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Guest Post: Is China Really Liquidating Treasuries?

Tyler Durden's picture





 

Submitted by John Aziz of Azizonomics

Is China Really Liquidating Treasuries?

The news that China has become the first sovereign to establish a direct sales relationship with the U.S. Treasury (therefore cutting out the middleman and bypassing Wall Street ) raises a few interesting questions.

From Reuters:

China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.

 

The relationship means the People’s Bank of China buys U.S. debt using a different method than any other central bank in the world.

 

The other central banks, including the Bank of Japan, which has a large appetite for Treasuries, place orders for U.S. debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions.

 

China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn’t been necessary.

 

The documents viewed by Reuters show the U.S. Treasury Department has given the People’s Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.

The biggest Chinese outflows in U.S. Treasuries occurred in the months following the establishment of this relationship:

Which begs the question for some analysts — was China really selling? Or was China stealthily buying direct from the U.S. Treasury (unrecorded) and selling back into Wall Street (recorded)?

Well, according to the Treasury, the Treasury International Capital data seeks to record foreign holdings of U.S. securities, not just the flows, and given that the Treasury was the seller in these direct transactions (and so obviously was aware of them) there’s no reason to believe that they wouldn’t include any such direct outflows in the data. That suggests very strongly that yes, China really was selling.

And maybe the real reason that the Treasury offered China direct access (thus cutting out the middleman and offering China cheaper access than ever) was precisely because China was selling, and because the Treasury was concerned about the effect on rates, and wanted to give China some incentive to keep buying. As Jon Huntsman noted in a 2010 cable leaked by Wikileaks, the PBOC has felt pressured to keep buying, and as various PBOC officials have hinted in recent months, China is actively seeking to convert out of treasuries and into gold. And that makes sense — treasuries are yielding ever deeper negative real rates. People holding treasuries are losing their purchasing power. No wonder the treasury is willing to cut Wall Street out of the deal.

And it isn’t like the Treasury would have taken this move lightly — cutting Wall Street out of the equation is a slap in the face to Wall Street.

This raises a much more interesting question — now that the PBOC has effectively been upgraded to primary dealer status, would the Fed start buying treasuries directly from the PBOC in order to manage rates downward and prevent a spike in Treasury borrowing costs should China choose to quicken the pace of a future liquidation, potentially bursting the treasury bubble?

 


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Wed, 05/23/2012 - 23:13 | Link to Comment ACP
ACP's picture

China screwed themselves with the currency peg. Now they're stuck.

Wed, 05/23/2012 - 23:27 | Link to Comment redpill
redpill's picture

All this hollow bullshit talk about "labelling China a currency manipulator" and here we discover they have a direct line to our Treasury at the invitation of the United States government.  Treasonous fucks we have running this country.

 

Wed, 05/23/2012 - 23:28 | Link to Comment SHEEPFUKKER
SHEEPFUKKER's picture

How long till' we just cut Wall Street out of everything? 

Wed, 05/23/2012 - 23:35 | Link to Comment knukles
knukles's picture

How long tell we cut everything out of Wall Street?

Thu, 05/24/2012 - 00:20 | Link to Comment engineertheeconomy
engineertheeconomy's picture

When was the last time that you can remember that the gov told the truth about anything?

Thu, 05/24/2012 - 00:56 | Link to Comment Harlequin001
Harlequin001's picture

and all because America is China's bitch, oh yeah...

Solution = Gold standard, wipe the lot, tell China with its 2 billion poor people to go get fucked...

Oh yeah...

print money to buy food.

stop printing money, cut social security and tell everyone to go get a fucking job, oh yeah...

lazy bastards revolt. Oh no....

Thu, 05/24/2012 - 02:30 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

and all because America is China's bitch ...

Yep, we look down our noses at the rest of the world, telling everybody what they should be doing,

...and we're quietly begging China to buy our debt because we can't control our spending ...and trying to hide it from the public.

World superpower ...or gutless cowards?

Thu, 05/24/2012 - 03:35 | Link to Comment Bohm Squad
Bohm Squad's picture

Most dangerous drunk in the bar.

Thu, 05/24/2012 - 03:19 | Link to Comment Revert_Back_to_...
Revert_Back_to_1792_Act's picture

.

Thu, 05/24/2012 - 03:58 | Link to Comment Max Fischer
Max Fischer's picture

 

 

And maybe the real reason that the Treasury offered China direct access (thus cutting out the middleman and offering China cheaper access than ever) was precisely because China was selling, and because the Treasury was concerned about the effect on rates, and wanted to give China some incentive to keep buying.

  

There is far more to the story.  

The "direct buyer" arrangement between China and the US Treasury was originally crafted after Freddie/Fannie got booted from the NYSE. This was a major concern for the Chinese, which I'll explain in a minute. At the time, this direct buyer agreement was largely a symbolic move to demonstrate to the Chinese that we respect their position as our largest creditor, and we will do what is necessary to maintain our good standing with them, even giving them the "privilege" of being a pseudo primary dealer.  Not only does it allow China to buy our debt without paying a Wall Street vig, it also allows our government to better disguise the bid to cover in case there was ever the slightest hint of a "bid problem," if you know what I mean. So... win/win for both China and the US.  

Circling back to the Freddie/Fannie debacle, its delisting from the NYSE made the bonds of FRE/FNM worth less, which, in turn, made the Chinese extremely nervous; in 2010, nearly 20% of China's foreign reserves (almost $400B) were held as FRE/FNM bonds. Behind closed doors, it was promised to the Chinese that if QE wasn't successful in bringing down mortgage rates and putting a bid under those FRE/FNM bonds, the Fed would craft a program to do exactly that; hence, Operation Twist was crafted. While the Fed could push down treasury rates with their QE programs, mortgage rates were slow to follow suit. Operation Twist was a very deliberate assault on those mortgage rates and a nod to the Chinese that we will do what is necessary to protect their investments in us.  After all, China bought those FRE/FNM bonds under the understanding that they were AAA. If we burn the Chinese with $400B in "AAA" agency debt, they'll never buy another bond from us ever again.    

It is interesting to me that the first direct purchase of US debt by the Chinese occurred just prior to the commencement of Operation Twist. Maybe the timing is nothing, but it sorta looks like the US is making it as easy as possible for China to continue buying our debt, while we scratch their back buy putting a bid under their $400B in foreign reserves through Operation Twist.  In short, the "direct buyer" program was agreed on after the FRE/FNM delisting, and commenced last summer just prior to Operation Twist. 

MF

   

Thu, 05/24/2012 - 10:02 | Link to Comment Bananamerican
Bananamerican's picture

your own informed speculation?

sounds plausible.....any urls or are YOU the "url"

Wed, 05/23/2012 - 23:29 | Link to Comment A Nanny Moose
A Nanny Moose's picture

We're gonna need a bigger debt limit.

Thu, 05/24/2012 - 01:12 | Link to Comment Harlequin001
Harlequin001's picture

How about 'motorised wheelbarrows'

There's got to be an opening there somewhere...

Thu, 05/24/2012 - 08:14 | Link to Comment Chuck Walla
Chuck Walla's picture

How about 'motorised wheelbarrows'

There's got to be an opening there somewhere...

 

Obviously, a student of Weimar.

Thu, 05/24/2012 - 20:24 | Link to Comment The Disappointed
The Disappointed's picture

Old (and offensive) joke:

You know what all the kids of the Donner Party had in common? They was all ate(8)!

<rimshot>

Wed, 05/23/2012 - 23:41 | Link to Comment Stuck on Zero
Stuck on Zero's picture

I'm confused.  Please explain.  The Chinese sell their 0% interest T Bills and receive cash that returns 0% interest.  It's still paper.

 

Thu, 05/24/2012 - 00:49 | Link to Comment Money Squid
Money Squid's picture

selling Ts to get FRNs is paper to paper, but using FRNs to buy gold is buying money with paper.

Thu, 05/24/2012 - 01:26 | Link to Comment cynicalskeptic
cynicalskeptic's picture

China's converting paper $US into TANGIBLE ASSETS - mining companies in Australia and South America, farmland in Africa, contracts for oil with central asian countries ..... China's not stupid - they're trying to turn all that soon to be worth a lot less (or nothign) paper into REAL Value (and yes, that includes gold - they also have a long term contract with some NA producers to refine their output ... and guess who leeps the refined product)

Thu, 05/24/2012 - 08:44 | Link to Comment ITrustMyGut
ITrustMyGut's picture

+1

EXACTLY

But not only into Gold, etc assets, but LAND - US Land... we WILL see PRC Troops on our soil eventually.. to take ownership of THEIR lands... they've shit all over thier lands... time to migrate to (our) greener pastures...

Wed, 05/23/2012 - 23:48 | Link to Comment Bizaro World
Bizaro World's picture

Redpill, Seriously, treason is the correct terminology. China now a primary dealer, couldn't make this s*** up in my wildest dreams. Everyday the rabbit hole gets deeper, props to ZH for keeping us in the know....for now at least.

I think I need a chin strap for my tinfoil hat, it's gonna be a bumpy ride.

Thu, 05/24/2012 - 01:17 | Link to Comment palmereldritch
palmereldritch's picture

And I thought it was just a matter of time AFTER the recent story below that they became primary dealers...

http://www.rawstory.com/rs/2012/05/10/fed-clears-chinas-first-us-bank-ta...

I don't think they can make the tinfoil thick enough anymore...

Thu, 05/24/2012 - 11:39 | Link to Comment hawks5999
hawks5999's picture

Props to aziz for the analysis. 

Thu, 05/24/2012 - 20:46 | Link to Comment The Disappointed
The Disappointed's picture

Hope that your protective helmet is really made of Ag, not Sn nor Al.

Gonna b bumpier than one can imagine, today (imho)

Wed, 05/23/2012 - 23:50 | Link to Comment Clever Name
Clever Name's picture

Like we didnt know that was bs already. The sheep have never given it a second thought and just said "Damn Chinese!" when hearing 'currency manipulation' on the news as their eyes gloss over, then proceed to Wally World to purchase cheap Chinese goods.

Thu, 05/24/2012 - 02:03 | Link to Comment slewie the pi-rat
slewie the pi-rat's picture

and the canadians are even worse

thanks for the reminder of why we don't watch TV

very cl_evR!

Thu, 05/24/2012 - 08:58 | Link to Comment Canadian Dirtlump
Canadian Dirtlump's picture

hai gaiz! i brought bacon!

Thu, 05/24/2012 - 01:11 | Link to Comment palmereldritch
palmereldritch's picture

"Treasonous fucks we have running this country."

Shhhhh...you'll wake the children

Wed, 05/23/2012 - 23:53 | Link to Comment vast-dom
vast-dom's picture

"That suggests very strongly that yes, China really was selling."

 

CORRECTION:

 

That suggests very strongly that yes, China really was RE-selling.

 

If this article is properly researched and the money is followed all the way to the top, then this is Pulitzer prize winning journalism -- i mean a la Watergate.

 

Now JoP et. al. may go to China to buy and even sell -- even Wall St. itself may do this too, esp if China really is trying to get more into gold, etc. Ergo China the de facto primary dealer that will not pay taxes, etc etc etc

 

PS Fuck the prizes, but the reading of damning implications would be something...

Wed, 05/23/2012 - 23:15 | Link to Comment sitenine
sitenine's picture

OT, but I thought you would want to see this:

http://assembly.state.ny.us/leg/?default_fld=&bn=S06779&term=2011&Text=Y

Apparently, if you post anonymously on the internet (yeah, that's pretty broad), the State of New York wants to know who you are, and they appear determined to write it into law.

Wed, 05/23/2012 - 23:15 | Link to Comment ACP
ACP's picture
AN ACT to amend the civil rights law, in relation to protecting a person's right to know who is behind an anonymous internet posting.

BULL FUCK

Good post, by the way.
Wed, 05/23/2012 - 23:46 | Link to Comment Joe The Plumber
Joe The Plumber's picture

Lol I will confirm my name is joe the plumber. I will even pinky swear. I am curious how they will verify i gave my correct name and IP when my posts come out of a vpn located in vanuatu

Thu, 05/24/2012 - 05:28 | Link to Comment Dead Canary
Dead Canary's picture

Next step. Everyone who posts will be required to register with the gooberment. (And pay a fee for a posting license of course)

Thu, 05/24/2012 - 11:54 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

Someone's right to know who makes an anonymouns posting on the internet?

Anyone still doubt this government has gone freikin looney tunes?

There is no such right all of legal precedent all the way back to the Magna Carta. 

This crazy idea doesn't fit any legal principle and runs contrary to many legal principles.

It's just like saying people have a right to receive welfare other people have to pay for.  Welfare is not a right.  Welfare has no basis in legal theory at all.  It's government's crazy distorted attempt to justify taking money from some people and give it to others to buy votes.

This crazy idea is not a right either.  It has no basis in legal theory at all.  It's government's crazy distorted attempt to justify another dose of tyranny, another dose of intrusion into people's lives.

Why don't they just be their fascist selves and make webmasters hand over ID info?

Trying to make it sound like a right?

Are they cowards on top of being crazy?

Wed, 05/23/2012 - 23:20 | Link to Comment HD
HD's picture

They can pass any law they want - enforcing is another matter altogether.

Wed, 05/23/2012 - 23:22 | Link to Comment palmereldritch
palmereldritch's picture

i've played poker against these guys on-line.  They're not so tough

Wed, 05/23/2012 - 23:31 | Link to Comment A Nanny Moose
A Nanny Moose's picture

Enforcers will turn a blind eye, until it is convenient.

Wed, 05/23/2012 - 23:52 | Link to Comment HD
HD's picture

Honestly - how can they possibly enforce something like that? It's ridiculous. Might as well make it illegal to sing in the shower.

Thu, 05/24/2012 - 00:49 | Link to Comment GMadScientist
GMadScientist's picture

Or grow weeds.

 

Thu, 05/24/2012 - 10:51 | Link to Comment 10mm
10mm's picture

Hey,don't give them anymore crazy ideas.

Wed, 05/23/2012 - 23:33 | Link to Comment Kastorsky
Kastorsky's picture

what a piece of fascist shit this sen. tom o'mara is.

Wed, 05/23/2012 - 23:42 | Link to Comment carbonmutant
carbonmutant's picture

Looks like the Bilderbergs are doing the same thing in the EU.

Mark of the Beast: Bilderberg Pushes Mandatory Internet ID for Europe

While the international ACTA treaty and United States’ CISPA legislation are setting the stage to clamp down on the world wide web, technocrats are working overtime to try to pin down your identity and make sure all your activities are thoroughly monitored and under control.

http://www.infowars.com/mark-of-the-beast-bilderberg-pushing-internet-id...

Wed, 05/23/2012 - 23:17 | Link to Comment Clockwork Orange
Clockwork Orange's picture

No worry - Bernanke, Geithner and all of their ponzi-vermin pals feel no pain.

www.ruthschris.com

Only Joe Sixpack is screwed, and he deserves every bit of groceries he is now missing, based on his willful ignorance.

Life is good at the top.

Wed, 05/23/2012 - 23:19 | Link to Comment Freebird
Freebird's picture

All your actions are belong to us

Wed, 05/23/2012 - 23:20 | Link to Comment mayhem_korner
mayhem_korner's picture

 

 

The battle lines have taken the shape of a continuous circle.

Wed, 05/23/2012 - 23:24 | Link to Comment HD
HD's picture

Just another sign America is going the way of Japan - soon good Ol' Ben will own 99.9% of T-bills, never be able to unwind and of course, will just have to keep buying just to keep from drowning...

Wed, 05/23/2012 - 23:36 | Link to Comment Yen Cross
Yen Cross's picture

Japan is an export economy. Crude is off 10% , and they have a massive savings rate! I'm not dis-agreeing with you.

 Just remember the "SUN" rises in the East! 

Disclaimer: I know the debt/gdp , is an issue.

Thu, 05/24/2012 - 00:42 | Link to Comment HD
HD's picture

"Japan is an export economy"

I'm doing my part mate - once you start building Gundams you don't stop. Between the strong Yen and the shipping costs - it's not a cheap hobby...

 

 

 

Wed, 05/23/2012 - 23:25 | Link to Comment Coke and Hookers
Coke and Hookers's picture

This is awesome. The fed (re)monetizing Chinese-owned debt! Woohoo!

Thu, 05/24/2012 - 01:36 | Link to Comment Sizzurp
Sizzurp's picture

Can you think of a better way for China to realize the profits of their bond price appreciation than to sell to the Fed just like everybody else?  China is just getting in on the same game that the rest of the bond speculators have had going for years, front running the fed for easy money.  Money that still has value enough to buy oil, gold, whatever.

 http://www.professorfekete.com/articles/AEFNoBusinessLikeBondBusinessStill.pdf

Wed, 05/23/2012 - 23:27 | Link to Comment loveyajimbo
loveyajimbo's picture

Now that Wall St has abandoned BO, maybe we will see some last minute prosecutions, maybe Gensler of the CFTC will be removed (and hopefully put in prison), same with Shapiro of the SEC... both clearly in the pockets of Jamie Dimon... and maybe Pigs will fly.... wait, was that Corzine?!?!?

Wed, 05/23/2012 - 23:34 | Link to Comment HD
HD's picture

You make a great point. Wall Street should be scared shitless if Obama knows he is going to lose. It's not like he wouldn't have massive public support to throw a half a dozen CEOs to the wolves.

Wed, 05/23/2012 - 23:52 | Link to Comment Jena
Jena's picture

And it isn't like he hasn't thrown others under the bus when they weren't needed anymore.  He's a politician.

Thu, 05/24/2012 - 00:26 | Link to Comment Yen Cross
Yen Cross's picture

Hmm?

Thu, 05/24/2012 - 03:21 | Link to Comment Bringin It
Bringin It's picture

Re. WS scared shitless

I don't think so.

Who is scared of BO?  Obama follows instructions.  He's holding nothing but his dick.

If he got uppitty, he'd get the Grassy Knoll treatment.  I'm sure he knew the game going in.

Wed, 05/23/2012 - 23:28 | Link to Comment Yen Cross
Yen Cross's picture
Guest Post: Is China Really Liquidating Treasuries?

Wed, 05/23/2012 - 23:29 | Link to Comment Missiondweller
Missiondweller's picture

Does this change anything? The Fed is the biggest buyer of Treasuries already, no?

Wed, 05/23/2012 - 23:31 | Link to Comment Yen Cross
Yen Cross's picture

Yes.

Wed, 05/23/2012 - 23:43 | Link to Comment HD
HD's picture

Like Yen said, the Fed is number one.

Here's a list of the top fifteen, which is both sad and almost funny...

http://www.cnbc.com/id/29880401/The_Biggest_Holders_of_US_Government_Deb...

Wed, 05/23/2012 - 23:33 | Link to Comment Antifaschistische
Antifaschistische's picture

All this crap about direct buyers and primary dealers...blah blah blah...can't the US Treasury start selling on Amazon or Ebay? I have an idea, they could create their own website! Why should anyone with a million dollars have to go through a dealer at all! Go EBAY!!

Wed, 05/23/2012 - 23:37 | Link to Comment post turtle saver
Wed, 05/23/2012 - 23:40 | Link to Comment knukles
knukles's picture

The Little People have TreasuryDirect.

The big money Must Pay To Play via Wall Street, Who Own the FED.
Remember?
Genuine Self-Indulgent Self-Aggrandizement Self-Serving Self-Interest.

Wed, 05/23/2012 - 23:42 | Link to Comment Coke and Hookers
Coke and Hookers's picture

Whoa, selling stuff directly to the people without Wall Street skimming off their fair share? Are you some sort of anarchist? I should report you to Janet 'too much testosterone' Napolitano as a potential terrorist!

What will you suggest next? That the Treasury print its own bills maybe?

Wed, 05/23/2012 - 23:37 | Link to Comment besnook
besnook's picture

i wonder if all this talk about selling rate sensitive bonds was directed at the chinese to keep them buying. it would make sense for china to exchange long dated bonds for short dates eventually trading them for rate sensitive bonds when the mega print begins after the election and the inevitable rate rise that will follow. the primary dealer status is cover for the swap.

Wed, 05/23/2012 - 23:40 | Link to Comment MrSteve
MrSteve's picture

This direct Treasury purchase status and the recent opening of five Chinese banks in the USA means we are NOT going to war with our banker. This is a good thing. The downside now is that there are more manipulators in the cash markets.

Wed, 05/23/2012 - 23:40 | Link to Comment Joe The Plumber
Joe The Plumber's picture

I call bullshit

The author of this article should know overthe last thirty years from 1981 to 2011 the long bond has returned an average of 11.8 percent per year BEATING EVERY OTHER ASSET CLASS

Far from losing purchasing power those who held thirty year treasuries and dollar cost averaged into them over the last thirty years have enjoyed a huge bull run. Just goes to show usually the most reviled and unloved asset class is the one that makes the best long term gains

I doubt the treasury bond bull market is over. It hasnt hit full retard yet. The chinese and russians who have been holding treasurys have made out like bandits.

Wed, 05/23/2012 - 23:50 | Link to Comment knukles
knukles's picture

Gold Star, Joe.

For years I have publicly touted long treasuries, owned long treasuries and taken a bucket of shit from people for such.
And even when one mentions the historical returns, the troops look askance, eyes glazing over.

For the same reasons as I have outlined herein many times, I humbly remain; Long Bonds (treasuries and munis, alike), Bullion and Cash.

My fellow equity managers absolutely Hate me.
And I absolutely Love it.

Thu, 05/24/2012 - 00:55 | Link to Comment Money Squid
Money Squid's picture

What is the return when you take inflation into account?

Thu, 05/24/2012 - 01:32 | Link to Comment cynicalskeptic
cynicalskeptic's picture

WHICH inflation number?  The REAL rate or government propaganda?   Either way, T-Bills are charity you provide to government.  You NEVER get back the purhasing power you spent to buy them - even with the interest.   

But I supposew you lose less than trusting the brokers working for Wall Street  (Still glad you got in on Facebook's IPO?).

Thu, 05/24/2012 - 06:25 | Link to Comment RECISION
RECISION's picture

Lies, damn lies and statistics...

Don't you love numbers - you can prove anything you like with them.

Thu, 05/24/2012 - 10:15 | Link to Comment roadhazard
roadhazard's picture

Just like the Bible, open to interpretation, speculation and con.

Thu, 05/24/2012 - 07:51 | Link to Comment jez
jez's picture

T-Bills are charity you provide to government.

 

I suggest it's worse than that. It's lending money to the enemy (any gummint -- not just the US).

Wed, 05/23/2012 - 23:43 | Link to Comment pmm009
pmm009's picture

Talk about cutting Wall Street out.  What is going on with ES.  Can anyone see who is responsible for this volume.  Clearly, 25 point moves in an hour or two, again and again, has to be BG manipulation.  I believe the Germans are playing Chicken with China and the US/IMF/EM.

Wed, 05/23/2012 - 23:48 | Link to Comment bankonzhongguo
bankonzhongguo's picture

Now that China has this "special relationship" they can turn it on and off at will - pulling American policy in their general direction.  They did this under Geithner. 

Do you think the Treasury has a hot line to buy RMB?

The sad but inevitable part is that China is being managed by a new breed of Ivy league trained aggressive, nationalistic - with a chip on their shoulder cadre up against the American soft lazy x-box playing gen X-Y knuckleheads.

China know the US will default.  In the meantime they will convert their treasuries at a loss for gold.

You know its real when the gold is physically in China and not in London or the Fed.

Wed, 05/23/2012 - 23:55 | Link to Comment I am a Man I am...
I am a Man I am Forty's picture

about time the treasury got off their ass and did something instead of paying unnecessary fees to wall street, why is this a big deal?  seems like how it's supposed to work

Thu, 05/24/2012 - 00:01 | Link to Comment agrotera
agrotera's picture

...this article needs a little soap opera music playing for the reader, sadly this is truly, days of our lives in real time....

Thu, 05/24/2012 - 00:08 | Link to Comment pissing_excellence
pissing_excellence's picture

http://youtu.be/2N8gJSMoOJc

Sorry, I cant help it.

 

 

Thu, 05/24/2012 - 00:14 | Link to Comment world_debt_slave
world_debt_slave's picture

I just live in my own dark, dank, little shithole, I would sell the shit out of US treasuries while the getting out was still good!

Thu, 05/24/2012 - 00:25 | Link to Comment Yen Cross
Yen Cross's picture

Buy some " BAC" dark inventory. Sit on it, and watch " Chair Satan" re-liquify the markets.  Congratulations. You just flipped your house!

Thu, 05/24/2012 - 00:22 | Link to Comment Sequitur
Sequitur's picture

There's a lot to the last paragraph of this article, and I admit I don't understand the implications.

Thu, 05/24/2012 - 00:28 | Link to Comment MeanReversion
MeanReversion's picture

If I'm not mistaken China doesn't even really NEED to liquidate treasuries because it owns mostly the shorter end of the curve hence all China has to do is cease BUYING and it will be out of treasuries as they mature.

Thu, 05/24/2012 - 00:29 | Link to Comment engineertheeconomy
engineertheeconomy's picture

Come fucking on. Anyone can see this bullshit about china buying our debt is propaganda. Would you believe the chinese government if they said that they're selling their debt to us? Clearly the 12 year old girl is correct, we need to start printing our own money and start lending it to the bankers for a change. Let them pay interest to us so we can go golfing

Thu, 05/24/2012 - 00:59 | Link to Comment Yen Cross
Yen Cross's picture

 Respectfully. China monetizes their "debt" through the cheap purchase of " U.S." debt.

   China manufactures u.s. goods financed in u.s. dollars, at u.s. interest rates. The yuan is pegged to u.s.d. !

  The United States monetizes China export policy!

Thu, 05/24/2012 - 01:01 | Link to Comment Atomizer
Atomizer's picture

Call it a new wealth extraction Carry Trade. Timmy’s sex acts have gotten boring & Obama's lack of bowing has become a sexual fringe to the gay community.

Thu, 05/24/2012 - 01:09 | Link to Comment Dorky
Dorky's picture

I think this "preferential" deal given to China is to pave way for the coming QE3 somehow in order to make future event bearable for China.

When QE3 is announced, I believe most of the newly created dollar will flow to China.

And China's central bank will buy all these dollars with its own newly created Renmimbi.

Then the central bank will use all these soaked-up dollars to buy/support US treasuries in return, somehow making it a closed-loop system.

The only outcome beyond this loop is higher inflation.

China is given the right to deal directly with the treasury is to make it more bearable where China can buy/support US treasuries at cheaper price.

And this cheaper price can then be sold to the market at slightly higher price to bring great return to certain private individuals trading such government securities.

 

Thu, 05/24/2012 - 01:15 | Link to Comment Bastiat009
Bastiat009's picture

"China is actively seeking to convert out of treasuries and into gold."

Only people who don't believe in the law of supply and demand can believe that. According to your logic China is buying large quantities of gold but price is declining and selling massive amounts of Treasuries but prices are increasing. It doesn't make one once of sense for now.

Thu, 05/24/2012 - 01:37 | Link to Comment cynicalskeptic
cynicalskeptic's picture

You're right - nothing makes sense NOW.  Just wait.

You can naked sell Gold (in paper form) and drive the price down as part of MOPE - but China is buying PHYSICAL bullion at those prices.  Wait until Germany realizes the Bankers sold off all their leased gold... and it turns out that Ft. Knox was emptied in the 70's and 80's top pay the arabs for oil (when they wouldn't take dollars).  Want to bet all that IMF gold is simply bookkeeping entries....   India is not going to be happy - even if they paid only 1045 an oz.

Thu, 05/24/2012 - 01:41 | Link to Comment palmereldritch
palmereldritch's picture

Or alternatively, only people believing that supply and demand is a current valid exchange and not some two-bit grifter hologram of deceipt, price manipulation and illusion (as demonstrated daily on Zerohedge) could subscribe to your analysis.

So logically, I must conclude most of your adherents don't visit here much...

Thu, 05/24/2012 - 01:23 | Link to Comment Bastiat009
Bastiat009's picture

I can't wait for the Chinese to buy nice stuff like Ferraris and real estate in nice cities to make the price of fast cars and condos drop, just like they do with gold.

Thu, 05/24/2012 - 07:17 | Link to Comment TrillionDollarBoner
TrillionDollarBoner's picture

Anyone, but particularly China with their internal production, can purchase and accumulate large quantities of physical gold without affecting the paper price, which is mainly driven by futures contracts. There may be a significant delay before the scarcity of the physical commodity drives up prices, but it will happen. Don't discount the presence and power of physical purchases just because paper prices are driven down temporarily by outside events. And don't compare gold with commodities like cars and condos that are not traded as etfs.

Thanks

TDB

Thu, 05/24/2012 - 01:29 | Link to Comment q99x2
q99x2's picture

That's treason. That's treason. Yes treason. Arrest them.

Thu, 05/24/2012 - 02:00 | Link to Comment halfacanuck
halfacanuck's picture

 

And maybe the real reason that the Treasury offered China direct access (thus cutting out the middleman and offering China cheaper access than ever) was precisely because China was selling, and because the Treasury was concerned about the effect on rates, and wanted to give China some incentive to keep buying.

Their access isn't any cheaper. PD's aren't allowed to charge for direct bids. it just means the PD's can't see what they're doing any more.

would the Fed start buying treasuries directly from the PBOC in order to manage rates downward and prevent a spike in Treasury borrowing costs should China choose to quicken the pace of a future liquidation

Yes, of course. That's what central banks do: manage interest rates.

You should be glad the bonds aren't on China's books any more: that means the US is sending less interest overseas, because interest paid to the Fed is returned to the Treasury.

And you should ask yourself why China has to sell its income-producing Treasuries; could there be a US dollar shortage in China? That seems a viable alternative to the "they're cashing in their bonds for gold" theory.

Thu, 05/24/2012 - 09:00 | Link to Comment ITrustMyGut
ITrustMyGut's picture

anything IS possible .. agreed. So, yes, its an outside chance 

 

BUT

 

given absolute un-pay-abale debt across the board, simple understanding that $$ must implode eventually... unless there is some sort of a Jubilee.. your scenario is less likely..

Thu, 05/24/2012 - 02:07 | Link to Comment hmmmstrange
hmmmstrange's picture

China does not have a direct line to the treasury auctions. It's just the excuse they give when they stopped going to the brokers to buy our debt. The FED just put a label on one of their lines "China".

Thu, 05/24/2012 - 06:51 | Link to Comment eclectic syncretist
eclectic syncretist's picture

Here's an interesting possibility to contemplate.  In order to win the presedential elections Obama foments popular hatred of Wall Street banks, while equating Romney with them.  It could be a very effective political strategy.

If it were to happen shorting the banks should be profitable.  At this point it's doubtful that Obama has the balls to do it, but desperation and greed for power can do stranger things.

Thu, 05/24/2012 - 15:28 | Link to Comment roadhazard
roadhazard's picture

He would not be wrong either. He just doesn't include himself.

Thu, 05/24/2012 - 09:21 | Link to Comment silverdragon
silverdragon's picture

Buy Silver

Thu, 05/24/2012 - 09:56 | Link to Comment metaStable
metaStable's picture

Talk about outsourcing! PBOC is now a primary dealer, buy direct and then sale in open market. All the Fed needs to do now is to provide PBOC access to discount window. Way to go Timmy ...

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