Guest Post: Is China Ready To Pull The Plug?

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Fri, 09/16/2011 - 08:26 | 1676530 Pampalona
Fri, 09/16/2011 - 09:16 | 1676675 Todd Horlbeck
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China will drop the dollar at the worst possible moment for the US interests.  I think this is far off and untradable.

Fri, 09/16/2011 - 10:44 | 1676998 CrazyCooter
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I have been going through the Jim Rickards interviews over at King World News in chrono order (oldest first starting in late '09). I am a bit over half way through and its becoming clear to me that China is fscked. Fiat is pretty much toast (big surprise - never worked in whole history of paper money) and the only other proven money is gold. SDRs are in the running, but that may see the same difficulty that the Euro sees.

Because Europe and the US have all the gold and the rest of the world doesn't, in a post fiat default world, assuming some sort of gold standard, its going to be tough sledding for those without China being the most extreme example.

Regards,

Cooter

Fri, 09/16/2011 - 10:50 | 1677025 LawsofPhysics
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Good analysis.  Apparently, China was not at the crucial Jeckle Island meeting so many years ago.  In this case, the only way to the top for China would seem to be a global war where they simply take the gold and as many assets as they can.  Is China the new Germany?  It does seem that they are concerned about U.S. tresuries lately, but I think they are still buying.

Fri, 09/16/2011 - 11:12 | 1677102 MachoMan
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I've tried to make this point for some time...  but I get the inevitable, "but those holdings are overstated and are really just tungsten or leased, etc."

A good political maneuver always includes a viable back-up plan.  In this case, given the fall of fiat, that means real currency.

Fri, 09/16/2011 - 11:46 | 1677203 Tuco Benedicto ...
Tuco Benedicto Pacifico Juan Maria Ramirez's picture

So you believe published estimates of the gold held by the U. S. and UK??!!!

Fri, 09/16/2011 - 13:28 | 1677746 LowProfile
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UK, I have no idea.

US...  The military holds the people's gold.

You decide.

Fri, 09/16/2011 - 16:32 | 1678495 Pure Evil
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I could accept this guy's argument a lot better if he would have bothered to explain just who in the hell is going to buy the US debt obligations they plan on dumping sometime in the near future.

I've got some worthless stocks sitting in my brokerage account, now if I could just find some new sucker to take them off my hands.

I've also got a house full of worthless crap, anyone interested in making an investment.

It would make more sense to say that the Chinese have no intention of buying more debt obligations from the US as soon as the debt they hold matures.

But, I can't see anyone else out there stupid enough to buy their existing US debt obligations, or I would think they would already be dumping them with as much gusto as they could muster.

Fri, 09/16/2011 - 10:47 | 1677011 LawsofPhysics
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I agree.  Many of us have been waiting for this for a long time.  China is great at reverse engineering and making things better and cheaper to sell back to us.  Quite often they forget details and a building falls over, or some milk kills a few children.  Unfortunately they have reversed engineered our own ponzi and have sold it to their people.  If China was really a great land of opportunity, we would see more people waiting in line to move there or become citizens.  China seems more like hotel california.   Certainly once you become chinese it is all about moving China's interests forward and not your own.  

Fri, 09/16/2011 - 12:34 | 1677455 GoinFawr
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"China is great at reverse engineering and making things better and cheaper to sell back to us"

Isn't that what the west used to say about Japanese technology? Too bad the vacuum tube lobby was so powerful...

Fri, 09/16/2011 - 10:55 | 1677032 FEDbuster
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As fellow Communists (and Crony Capitalists), they will wait to see if Obama is re-elected. 

I think the conversion is going on now, but at a slow enough pace we don't see it happening.  Like turning the heat up slowly on the frog in the pot of water, he never knows he is boiling to death. 

I also think there is a great deal of gold flowing into China's reserves, more than we know about.  Plus, I think they are still filling their strategic oil reserve which is five times the capacity of ours.

Fri, 09/16/2011 - 11:13 | 1677105 SwingForce
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It's impossible to drop the dollar- there's too many of them, and not enough OTHER currencies to go into. Note the ECB SWP lines, they NEED USD's. If China wanted to get out of the dollar so badly, it would have arranged their own swap lines, no?

Fri, 09/16/2011 - 11:38 | 1677188 LawsofPhysics
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Yes, but then they would have no control regarding who swaps and their currency starts to float via the swap line.  Can't have that now can we.

Fri, 09/16/2011 - 08:58 | 1676536 GeneMarchbanks
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Soon though...

 

Fri, 09/16/2011 - 09:36 | 1676747 CH1
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I dunno... I've been waiting a long time for the Chinese to be sane. It never seems to happen. Maybe it's related to the Marxist insanity.

Fri, 09/16/2011 - 09:48 | 1676784 GeneMarchbanks
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It's related to a different conception of time. Read their books, study their culture and you'll see that nobody is in any rush.

Look at the absolute barage of garbage being fired off furiously in Western media. Complete cultural ADHD.

China is going to strike when things are most quiet. They probably love this little lull and period of complacancy. Don't sleep on them.

Fri, 09/16/2011 - 09:57 | 1676822 narnia
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the belief that Chinese currency manipulation brutalizing the quality of life of its people is the undoing of American jobs, rather than the neo Marxist sprint away from free markets via the warfare & welfare state in the US, is even more insane.

Fri, 09/16/2011 - 12:39 | 1677498 GoinFawr
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Wait... did you hear that? That was the sound of Marx rolling over in his grave, and me rolling my eyes.

Fri, 09/16/2011 - 08:30 | 1676537 maxmad
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Itsover, bitchez!

Fri, 09/16/2011 - 08:30 | 1676538 Ratscam
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Mr. brilliant Megahedgefundtrader MHFT will fix the problem. He is in China at this moment. lol

Sat, 09/17/2011 - 00:53 | 1679370 Tompooz
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:.) He will instruct them how to front-run themselves with derivatives.

Fri, 09/16/2011 - 08:32 | 1676539 Northeaster
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When this changes significantly, then I'll believe it, actions speak louder than words:

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/...

Fri, 09/16/2011 - 09:11 | 1676657 sdmjake
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Thanks for the link..at first glance it strikes me that CHina has basically held the line for the last year, Russia has reduced their participation by about 40%, and the good ol UK has almost doubled their exposure.

May we live in interesting times....

Fri, 09/16/2011 - 12:17 | 1677380 ronin12
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How do I get a larger shot of your avatar?

Fri, 09/16/2011 - 08:33 | 1676540 cossack55
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Maybe "yellow peril" should be changed to "green peril".

Fri, 09/16/2011 - 08:34 | 1676543 Sofa King
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Wow.  This article is a whole lot of nothing.  US does not need China and China does not need the US.  At this point in time the relationship is beneficial.  When it no loger is, we will go our seperate ways...and nobody has the talent or insight to predict the outcome of such a complex unwinding.  One thing I do know is that America has resources available that can be developed in order for it to be self-sufficient and China does not, take from that what you will.

Fri, 09/16/2011 - 08:49 | 1676584 Sofa King
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Only three down votes.  Come on guys, you can do better that that.  There have to be more people out there with the distroted view that America is a barren wasteland when compared to the Eden like China.

Fri, 09/16/2011 - 08:59 | 1676610 mayhem_korner
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You must've failed "subtlety" in troll class.  Only the really well-disguised anti-logic posts get high red numbers.  I'm thinking you'll have a stronger showing on your second post.

Fri, 09/16/2011 - 09:07 | 1676645 Clint Liquor
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Junked for whining.

Fri, 09/16/2011 - 09:09 | 1676651 Apocalicious
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The overleveraged developed West is declining. China is not. Our banking system is much more rotten than theirs. Our fiat is in terminal decline from its status as global reserve currency, a status the yuan will likely eventually take. Will it be linear, without bumps along the way? No. Will it be next decade or 50 years from now? I don't know, but do you disagree with the eventual outcome? China does not have resources? Do you mean other than 1.3 billion people who work 12 hour days, 7 days a week for less in a year than most people here in "poverty" make in a month, all driven to try to find a better life? And the relentless, ruthless approach to building relationships in the Middle East, Africa, Australia, etc. to secure access to natural resources with complete disregard to humanitarian or environmental concerns so long as they can get the resource materials they need to build their economy? Yes, yes you are right. Let's short that story over the long run...

 

Fri, 09/16/2011 - 09:19 | 1676684 Scisco
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How do you know that the Chinese banking system is not more rotten than the American one. Their banks report what the government wants them to report. Maybe we just here about American corruption because the probability of a reporter disappearing is less when a negative story breaks.

Fri, 09/16/2011 - 13:43 | 1677818 Lord Koos
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I can guarantee that China has far more corruption in the banking system (and everywhere else) than does the US.  That said, the USA is doing their best to keep up.

Fri, 09/16/2011 - 09:28 | 1676723 Shock and Aweful
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Our banking system is rotten to the core alright...but I would not go as far to say that China's is better...or even less rotten.

Really....How would be know? 

China has the central-planning system down pat (they should after nearly 70 years of Communist rule).  

Information about China's finances or banking systems only makes its way to the west after being run through an extensive set of government filters and censors....They are playing our game (the game of managed perceptions)...and they are good at it.

I can say without a doubt that there is no way for anyone to truly know the state of the Chinese economy...no one...

Fri, 09/16/2011 - 09:41 | 1676758 Scisco
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Ohh the central planners know. That is why they keep there wealth abroad. There was an article about that here a while back, no idea what to search for to dig it up.

Fri, 09/16/2011 - 13:11 | 1677664 laomei
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No, them keeping their wealth abroad has more to do with being corrupt and having an exit strategy if caught.  Still, it's less corruption than goes on in the us.  A lot of it also has to do with tax evasion, however China really doesn't give much of a shit about personal income tax and chooses to focus more on the business-side of it... which is far easier to monitor and control.

 

Those loans, yea, it's not unlimited money for state-owned corps to do whatever with.  State owned corps have their CEOs and upper level staff appointed by the government amongst their own ranks.  If they fail, they're done... in more ways than one... not so much execution unless it was really horrible shit, but they are fired, kicked out of the party and jailed.  Few years back, CNNC's director was caught doing a thing where he sucked out a giant pile of money from an obsolete account and played it on the stock market.  He lost basically all of it.  I knew the guy personally before that happened.  His plan was to use earnings to boost the company bottom line and be recognized for his smartness.... He had a few enemies though and the story became that he was just trying to pocket the earnings and return the original amount without anyone noticing.  Second story won out and he's doing 10-15 now and a lot of the deals he brokered which would have left him some respect were automatically shifted over to a competing SOE.

 

Also... command economy? Hah!  Shit's more capitalist here than anywhere in the west.  Food, energy and transportation costs are largely subsidized for the greater good and it fucking pays off.  Certain critical supplies are price-controlled... but why is this in anyway a bad thing?  Those prices are kept artificially low, not the other way around.

 

And check this shit out.  We get pension, healthcare, disability, unemployment, maternity insurance here as a mandatory thing, plust this sweet thing called a housing fund all pre-tax.  Excluding the housing fund, the burden falls 37%/11% on the employer/employee (pre-tax).  But the housing fund is a matching fund for duh... housing.  So, I opt in with the max 12% contribution, and the employer has to match it.  The cap range is 60%~300% of average local wages.  So the cool thing here is that if you already have a damned house, or you just want the cash, you can suck that money right back out every 3 months.  Do the math here... 11% - 12% = -1%.  So, in the end, the employer is in effect paying everything and employers screwing around in any way with this system is met with stupidly extreme consequences.  Pretty nice eh?

Fri, 09/16/2011 - 17:22 | 1678668 eaglefalcon
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Of course there is a way to know.  I remember wikileak told a story about China's next leader (or sort of "heir apparent") never bothered to look at official statistics but he claimed he knew the status of the economy by how much electricity is consumed and how many freight trains are scheduled.

 

You can tell their economy is booming because they are actually buying more oil, more gold, more steel and more everything and taking a greater share of all global resources.  Or the fact that GM sold much more cars in China than in US last year, despite the fact that the Chinese need to pay 100% cash for a car and 60% down for a house (Americans however, have wide access to "financing", an euphemism for "debt")

 

You are right that few people know about the balance sheets of Chinese banks, they might be in the same sorry shape as American or EU banks.  Then again, at the end of the day, banks are not the real economy.  One day, when all the banks are wiped out, when all the "services" like lawyers, insurance, accountants, financial planners, "health care" are wiped out, the only remaining weahlth is gold, silver, commodity and manufacturing capacity.  In that sense, they are not doing bad.  Now what is left for the US?  8000 tons of gold, weapon industry, a good agricultural sector, good natural resources including good oil reserve.  Most of the "light industry" is gone.  After TSHTF, and after gold is remonitized,  every ounce of the 8000 ton gold needs to be spent to buy back some of the original manufacturing capacity, and that's most likely not enough.  Building a manufacturing base is most time consuming and capital intensive and it'll take decades before things go back to normal.  That's assuming that the gold is still in fort knox.  If the gold is not there anymore, I guess things will get real ugly

Fri, 09/16/2011 - 09:04 | 1676639 Version 7
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US does not need China and China does not need the US

go to walmart and try to buy something not made in China

Fri, 09/16/2011 - 09:15 | 1676658 Dr. Richard Head
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Financial fraud in the FIRE industry and bombs made for the MIC compose a much larger portion of US GDP than retail consumption, as long as you count the shadow banking industry and off-budget war funding.  As long as the US can export inflation by blowing up villages in third world countries and kill all of those muslims, as well as helping to blow up the developed world through financial suicide debt bomging, the US population should be able to enjoy a slower reduction in the standard of living for a longer period of time. How much time is the only question I have.

See Krugman was right in the broken window analogy.  We should thank the lord above that we can export our creative destruction elsewhere, otherwise that creative destruction would be here.  /sarc

They hate us for our freedom and way of conspicuous consumption lifestyles don't cha know.

Fri, 09/16/2011 - 12:48 | 1677547 GoinFawr
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Succinct and precise, nice.

Fri, 09/16/2011 - 09:12 | 1676662 Esso
Esso's picture

That's easy, toilet paper, disposable diapers, most chemical products, etc.

Or did you mean products you use more than once before you throw them away?

If that's the case, good effin' luck.

Fri, 09/16/2011 - 09:34 | 1676712 Esso
Esso's picture

Amazing video of what America USED to be able to do before OSHA, carpy tunnel syndrome, political correctness, and our average weight was below 350 pounds.

http://www.youtube.com/watch?v=HPpTK2ezxL0

It's NOT hip to be a homo.

Fri, 09/16/2011 - 13:46 | 1677828 Lord Koos
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The United Auto Workers Union was formed a couple of years before that film was made.

Fri, 09/16/2011 - 08:34 | 1676545 HedgeFun
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This article parallels John Williams news letters and (not to be cliche) is a black swan event, but nevertheless a possibility.  We can only speculate what China's game plan is, but if there is a dump of the dollar it will be a momenteous task to mop up excess dollars in the system.

Fri, 09/16/2011 - 08:40 | 1676549 Reptil
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Gold accumulated, trade routes secured (see Tarpley on Pakistan), relative condition of western financial system.

cue socialist marching music: http://www.youtube.com/watch?v=q3Q6P6JOyJE

Fri, 09/16/2011 - 08:42 | 1676561 snowball777
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Aren't both those "illusions" one and the same? And subordinate to the central illusion that certain resources can continue to be used unsustainably?

Can China grow into a 25% export hole if they "abandon" the US? Can they do so if the rest of the world is imploding too?

I guess we'll now within the next two years.

Fri, 09/16/2011 - 09:45 | 1676771 DeadFred
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It's not about continuing to grow, it's about coming out first and strongest from the ruins. Most here on ZH think the ruins are coming so why so much resistance from so many in believing the Chinese see it coming as well. Just like so many ZHers they are stockpiling gold silver and ammo expecting to ride out the storm and emerge in better shape than their neighbors. What's so hard about believing they might 'push' things a bit to precipitate the storm when it's to their advantage?

Fri, 09/16/2011 - 10:10 | 1676867 snowball777
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Gold is not the "stockpile" they should be most concerned with. And they'll need a lot more "beans" with 1 billion mouths to feed.

Fri, 09/16/2011 - 13:19 | 1677700 laomei
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china *does* stockpile food in strategic reserves, this started being implemented after 2009.  warehouses are kept at maximum capacity and are located strategically based on population densities.  supplies are rotated as required and current sotckpiles represent a half-years supply for the entire country.  China is also capable of feeding itself, which has always been a major policy point.  India however... india's fucked.

Fri, 09/16/2011 - 08:46 | 1676565 Life of Illusion
Life of Illusion's picture

 

 

When China replaces dollar reserves (paper) with “Real Assets” only then will it not be in their best interest to support the dollar. Replacing their dollar reserves is a political theater and takes time, it’s a process.

Get educated, be prepared, stand ready,,,my ass. Get in front of these dollar dumpers and get “REAL RESOURCES”.

 

Fri, 09/16/2011 - 08:46 | 1676571 Flakmeister
Flakmeister's picture

Just a couple of observations:

The interest the Chinese receive on their US treasury holdings buys about 30% of their oil imports. The key factor in the dollar will always be the pricing of oil in dollars.

The decoupling of Brent-WTI price has been discussed extensively, perhaps, it is partly due to the decoupling of oil priced in "foreign dollars" and "domestic dollars". I don't claim this to the be the case but it could be a factor. 

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