss.

Tue, 10/16/2012 - 10:43 | 2894632 LongBalls
LongBalls's picture

As Japan goes so goes the U.S?!?!?!? *Sigh*

Tue, 10/16/2012 - 10:48 | 2894654 JamesBond
JamesBond's picture

japan can not afford for china to have more financial clout with america than they do.  

 

jb

Wed, 10/17/2012 - 06:26 | 2897495 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

interesting observation... when Japan asks for the USA's soldiers lives, US will have to deliver.  

 

Long bodybags, long US flagmakers.

Tue, 10/16/2012 - 11:00 | 2894687 matrix2012
matrix2012's picture

Nope dolph9!  I won't call it a kind of harakiri or kamikaze.

Japan is only paying out one of the various protection fees by Yakuza.

Tue, 10/16/2012 - 16:40 | 2896085 ilovefreedom
ilovefreedom's picture

Just attempting to counter balance (semi-stabilize) their own currency's massive devaluation.

i.e., attempting to hide behind the prettiest horse at the glue factory (the US), if they don't hide behind the USD TSY which is crappy, but still more stable than the Yen it would aceclerate the demise of the Yen.

These are stall tactics, but what isn't nowadays.

Mainstream media headlines: YAY!!! We are becoming less indebted to China!

Me: China doesn't want to buy our crap because it is not competitive, this is NOT a good thing. Japan buys our of survival, China buys out of choice. That means there are better choices existing in the global market.

 

Tue, 10/16/2012 - 10:04 | 2894473 CPL
CPL's picture

How can they be buying anything!!  They've been broke for 20 years.

 

Don't they have a nuclear plant to contain?

Tue, 10/16/2012 - 10:12 | 2894508 ATM
ATM's picture

They will paper over their indebtedness just like they will paper over those nuclear reactors.

Tue, 10/16/2012 - 10:15 | 2894526 CPL
CPL's picture

It's next to the open ostrich field where thousands of heads are buried in the dirt.

 

Man Japan has become such a shit hole.

Tue, 10/16/2012 - 10:23 | 2894564 Bastiat
Bastiat's picture

A people for whom loyalty and consensus are central social values -- betrayed by their leadership. 

 

Tue, 10/16/2012 - 10:16 | 2894529 fuu
fuu's picture

It turns out that only a small amount of the corium in reactor #1 escaped out the top, the rest just melted through the floor into the mudrock. It's contained like sub-prime.

PRINT MORE PROSPERITY!!

Tue, 10/16/2012 - 10:05 | 2894478 flaunt
flaunt's picture

quid pro quo?  "you buy our crappy paper and we'll support your takeover of Senkaku Islands"

 

Tue, 10/16/2012 - 10:37 | 2894619 francis_sawyer
francis_sawyer's picture

you'll tell me when those lambs stop screaming won't you Clarisse?

Tue, 10/16/2012 - 10:10 | 2894487 LawsofPhysics
LawsofPhysics's picture

Bankrupt countries "bailing out" other bankrupt countries? -  FAIL.

 

Just for fun could someone put up a 30 year chart of the NIKKEI?

Tue, 10/16/2012 - 10:20 | 2894547 RSloane
RSloane's picture

Why not? Its all the rage in the EU.

Tue, 10/16/2012 - 10:08 | 2894490 Anne Ominous
Anne Ominous's picture

Another case of the blind leading the fucking stupid.

Tue, 10/16/2012 - 10:08 | 2894494 LongSoupLine
LongSoupLine's picture

All that matters is that this totally fucking retard "market" is up big.  unfucking real.

Tue, 10/16/2012 - 10:08 | 2894497 bigdumbnugly
bigdumbnugly's picture

well i guess this means the US will now consider the proper pronounciation of those islands 'Senkaku' and not 'Diaoyu' after all.

Tue, 10/16/2012 - 10:10 | 2894501 Dr. Engali
Dr. Engali's picture

So the rats jump the ship at shiti for no apparent reason and the stock is up. What a crazy fucking world. 

Tue, 10/16/2012 - 10:10 | 2894502 Shizzmoney
Shizzmoney's picture

The Fed Reserve and the Bank of Japan are connected at the hip.

They go down together....I wonder what the common denominator is (Benny Boy)?

Tue, 10/16/2012 - 10:13 | 2894514 Sleepless Knight
Sleepless Knight's picture

They'll keep this shit up for years. Look how long Greece has been on the brink. We have another 100% debt to GDP to go just to get even with Japan and they're still functioning. They will ride this bitch until WW3.

Tue, 10/16/2012 - 10:12 | 2894515 ziggy59
ziggy59's picture

Bullish for Paper Pulp!

Tue, 10/16/2012 - 10:15 | 2894524 Inthemix96
Inthemix96's picture

And I was allways led to believe that the Japanese were smart?

Shows how much I know then doesnt it?  Stupid fuckers will go down the drain before the US of A.

:-)

Tue, 10/16/2012 - 10:21 | 2894551 Dr. Engali
Dr. Engali's picture

Japan has always been a vassal state of the U.S. they will do what we tell them to do...even if it leads them down the road to hell.

Tue, 10/16/2012 - 10:15 | 2894525 Snidley Whipsnae
Snidley Whipsnae's picture

Don't believe everything you hear... or read... including TIC reports.

It is not easy to determine the 'end user' or buyer of US paper.

For instance:

http://globaleconomicanalysis.blogspot.com/2011/01/china-secretly-buying-us-treasuries-via.html

It has been suggested by many that since China is coming under increasing pressure from it's own military and it's people to avoid US paper that it might be buying through other soverigns for it's own soverign wealth fund.

Tue, 10/16/2012 - 12:44 | 2895121 Urban Redneck
Urban Redneck's picture

I laughed at the second quoted line (bolded) from Mish, it brilliantly exposes the inexperience and naiveté of the author and the underlying truth simultaneously.

"Remember when China tried to buy Unocal, a petroleum producer, for $18.4 billion? The state department nixed the idea as a security concern. The same thing happened when Dubai tried to buy a US port.

Eventually those dollars will come home, they have to, as a function of math. In the meantime, passing the buck like a hot potato does not work"

The Chinese pass out US Treasuries like they are used used toilet paper.  I'd equate it to the Chinese Citizenism take on rehypothecation.  Collateral chains behind industrial finance transactions might have US paper being pledged at the major western commercial banks, at the end of the day China walks away with both equity and a higher USD interest rate than they would have had if they simply sat on the US paper.

16 March 2006 & 2 August 2005 will be important dates to look back at once the debt bomb drops and people are looking around trying to figure out how they wound up holding the hot potatos.

 

Wed, 10/17/2012 - 06:32 | 2897498 Half_A_Billion_...
Half_A_Billion_Hollow_Points's picture

Look up China Investment Corp.  They will buy Apple, Google, IBM, whatever else that has any value larger than toilet fiats.

Wed, 10/17/2012 - 07:16 | 2897512 Urban Redneck
Urban Redneck's picture

I did an economic analysis of Chinese dollar hedging (dumping) in the spring of 2009, when it was a very unpopular notion due to the debt euphoria that reigned in the flight to "quality" that coincided with S&P666. The analysis looked at a number of issues: the new Yuan settlement trial, the Christmas "surprise", new bilateral swap lines simultaneously and clandestinely negotiated, the Chinese stimulus plan funding structure, Chinese FI reserve requirements (and their USD component), the withdrawal/repatriation of Chinese deposits held is US FIs, Chinese (Public) Accounting Treament of US Treasuries owned by Chinese (State-owned) banks, PBOC Announcement 3 of 2009, the rise of the domestic (Chinese) dollar denominated bond market, the stockpiling of physical commodities by the SRB and less "official" entities, the SWF and development fund preference for convertible debt deals, the signing of (future) off-take agreements denominated in USD...

The upshot is that neither the physical gold market nor global equity market is large enough to absorb the more than 3.5 trillion in Chinese "paper/debt/money" reserves. So the Chinese were (and are) engaging in some creative capitalism, and one the methods is to align current USD "assets" to future USD liabilities.

The (re)hypothcation twist adds a current cashflow to the hedge/exit strategy.

Wed, 10/17/2012 - 07:29 | 2897525 Ghordius
Ghordius's picture

I'm not sure I understand the two phrases after the last comma, pls expand

Wed, 10/17/2012 - 09:17 | 2897700 Urban Redneck
Urban Redneck's picture

from a cash management perspective-

China (and its SWF, State-Owned Bank, and "other" subsidiaries) have a combined huge pile of medium and long-term US debt with a known maturity schedule - x billion in 2015, y billion in 2016, z billion in 2017, etc. (in addition to the billions of short term 0% stuff that they seem content to regularly roll)

In the interim, there is price risk associated with the offloading debt holdings before maturity (which hasn't been a factor so far, thanks to Uncle Ben)

However, at maturity there is a purchasing power risk that the USD received will be substantially diminished (more than historical USD devaluation/inflation)

Both of these risks can mitigated today if the holder of the maturing US debt enters into an agreement to purchase a something for a fixed amount of USD at the time of maturity.  The largest convertible debt example at the time was the 19.5B Rio Tinto deal (which also bypassed the political headaches associated with the Unocal rejection, and the concurrent clusterfuck takeover attempt of OZ Minerals).  On the commodities side SRB had just authorized an increase in the national Aluminum stockpile of 1M tons, of which only 1/3 of which could be accounted for with physical deliveries, as opposed to futures contracts.  There were also similar programs for other commodities (copper being the MSM news cycle darling).  Because of the opacity and many balance sheets involved its impossible to match everything, but the scope and scale of future Chinese commitments to buy stuff in USD offsets an otherwise huge risk in the current debt portfolio.  In addition, the off-take agreements, while introducing commodity pricing risk, give them a guaranteed supply of raw materials and a locked in buyer for their USD.

 

 

Wed, 10/17/2012 - 09:51 | 2897802 Urban Redneck
Urban Redneck's picture

The second part is more recent and murky since banks don't like to disclose the inner-workings of their balance sheets or their hypothecation activities, so I am relying on deals that I have seen the paperwork on, and the trend they appear to present. There is a recurring theme- ABC Company of China wants to "invest" USD100M or so, for an overseas project (Asia, Africa, South America, etc.) and the subsequent due diligence raises questions about why and how ABC Company of China even has USD 100M to invest in the first place. Another peculiar trend within this subset of transactions is the Chinese desire for the involvement of a primary (or huge foreign) dealer of US Treasuries to act as an intermediary bank (irrespective of their experience in either the Chinese market or the target market). The traditional vehicles - direct loans, structured finance, mezzanine finance, or loan guarantees are on the table, and every deal is different. I am still working out the details of what I know, versus what I think, coupled with might be privileged information, but 100M here 1B there, sooner or later you are talking about real money and balance sheet exposure, even for a centrally planned leviathan. The PBOC is forcibly creating demand for loans (even while tinkering reserve requirements and capital rules), when these centrally planned loans are purely domestic, it is a safe assumption that they are CNY denominated, but that is not a safe assumption if the loan effectively an FDI conduit.

Wed, 10/17/2012 - 14:39 | 2898623 Ghordius
Ghordius's picture

excellent stuff, Urban Redneck, I'll really have to mull over it. thanks

this does fit to the experience of a few friends of mine that work with small/medium Chinese entrepreneurs who get huge cheap credits to buy their storage spaces full of metals like copper, and that we suspect are also involved in the futures of those metals on a state-organized level. I'm not sure if this is not an open secret, by now.

I understand the Chinese want to stop buying USTs by 2016, though this plan might change - the new 10y-batch of political/operational elite is being selected and will be presented soon

Tue, 10/16/2012 - 10:15 | 2894528 MFLTucson
MFLTucson's picture

This whole game is for military protection against Russia and China but what Japan doesnt know is that Obama will walk from them because they are not Muslims.

Tue, 10/16/2012 - 10:21 | 2894553 TideFighter
TideFighter's picture

New trade symbol: MAAN (Marines, Air Force, Army, Navy)

Buy our shitty worthless paper, you get shares of MANN (options).

Don't buy our shitty worthless paper, the MANN doesn't know you.  

Tue, 10/16/2012 - 10:25 | 2894572 Bastiat
Bastiat's picture

Fail to accept our shitty paper for your oil and you'll be hearing from the MANN.

Tue, 10/16/2012 - 10:57 | 2894631 francis_sawyer
francis_sawyer's picture

The MAAN doesn't appear to be so bad afterall...

~~~

http://www.examiner.com/article/attack-destroyed-six-marine-av-8b-harrier-jets-afghanistan

So let's put this into perspective... NetanYAHOO is going to have the IAF travel over 1,000 miles (across hostile airspace & requiring re-fueling) to 'take-out' Iran's nuclear facilities while these Marines, just across the border, lose 8 jets [more than any in one single maneuver since the Vietnam Tet offensive & really, since Pearl Harbor) to a band of goatherders while the Marines are sitting around playing cards with Prince Harry...

 

Tue, 10/16/2012 - 10:42 | 2894633 toomanyfakecons...
toomanyfakeconservatives's picture

Dare to sell your oil in any currency except our shitty paper, and you'll get bombed.

Tue, 10/16/2012 - 10:58 | 2894667 francis_sawyer
francis_sawyer's picture

Dare to sell your oil in any currency except our shitty paper, [we'll fly airplanes into our own buildings & blame it on you as an excuse to come bomb you]...

There ~ fixed it...

Tue, 10/16/2012 - 10:24 | 2894567 lolmao500
lolmao500's picture

Debt is wealth! Or so say the banks!

The more debt = the more bullish the economy... till everyone starts defaulting... then kaboooooom... and then bailouts... more debt...

The greatest bubble of it all... unlimited debt around the world!

Tue, 10/16/2012 - 10:25 | 2894571 dbTX
dbTX's picture

I've got a couple of bridges I'd like to offer Japan

Tue, 10/16/2012 - 10:29 | 2894593 youngman
youngman's picture

My theory is that China will sell treasuries....and other currencies...Yen for sure....remember they are a primary dealer now...and buy gold and silver.....the stronger Yuan makes PM´s cheaper...its a flow...as they get cash...and they are doing it quietly right now..but that can change..they will buy into PM´s...the one day..the big announcement...

Tue, 10/16/2012 - 10:42 | 2894630 Snidley Whipsnae
Snidley Whipsnae's picture

My theory is that you are correct... The great deal for China is that they have a soverign wealth fund to hold anything that they want out of sight.

Then, one day the announcement comes that they are transfering X from the soverign wealth fund to the PBoC.

Mid East oil sheikdoms do the same except they rarely announce anything.

Tue, 10/16/2012 - 10:47 | 2894649 LawsofPhysics
LawsofPhysics's picture

At what point do they back the yuan by something real? Anything less and it's still a fiat disaster.

Tue, 10/16/2012 - 10:59 | 2894691 Winston Churchill
Winston Churchill's picture

I'm still thinking a gold backed Ruan(ruble/yuan).

Amazing how pally Russia and China are today.

Tue, 10/16/2012 - 11:15 | 2894747 Snidley Whipsnae
Snidley Whipsnae's picture

"At what point do they back the yuan by somethig real? Anything less and it's still a fiat disaster."

Any country that announced a new currency backed by gold would see it's new currency disappear into a million hidey-holes. Bad currency drives out good so the new gold backed currency would be purchased and held while the old fiats (from all countries) continued to circulate. 

In a sense, China has already backed the Yuan with gold. In effect, that is what they did when they announced that they wanted their citizens to save in gold and made gold readily available for them to aquire and hold.

SE Asia, India and the Mid East see many large transactions settled with gold... Viet Nam and India are in the process of trying to stop the use of gold in settlements... How is that working out?

The populations of the East were never believers in unbacked paper. Over their long span of history they have seen too many come and go.

Tue, 10/16/2012 - 11:18 | 2894762 LawsofPhysics
LawsofPhysics's picture

Right.  Just the same, I think I would still take delivery of the physical and happily give them their paper yuan.

Tue, 10/16/2012 - 11:40 | 2894867 Snidley Whipsnae
Snidley Whipsnae's picture

I believe that is exactly what some Chinese (those with enough income) are doing. Even low income Chinese families can buy very small quantities of gold and save it.

The mind set of families in the East is somewhat different than in the West. Easterners have traditionally believed in generational wealth; ie, increase the wealth of the family and pass it on to the children. Of course, this means teaching the children thrift... an almost alien concept to those weaned on the product of Madison Ave and Bernays.

This mind set is what makes me laugh when I hear Western economists say 'China will not need large overseas markets when the consumption boom occurs among their own population.' What the Western economists forget is that the typical Chinese saves 40% of their income. I do not doubt that some increased consumption will occur within China but not nearly enough to off set a loss of external Western markets.

I believe we will someday have two currencies. One a transaction currency and one a savings currency... Of course it will be possible to settle large transactions in the savings currency, much as is happening now in parts of SE Asia...and, central bankers will have themselves to thank for this outcome... BTW, I am not the first to hold this opinion.

Tue, 10/16/2012 - 11:51 | 2894911 LawsofPhysics
LawsofPhysics's picture

Some good thoughts.  I'll just say that families passing on wealth has been working fine for those with real wealth or power.  My family still farms considerable land, we have always eaten and remained debt-free by buying physical on the dips (since before the depression).

No system will work unless there are real consequences for bad behavior at all levels, period.  Moreover, there are indeed hard limits to growth, period.

The point being that getting to any new system may require clearing a few unfunded liabilities, prepare.

Tue, 10/16/2012 - 12:21 | 2895026 Snidley Whipsnae
Snidley Whipsnae's picture

I agree. If laws are not enforced there is no use pretending that a country still exists.

My family came through the civil war because of buried gold that was used to reestablish the business and community after the war.

I also have a stack of Confederate bonds that have been handed down along with real wealth. The pretty and useless bonds are a wonderful teaching aid for the children.

Our family is always in a state of preparedness.

Tue, 10/16/2012 - 12:27 | 2895053 AMack
AMack's picture

Actually this is a fallacy. Gresham's law only applies if the fiat currency is legal tender and the stronger currency (gold backed) is not. If both are legal tender at the same time, or if the stronger currency is legal tender while the weaker isn't, then Gresham's law works in reverse.

So as long as a gold-backed Yuan remains legal tender, it wouldn't dissappear.

The market always chooses the stronger currency, which is how gold came to be money in the first place.

Tue, 10/16/2012 - 12:29 | 2895063 AMack
AMack's picture

 

Edit: double post.

 

Tue, 10/16/2012 - 13:27 | 2894994 MillionDollarBoner_
MillionDollarBoner_'s picture

Vendor Financing is tricky to understand but let's give it a go.

I can produce 100 widgets at x unit cost and sell them at y margin, yielding z profit.

Or I (China) can lend money to my customer (USA) and she can then buy 100,000,000 widgets at x-n unit cost (n = result of scale economies, I.e. the fixed costs are defrayed over a larger number of units of production; variable costs are lower due to increased buying leverage; automation is possible due to higher volumes making the investment worthwhile, etc.), yielding z+n profit times 100,000.

The tricky bit is withdrawing the vendor financing before the mark  (sorry, customer) is declared bankrupt. Fortunately, as the customer does not want to fess up and face the shame of her own bankruptcy, she will work with the vendor to build up a reserve of tangible assets (gold, silver, platinum, oil, coal, iron ore, copper, etc.), in the vendors control, prior to the big reveal.

So, go figure who JPM are really working for when they crash the silver market every NFP report; go figure who the ETFs are protecting with their bogus PM holding reports; go figure who are CME's real masters when they hike margins on commodities. Go figure!

Velly Nice !:O) 

Tue, 10/16/2012 - 13:47 | 2895403 matrix2012
matrix2012's picture

@ MillionDollarBoner_

 

IZZY.... ROTTEN CHILDS !!!

Just take a look at this "SUPER CHART" --- one picture represents thousands of words

 

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Following work at Amanita

 

Read as well as Eustace Mullins; Gary Allen (his classic book "None Dare Call It Conspiracy"); Antony Sutton (one of his best: "The Best Enemy Money Can Buy").

 

 

** NEW DL LINK !!

Carroll Quigley's 'Tragedy and Hope: A History of The World in Our Time' and W. Cleon Skousen's 'The Naked Capitalist' plus few other Quigley's venerable, hard to find works, all in good quality now come in bundle -- old link was dead already, sabotaged...only to resurrect in expanded shape :D ^^^ -Matrix-

 

Tue, 10/16/2012 - 14:01 | 2895466 Mountainview
Mountainview's picture

What do the Chinese know, we don't know...Are they preparing a "Though on China" Romney policy???

Tue, 10/16/2012 - 10:36 | 2894618 Perdogg
Perdogg's picture

Have the Saudis stopped buying T-bills?  I guess the only two people buying are Japan and Bernanke.

Tue, 10/16/2012 - 11:08 | 2894722 rufusbird
rufusbird's picture

Are we going to see long term zero coupon bonds with a negative yield?

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