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What China's Treasury Liquidation Means: $1 Trillion QE In Reverse
Earlier today, Bloomberg - citing the ubiquitous "people familiar with the matter" - confirmed what we’ve been pounding the table on for months; namely that China is liquidating its UST holdings.
As we outlined in July, from the first of the year through June, China looked to have sold somewhere around $107 billion worth of US paper. While that might have seemed like a breakneck pace back then, it was nothing compared to what would transpire in the last two weeks of August. Following the devaluation of the yuan, the PBoC found itself in the awkward position of having to intervene openly in the FX market, despite the fact that the new currency regime was supposed to represent a shift towards a more market-determined exchange rate. That intervention has come at a steep cost - around $106 billion according to Soc Gen. In other words, stabilizing the yuan in the wake of the devaluation has resulted in the sale of more than $100 billion in USTs from China’s FX reserves.
That dramatic drawdown has an equal and opposite effect on liquidity. That is, it serves to tighten money markets, thus working at cross purposes with policy rate cuts. The result: each FX intervention (i.e. each round of UST liquidation) must be offset with either an RRR cut, or with emergency liquidity injections via hundreds of billions in reverse repos and short- and medium-term lending ops.
It appears that all of the above is now better understood than it was a month ago, but what’s still not well understand is the impact this will have on the US economy and, by extension, on US monetary policy, and furthermore, there seems to be some confusion as to just how dramatic the Treasury liquidation might end up being.
Recall that China’s move to devalue the yuan and this week’s subsequent benchmark lending rate cut have served to blow up one of the world’s most popular carry trades. As one currency trader told Bloomberg on Tuesday, "it’s a terrible time to be long carry, increased volatility -- which I think we’ll stay with -- will continue to be terrible for carry. The period is over for carry trades."
Here's a look at how a rules-based carry strategy designed to capture yield differences would have fared in the universe of G10 CCYs (note the blow ups around the SNB's franc shocker and the yuan deval):
In short, the music stopped on August 11 and to the extent that anyone was still dancing going into this week, the PBoC’s decision to cut the lending rate along with RRR buried the trade once and for all.
Estimating the size of that trade should be a good indicator for just how expensive it will be - i.e. how much in Treasurys China will have to liquidate - to keep the yuan stable. The question, as BofAML puts it, is this: "can China afford the unwinding of carry trades?"
The first step is estimating the total size of the trade. Although estimates vary, BofAML puts the figure at between $1 trillion and $1.1 trillion. Here’s more:
As analyzed above, the size of RMB carry could be quite high and thus exert downward pressure on RMB. But the PBoC should have scope to defend its currency if necessary. The PBoC’s toolbox includes its $3.65tn FX reserves (at end-July), as well as measurements to tighten FX controls on individuals, corporate and banks, if necessary, including imposing stricter requirements on NOP, among others.
That said, we doubt if the PBoC will persistently intervene as rapid decline of FX reserves undermines market confidence anyway and imposes challenges to the PBoC. Alternatively, the PBoC could impose stricter FX controls but that would be considered as a backward move of capital account opening up. Nevertheless, we believe the PBoC intervention will still have spillover effects on the market.
In other words, if this entire $1 trillion trade gets unwound, China will need to offset the pressure by either i) draining its reserves, or ii) taking a big step backwards on capital account liberalization. The latter option would be bad news for Beijing’s efforts to liberalize markets and land the yuan in the SDR basket.
Of course, as noted yesterday and as tipped by SocGen earlier this week, the liquidation of $1 trillion in FX reserves would put enormous pressure on domestic liquidity, tightening money markets meaningfully, and forcing the PBoC to cut RRR 10 times (assuming 50 bps intervals). As BofA notes, China can’t "afford another liquidity squeeze like June 2013 given very poor sentiment nowadays and China’s economic downturn."
Putting the pieces together here - and here is the critically important takeaway - we know that the size of the RMB carry trade could be as high as $1.1 trillion. If that entire trade is unwound, it would require China to liquidate a commensurate amount of its reserves in order to keep control of the yuan - or else resort to FX controls. Here's the point: if China were to liquidate $1 trillion in reserves (i.e. USTs), it would effectively offset 60% of QE3.
Furthermore, based on Citi's review of the academic literature which shows that for every $500 billion in EM reserves liquidated, the yield on the US 10Y rises 108bps, if the PBoC were to use its reserves to offset a hypothetical unwind of the entire RMB carry trade, it would put around 200 bps of upward pressure on 10Y yields.
So in effect, China's UST dumping is QE in reverse - and on a massive scale. Facing this kind of pressure the FOMC will at the very least need to exercise an exorbitant amount of caution before tightening policy and at the most, embark on another round of asset purchases lest China's devaluation and attendant FX interventions should be allowed to decimate whatever part of the US "recovery" is actually real.
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dare I say it, but could the horrific events in Virginia be smoke screen (or at least exploited as such) to distract an already de sensitised mass public away from the obvious shit storm that coming down the tracks. The US productivity is in the crapper, wage growth is nonexistent so with a strong dollar; hardworking Joe public is going to find shit getting real for him real quick..
www.teamramgold.com/about-us (for anyone looking for an opportunity to acquire bullion)
Geez...do ya think..?
The Fed will monetize every one of those bonds and not even bat an eye. $1T is chump change to them. The fed will then probably monetize another $1T just to stick the knife in and twist. It's a currency war! Last one to hyperinflation is a rotten egg.
Yellen trys to raise rates
China wants to raise Yellen's anus in return
The gravity of economics
Banking Countries will always do well.
I bet all of the following countries double their Treasury holdings in the next Decade of US War... including China.
US Treasury International Holdings TIC Data of Registered Foreign Holdings:
Last Data is from June 2015.
Belgium 2002 = $10.8 B, then 2013 = $163 B, Today $208 B
Bermuda 2002 = $14 B, then 2013 = $94 B, Today ??
Cayman Islands 2002 = $10.7 B, then 2013 = $66 B, Today ??
Canada 2002 = $8.4 B, then 2013 = $46.6 B, Today $69 B
China 2002 = $95 B, then 2013 = $1,272 B, Today $1271 B
France 2002 = $11 B, then 2013 = $42.4 B, Today $68 B
Germany 2002 = $38 B, then 2013 = $54 B, Today $75 B
Hong Kong 2002 = $37 B, then 2013 = $89 B, Today $181 B
India 2002 = $5.2 B, then 2013 = $56.6 B, Today $117 B
Ireland 2002 = $6 B, then 2013 = $91 B, Today $218 B
Japan 2002 = $260 B, then 2013 = $1,023 B, Today $1197 B
Luxemburg 2002 = $20.2 B, then 2013 = $107 B, Today $184 B
Mexico 2002 = $16.7 B, then 2013 = $52.7 B, Today $86 B
Norway 2002 = $5 B, then 2013 = $74 B, Today $66 B
Philippines 2002 = $3 B, then 2013 = $36 B, Today $40 B
Poland 2002 = $7 B, then 2013 = $31 B, Today $28 B
Russia 2002 = $3 B, then 2013 = $138 B, Today $72 B
Singapore 2002 = 19.4 B, then 2013 = $82 B, Today $114 B
Switzerland 2002 = $28 B, then 2013 = $157 B, Today $217 B
Taiwan 2002 = $0 B, then 2013 = $183 B, Today $176 B
Turkey 2002 = $2 B, then 2013 = $18 B, Today $76 B
United Kingdom = $45.7 B, then 2013 = $130.6 B, Today $215 B
Just proves that most of the 'rest of the world' will be going down in unison with the US ! Contagion exemplified !
While counter intuitive this may be what fed wants. A jaw boned rise in rates.
Also to consider, when large trade is expected there will be others trying to front run it. Amplify selloff effect.
AND WHATEVER HAPPENS CAN BLAME ON THE CHINEE STRAWMAN
Or....Trump.
Don't worry about Bear Stearns. Bear Stearns is fine.
"BUY THIS STOCK"
those damn won rigranties
Just something else to consider if you're trying to think through the illusion.
http://www.washingtonsblog.com/2013/06/81-5-of-money-created-through-qua...
Funny,the Chinese Central Bank would rather dump Treasuries and not their Gold.What does that tell ya?Why buy Treasuries when garbage currencies like Euro and Yen can just keep printing and buying so-called AAA securities.How do you value $20 trillion of U.S. garbage,bought with counterfeited foreign garbage?
The day IS coming, when the $UST will be seen (and acted upon), for what it is...
Scramble to the bottom of John Exters inverrted pyramid. Got cash?
Meanwhile: China Launches Large-Scale Military Drills in Disputed Regions
Wait, wait, wait...
What if, as eBear said, the dollar assets that are generated from the sale of Chinese held USTs are put into U.S. equities. Evidence that this is happening is correlation with the bear market rally that has occurred after the announcement of the UST dump. The timing is damning.
This would not necessarily undo QE but actually augment it. Kind of like Bernanke's TWIST program?
Reverse QE?
Missiles may just fly over this, unless the U.S. military finally does what it should have done years (decades?) ago and dusts off the handcuffs and prison buses for use on Capitol Hill and Pennsylvania Avenue.
I agree. At some point the Army should make their move. However, it is more likely that it will be the Colonels and not the Generals.
Correct.
Privates will frag Sergeants. Then Sergeants will frag Lieutenants. Then Lieutenants will frag... and so on.
Most generals are corrupt -part of the criminal class. It will have to be colonels.
Correct. Psychopaths work hand in hand with sociapaths. It's a match made in heaven/hell.
https://www.youtube.com/watch?v=IoyaTGHweAo
"My greatest flaw. I surround myself with idiots."
- Victor von Doom
Big deal, Yellah will just print a couple of trillions more and buy up the whole shebang. Nobody knows in the U.S. so nobody cares. Except that the world won't be using any dollars anymore but that's also completely lost on the populus who can't believe the dollar disappearing anyways, so let's do it and blame China or whoever.
It doesn't matter, all paper wealth is created out of hot thin air (balloon), it will pop,...as planned!
"Behind every fortune is a crime",
It's pretty funny how self-centered we Americans really are. The Chinese are hitting a widely predicted and obviously approaching downturn, and they're doing fairly obvious things to address the crisis. And we interpret this as some aggressive Chinese attack on US supremacy. We find it shocking that the Chinese place Chinese interests pretty high up on their list of priorities? Crazy, man, who'da thunk it.
No doubt the Chinese won't strain themselves overmuch on our behalf. Why would they? And no doubt if their basic survival moves inconvenience the US, the Chinese would get some pleasure from that.
However, the US response to the Chinese actually using what is, in fact, their money for their own purposes is the height of narcissism, isn't it. Like if I paid you with a check and you actually cashed it, you fucker.
U.S. is also one of the least impaced countries. If the dollar moves up with yields, the U.S. could take the opportunity to buy back undervalued treasuries with overvalued currency.
Sure... pity abouit the equity market and mortgages though....
Equity markets and mortgages being, unfortunately, the only sources of wealth available to most of us anymore. And only available by being fake.
swmnguy's post is spot on.
China has made the calculation to prioritise it's own concerns above everything else. At a guess China has done this because it calculates that the West and America in particular is in the manure.
If what the Chinese are doing happens to hurt other nations, so be it.
Just like the saying goes "its our currency but its your problem"
Oh how the tables have turned.
Hahahaha, well said.
So.. other than her face, does Janet shave her legs. Inquiring minds want to know.
Doesn't this conclusion depend on who is buying the treasuries?
Moving the treasuries from China to Russia and Japan, for instance, does not undo anything.
her name is janet yellen
Well, if Yellen is doing the buying, then she is paying in cash.
That would mean this is more like QE4 rather than removing QE.
Well, I like it. It sounds anti-Fed. Bring it on!
This is quite possibly the most incoherent gibberish zerohedge ever posted.
Let's strenghthen the Yuan...thats really gonna help us compete in a world of zero growth.
I agree. This article is total nonsense, regardless of who the buyers are. If they are non-central banks, then the trade is a wash. And if they are central banks, then the purchases are clearly in the QE category, currency considerations aside. Looks to me like the article was written by a lame-brained appologist for the FED as a trial-ballon for an absurd rational to engage in QE4. If you want QE4 then, as Kobe Bryant's Nike shoes suggested, just before he raped the chambermaid, "Just Do It."
her name is janet yellen
you can't rape the willing... not in Kobe's case, or this one either...
So he's an aldulterer, not a rapist, BFD, still a scumbag either way.
Rut ro:
http://www.weather.com/storms/hurricane/news/tropical-storm-hurricane-er...
Should do wonders for the U.S. economy, especially if it gains strength and makes land fall.
BONUS
It crosses over FL, gets into the Gulf, and threatens Galveston and Houston. Replay of '08, anyone?
I think the US government needs to speed up its plan to trap every citizen in MyRAs invested in nothing but the rock solid safe as can be USA debt!
Its raining egg rolls!
Where's the soy sauce?
So in effect, China's UST dumping is QE in reverse - and on a massive scale.
Thank fucking God we've finally reached the end of the rope.. tunnel... well,,, whatever you so choose to call it...
This had to end badly and it finally is. But look at yourself in the mirror and ask how you could have avoided it?
You me and everyone else had 8 years to shut this "shit show" down and we didn't do enough -so we had to leave it to the Chinese and Russians to do the garbage pickup for us!
Truly we are the worst disgrace of an Empire ever built!!!
Reverse Repo???
Complex systems...fail. Know any that haven't? Metal or mental fatigue, take your pick.
The show must go on....even with a one armed juggler.
The prolonged Euro strength or huge, "currency war" volatility as we experiencing now will kill the only thriving EU economy namely German Economy which needs weak euro to be able to export otherwise it will be thrown in to the political turmoil due to allowing the top of the EU recalcitrant zombie banking system to kill any chance of economic growth by sucking up all the good investment capital as rentiers of the realm. All while shouting about the European solidarity.
So what likely will happened, in my humble opinion is that the FED will raise paltry 0.25% at or before September meeting and silently and/or secretly unleashes targeted bailout of the financial assets that will be hurt in panic of those who will believe the Fed is taking a punch bowl away, which FED will never do. But somebody who grandma Yellen hates will be burned, just watch. This is cronyism at the best.
https://contrarianopinion.wordpress.com/economy-update/
LOL #whitelivesdontmatter.
#progressiveliestodistroyamericamatters
Foolish people operating under the bourgeois in Europe. We will vaporizer their families as we did in the past.
Checkmate. Not a joke.
The only hate crime is your inability to capture global governance during the fairy dust jew holocaust and Hitler. Banking each terrorist rebel and betting on the outcome. We call that a derivatives bet in 2015. Which one of you are about to get killed for not paying back your debt?
The empire is over, only simple business economics will exist without you. The United States of America Constitutional law.
Ask buckwheat in the White House to recite a law within the Constitution. Crickets.
Who was the buyer of all these US govies that China was selling in the hundreds of billions?
You were. All Americans will pay for it through the hidden tax called inflation.
....but we don't have inflation.
her name was janet yellen
Derivatives. Other exotic portfolios are about to be exposed. Primary dealers are going to get ass ripped.
Stay focused on Hillary. It all fall's into place.
Trust me on this.
A lot of it was just not rolling over maturing issues. But then the US has to find other buyers for the new issues and the recent auction I think went pretty well. So it must be other CBs stepping up but there has something like a 150 bp uptic in rates if I remember correctly (reported here yesterday?). So that would explain some of it.
I think the author of this article is stranded without a compass.
Who's on first?
You!
Who?
You!
Who?
So isn't the PBOC selling their US Treasuries internally to either a pension fund or an investment fund?
her name is janet yellen
here lame is yanet jellen
THEYRE LIEING, the fed is buying up this stuff which is why the stock market went to hell, just wait for the sell the rumor sell the news trade grabs your ass
Is this the part where I get to say: His name is Janet Yellen?
Only a financial advisor that is not retiring soon would tell you to stay in because it only took 5 years to recover the loss of the last recession.
Here are some more signs of a recession.
http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record...
http://michaelekelley.com/2015/02/20/fed-warns-of-two-bubbles/
http://michaelekelley.com/2015/02/24/would-you-pay-39-more-than-asked/
http://www.zerohedge.com/news/2015-07-27/when-will-we-ever-learn/
Here is how to respond.
http://michaelekelley.com/2014/10/16/8-things-to-do-when-recession-happens/
Here is how to get your mind off this stuff.
http://michaelekelley.com/category/humor/
Good luck!
China 2.0 will fix everything
.
global slowdown while China evolves a new macro economy, while we onshore jobs to offset the sorta' fucked dollar economy
.
if there is too much Obamacare America my stagnate in entertainmentland and debt financed government/life-death/taxes
Yellen credits that Lagarde and her chair leg will motorboat each other to steer the financial boat to safety.
Ava Making Motorboat Noises - 5 months - YouTube
and put around 200 bps of upward pressure on 10Y yields.
Someone around here mentioned the other day that the FED rate always tracs rises in the 10 yr. Looks like the .25 raise is coming right on cue...
I got my 401k out of the market and is in US Treasury Money because I smelled shit in the wind.
Can someone tell me if this was smart or dumb, and if dumb, what would be smart?
the short term ones are relatively safer (page nodebt). vanguard and amcentury have safish mm funds for treasuries too
Seriously dude,
A) The South was right.
B) What does it hurt to get the fuck out of the "stock market" for a while?
#middleclassfucked
Yeah, we can all tell the Chinese moves are causing catastrophe all over the world. We have had - what? about a 1000 point DOW move back up in the last couple of days and the Chinese market is up about 1-2.5% (depending on the index) as I type this.
It looks like Tyler will have to put on hold we are all fu*cked speech for a couple of more days.
So sad . . .
Jack Lew the Jew is the cause of the party favor being sent back to America. His assininated statements when we hit negative 1100 Dow Jones.
China is not apart of FX globalization matrix. Not actual quote. Find his political cuntlick version.
High standards is Jack Lew sucking cock to make people believe he can resell debt to a idiot emerging market country. Straight from the horses mouth.
Jack Lew: China has capacity to manage shadow ...
That fucker has been persona non-grata/silent before and during this whole shitshow.
Hang 'em high!
QE in reverse?
I don't think so.
Unless you want to tell us what returns into THIN AIR.
@ bthes
keynesian`addiction is to fiat liquity, but a sylph`illusion -- think of it as a deliquesce mirage far from the maid`denning'`kalahari desert crowd`ead oases...where empires go to die!
That would be the $ would it not?
QE = thin air -> $
$ -> thin air = Reverse QE
Snider eexplains it in this:
http://www.alhambrapartners.com/2015/08/26/like-2008-never-happened/
I will withhold judgement on this issue until I hear what Jim Cramer has to say about it.
"China's FX carry-trade: the next shoe to drop" June 12, 201? http://www.euromoney.com/Article/3217737/Chinas-FX-carry-trade-the-next-shoe-to-drop.html
"One of China's Most Popular Trades May Be Coming to an End !"
http://www.fxcarrytrade.com/chinas-popular-trade-coming-to-en/
the year?
Pick one^
Think... about all the easy money printed by the FRBs since Obi1 ~ $10 trillion US + Bush #43 contribution of $5 trillion US and, the astonishing grand total of $15 Trillion US into the FX Trade in15 years? WOW!!!
That's gotta hurt... when ya got ~ $5 TRILLION liquid?ity`sloshing abound?
central and south american drug lords.. their wives are moving to Miami Beach and NYC to live the good life 24/7
I don't think the ChiComs really know what they are doing - I think they intended to make a quite modest move to change the dynamics of dollar-based FX accummulation and liberalize the yuan a little, and instead ended up slicing nearly all the way thru the Achilles Heel of the entire 'Bretton Woods II' accord.
Now they've got a nearly unmanageable crisis on their hands and it's going to be every state for itself. They're going to do things in this mode they would never have considered in 'normal times'. And that spells toxic contamination for the dollar.
It's as if the Doom Gods said amongst themselves, 'Enough puttering around - let's get this show on the road!'
And the Doom Show has legs.....
it wasn't to long ago that the ussa went full retard too destroy a ussr that was already imploding.
reagan got the win, but it was pyrrhic... for he gave pakistan the nuclear bomb on a slver platter having clinton hand's off agenda.
big fucking deal?-- was the plan to keep iran and india at bay while china wasn't a player!
dec/1991- dec/2013 and russia is on the back burner, but china now, and the 'hillary`pivot' are agenda #1.
so now the ussa wants to destroy china financially through it financial hitman, Mr. FX!
china says -- fuck you... we've got no fight with you, but to be cautious and prudent it aligns with russia.
now, who is america going to call ?
if a rates hike comes of 25bps from our overlords, and another comes within a quarter making it ~50bps the ussa is fucked royally. short and long and 10s will run in tandem. whoa!!!
yeah, they'll [overlords] buy their debt, but who's gonna balance the books when the vig wants his piece of the trillions of dollars action and the usa`treasury gets a margin call on,... 'how-to-cook-the-books-101' balancing act?
oh,.. that's right, the obamacare tax should help, and with a third of america's population on welfare and the unknown number of illegals sucking the system dry on welfare also-- there's moar a chance of rebellion in the ussa than presents itself in china.
remember-- china didn't twist their people's arms to invest in the chinese stock market. it was greed!
but, greed is the last thing for america to worry about at the tyme in history,'where freedom isn't free', no sir ree, mr comboy bush-- where 'fear' will trump every politician on every street corner with every us citizen now responsible for his sin's. and all-ye walking the plank on the bailout/ bailin`hook for ~ $100k/each...? ... if the abattoir doesn't find ya first?
They have to do the RRR cut so that they can sell treasuries, thats all they're doing it for. Make way for QE4.
It means HELL
wait & watch
I am clearly the only guy reading this article that does not understand how China spending its treasury bonds to buy Yuan decreases liquidity.
Those dollars are in the wild now. No? Sure China has less Yuan floating around in its economy but isn't that the goal?
Haha! No, it's pretty complicated stuff. One of the best at explaining it is Snider @ Alhambra. I had to read this twice but I think it helpes to explain it:
http://www.alhambrapartners.com/2015/08/26/like-2008-never-happened/
The dollars or "dollars" actually disappear.
Don't worry Jew Lew. I will explain how to outwit a carbon con artist Jew like yourself. Why not discuss the IMF basket program delayed until 2016?
Because you are a fucking liar utilizing fraud and deception. Let the muppets figure it out.
IMF Staff Completes the 2015 Article IV Consultation Mission to China
IMF Executive Board Approves Extension of Current SDR Currency
I will share the story on how to outwit a Jew. It happened in Hilton Head Island. My wife was told he was Jewish, his name was Rubin. Rubin pulled his Rolex watch off and asked my wife if she would buy $22,000 watch for $200.
HHGS in Hilton Head Island. Time share bullshit. My wife received a $148 giftcard. The bastards thought we were some smocks who didn't already own property without a mortgage.
How to outwit a Jew who borrows US taxpayer money run a scam in Hilton Head Island, SC. ISIL Timeshare soft terrorist cells.
Fuck you Tel Aviv
The flipside of this is a cheaper $USD no? Will make it cheaper for UST buyers to absorb China sales?
Actually isn't it the opposite? If this puts upward pressure on US rates, that would tend to make the dollar stronger, I would think. Which then makes the carry trade less attractive. It becomes a vicious cycle. I admit I am struggling to get my head around how this works but if the effect is an unwind of QE I don't see how that weakens the $.
Tracy Lime: What would they do to me if I did tell someone about this?
Conrad 'Connie' Brean: They could come to your house in the middle of the night and kill you.
Life is a bitter bitch - get all the pussy you can - shalom
It's only a Trillion, that's like 1 Million Barrels of Money. And the FED has 4.5 Million Barrels of counterfeit Money stored in the basement.
China is forcing the FED to "walk the walk" OR loose the remaining credibility (none left in my book though). My guess is, the FED has some stealth QE going on full throttle as we speak. Or is there a collateral shortage for the derivatives casino and China is really just helping out here ? Anyway, 100B U$D is roughly the equivalent of 2800 metric tons of gold at current "price" (i.e. 2015 global mine supply of gold). They still hold 3.6T of U$ paper "a$$ets", just for some relative perspective. Cracks in the dollar matrix are morphing in to fissures...
There are a lot of very smart people that follow Zero Hedge and you guys need to warn our armed forces. China is up to something bigger than playing with their currency. They are liquidating because they are going to push our military out of SE Asia. I hope our armed forces are prepared this time for this attack. China is already laying claim to Hawaii....
About 10 years ago I bought some property in Hawaii. The night after I got it, I had a dream that I woke up there and there were Chinese people walking around the property like it was theirs. So, what do you mean, they are laying claim to Hawaii?
No way - just a bad dream.
China has a domestic problem. And taking Hawaii will require long range military shipping. And item China is currently short of.
No way China is going after Hawaii, that is WWIII shit and they know it.
Even though we have a communist bitch in the White House, the risk/reward makes no sense.
They would be much better off taking a chance on liquidation of all foreign investment and hope they could weather the economic shit storm that followed. Big risk, big reward but it could blow up on them.
China is doing better than they have in hundreds of years and they know it.
Absolutely, no way I believe that stock market the last 2 days. Somewhere someone injected massive amounts of QE into the market immediately to stabilize. We're still on QE folks. Expect more of this volatility as the same cause and effect continue into the immediate future.
QE 4 consists of the free UST's being disgorged by the BRICs entral banks being allowed to trade at artificially high yields, due to excessive stock market volatility.
1) We know the New Dev. Bank is being capitalized this week with infusions of 100's of B's in dollar equivalent cash from 5 founding members (100B down the rest gets paid over 7 years).
2) We know that the US 10's and 30's hardly budged despite the massive vols in stocks.
3) We know the low price of oil is causing the soverign wealth funds to sell bonds, Saudi's, Norway, Kuwait, UAE's, Venezuela, Nigeria, etc.
4) We know that Dodd-Frank prohibits, via the Volcker Rule 619 US Commercial banks from stocking these waves of bonds being sold.
5) The US Fed is charged with stabilizing markets, when they can.
ERGO: recent stock market volatility is transient. But long term, the new BRICs bank will undermine dollar hegemony. That is not an alltogether bad thing - IMHO, because it will necessitate fiscal discipline on the part of the fiat money countries- like the US.
QE 4 consists of the free UST's being disgorged by the BRICs central banks being allowed to trade at artificially high yields, due to excessive stock market volatility.
1) We know the New Dev. Bank is being capitalized this week with infusions of 100's of B's in dollar equivalent cash from 5 founding members (100B down the rest gets paid over 7 years).
2) We know that the US 10's and 30's hardly budged despite the massive vols in stocks.
3) We know the low price of oil is causing the soverign wealth funds to sell bonds, Saudi's, Norway, Kuwait, UAE's, Venezuela, Nigeria, etc.
4) We know that Dodd-Frank prohibits, via the Volcker Rule 619 US Commercial banks from stocking these waves of bonds being sold.
5) The US Fed is charged with stabilizing markets, when they can.
ERGO: recent stock market volatility is transient. But long term, the new BRICs bank will undermine dollar hegemony. That is not an alltogether bad thing - IMHO, because it will necessitate fiscal discipline on the part of the fiat money countries- like the US.
this may be the dumbest thing i have ever said on here but the only way this all makes sense to me is if outflows have been way worse than offically reported and that official trade balance numbers are meaningless if it is actually cash that is being exported. thus their fx reserves now come under pressure as the carry trade unwinds as that was just part of the facade.
Isn't that what the US has been exporting, US dollars?
You're probably right.
The head of the NY Fed, Msr. Dudley, was interviewed yesterday.
When asked the hard question about China, he said he had no idea and to ask China. When they asked him about the the of the QE policy and raising rates on the stock market, he said he only handled monetary policy, not Wall Street.
And when the reporter from the NY Post asked him if there would be investigations of the bankers, the off-camera dominatrix jumped on the reporter, telling him that the interview was about monetary policy only. It was admirable the way the NY Post reporter responded, "So what, I'm not allowed to ask a question" in his NY accent.
What a bunch of smug eliteists.
In effect, China is raising interest rates for us. They dump treasuries putting downward pressure on prices and thus increasing the yield. They are doing this to both weaken theor currency in strenghten ours. Additionally, yhey are swapping yuan for dollars for a double whammy. Sorry, people, but a strong currency is a good thing in the long run. The downside to our piece of shit govt is that paying back debt with higher interest rates will put the squeeze on the political class to raise taxes and further destroy our country. This thing is like a big zit on your forehead, it just needs to pop so we can get over it all and pick the pieces back up. The war has already begun. It is currently residing in financial markets. It will not be long until it metastecizes into bombs, bullets and bayonets. In that order. The bankers need to be put on the front lines because they are faggot pussies who need to pay for their bullshit.
A system not well understood by 99% of the people, is not worth having.
Where are the guys who called the Feds a bunch of banksters & crooks who snatched the
system out of the hands of the Amercan public 100 years ago? Why is zerohedge even discussing
Fed actions as if it is a legitimate organisation?
It's hilarious but also very serious that US debt issued to bail out insolvent US borrowers is being liquidated to bail out insolvent Chinese borrowers.
In short we have strong deflationary forces at play that have been under-estimated by the policy makers. Further accommodation via more QE is inevitable.
The limits of credulity of the market for sovereign debt will be tested and probably broken.
Lifestyle is the ultimate safe haven, make your adjustments accordingly!
Trilemma of Impossibilities (a term not invented by me). It roughly means that you cannot 1) alllow an open capital account 2) manage your domestic interest rate to augment your fiscal policies and 3) manage your exchange rate for growth stability all at the same time without trade-offs. Worse if you are such a large economy being more intertwined with the global economy. To some extent, China has come of Age in choosing the trade-off i.e. reduce the volatiity in its domestic money market to be able to set domestic interest rates flexibly to pace the liquidation of huge internal debts and capital expenditures. For this it allows the exhange rate to go and the least consequent impact to the domestic economy lies in drawdown of reserves. Markets just dance around their declared long term objective and choose to ignore it with their spins. Bets against their CB's guidance have already ended with tears for the carry-trades.
Conspiracy theories aside, it is not their responsibility to ensure that their devaluations or temporal defenses of the RMB do not cause havocs to others until there is a backlash. The feeling is of course mutual from Others. Bet against their imminent implosion ahead of say the much more fragile EM economies, particularly its neighbors.