Multiple Warning Shots from China 13 comments
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China has sent several warning shots about the US dollar and US Treasuries. Although Obama has committed to a strong-dollar policy, there is great doubt about how the US will balance the need for fiscal and monetary stimulus with a strong-dollar policy. A precarious balance to say the least.
And with China already shifting from long-dated Treasuries to short-dated Treasuries, the desire to reduce duration exposure to US Treasuries is apparent:
- “I wish to tell the U.S. government: ‘Don’t be complacent and think there isn’t any alternative for China to buy your bills and bonds’” - Yu Yongding, China’s former central bank advisor. “The euro is an alternative. And there are lots of raw materials we can still buy.’’ (Source: Bloomberg)
- China’s Premier Wen Jiabao in March called for the US to “guarantee the safety of China’s assets”. (Source: Bloomberg)
- Central bank governor Zhou Xiaochuan proposed a new global currency in a paper posted to the central bank’s website. (Source: Bloomberg)
Rightly so, China is concerned about US budget deficits, US inflation and a loss in confidence in the US dollar. While the Euro is also the flawed fiat currency of a delicate union, the ECB is more of an inflation hawk and committed to balanced budgets…not necessarily good for the Euro-zone economy, but good for Euro currency investors (at least compared to the US dollar).
Interesting, Yu explicitly mentioned commodities as an alternative. Yes, that includes gold - China recently bought some gold unloaded by the IMF. But that also includes copper, steel, oil, etc…it makes perfect sense for China to divert currency reserves into functional assets needed to promote domestic growth. Furthermore, some of these commodities will be scarce in the near future (e.g. conventional oil) so they make sense to hold as a strategic economic asset.
No doubt, China’s talk is only contributing to the loss in confidence with the US dollar. Regardless, take their lead and get out now. I don’t know how they could make it any clearer.
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This article has 13 comments:
It may not be clear to all at present but whilst Europe may have been a bit moribund by comparision to the USA, it does not have the highly damaging financial bubbles that the US does, neither is it going to suffer the hyperinflation that the US will. And furthermore, as you point out, it is now about to attract a whole load of foreign investment which will drive sustainable growth.
For those more interested in the deeper lessons to be learnt here, you might wish to refer to Essop's Fables.
""Chinese assets are very safe," Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.
His answer drew loud laughter from his student audience, reflecting scepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.
But later in the day, Chinese Vice Premier Wang Qishan said it was important for the two nations to show the world they are working together through their joint economic dialogue."
Sounds like those Chinese students have been listening to a real leader who understands economics - Ron Paul.
Clearly the Chinese hasn't forgotten Europe.
besides, it would be true irony that the capitalist elites of the world would abide by the investment advice from a communist dictatorship.
Sure, they can buy up all the copper and steel they want. They can refuse US dollars. Then they can have a dead economy and a few more purges. They should think before they start something that will end up hurting themselves as well as their trading partners.
It's not like buying copper and iron will end up helping them. It just encorages people to mine more of the stuff faster. Then, unless the population doubles, what will you do with it all, start making iron apartments to replace concrete ones? Think of the electrical problems with a short circut in one of those.
Get real, countries hoarding raw materials just show how newb China's economist really are. You only make your economy strong long term by increasing productivity and consumption. What the world is asking China to do is good for it whether or not they realize it.
Of course, the US curbing it's appitite is also good for it long term too, whether or not it likes it either. The two of them are making an imbalanced global system that will haunt the entire world economy. It's not a one sided problem like China would claim. Geithener should make that fact quite clear rather than grovel.
On Jun 02 01:42 PM Moon Kil Woong wrote:
> LOL Geithner just lost face to China. So when do we need to grovel?
> The simple fact is China has been ranting and raving for the last
> year about the reveral of all their magic bond profits as rates went
> down to Zirp. This is just a reveral of a abnormality that made them
> richer playing the let's not let our currency float.
>
> Sure, they can buy up all the copper and steel they want. They can
> refuse US dollars. Then they can have a dead economy and a few more
> purges. They should think before they start something that will end
> up hurting themselves as well as their trading partners.
>
> It's not like buying copper and iron will end up helping them. It
> just encorages people to mine more of the stuff faster. Then, unless
> the population doubles, what will you do with it all, start making
> iron apartments to replace concrete ones? Think of the electrical
> problems with a short circut in one of those.
>
> Get real, countries hoarding raw materials just show how newb China's
> economist really are. You only make your economy strong long term
> by increasing productivity and consumption. What the world is asking
> China to do is good for it whether or not they realize it.
>
> Of course, the US curbing it's appitite is also good for it long
> term too, whether or not it likes it either. The two of them are
> making an imbalanced global system that will haunt the entire world
> economy. It's not a one sided problem like China would claim. Geithener
> should make that fact quite clear rather than grovel.
Problem is for the US, after Japan it found China, it has to look for the next sucker – India?
- Because if you don't, we won't be able to finance your goddamn deficit......Then you can say hello to hyperinflation and national bankruptcy (guess all those bases in S.Korea and Japan are coming back home).
"Sure, they can buy up all the copper and steel they want. They can
refuse US dollars. Then they can have a dead economy and a few more"
- WRONG......you guys will have a dead economy if we refuse the dollars (which they will eventually). The commodities like gold, copper, iron, and metals are used as hedges if the dollar were to devalue. Real hard-assets that has value unlike the so called "fiat" money which is based "government credibility"
"Get real, countries hoarding raw materials just show how newb China's economist really are."
-WRONG again buddy......by hoarding raw materials, it showed that they know how to plan long term (30 years) while long-term planning for the Americans is two weeks. You might want to look up on China & Rare Earth Metals and will find out that China as of right now controls 95% of the world supply of REE.
P.S. I know that you're a little biased toward China and pro-America (like South Korea).....But at least get your facts straight about China and the US when making those economic arguments.
On Jun 02 01:42 PM Moon Kil Woong wrote:
> LOL Geithner just lost face to China. So when do we need to grovel?
> The simple fact is China has been ranting and raving for the last
> year about the reveral of all their magic bond profits as rates went
> down to Zirp. This is just a reveral of a abnormality that made them
> richer playing the let's not let our currency float.
>
> Sure, they can buy up all the copper and steel they want. They can
> refuse US dollars. Then they can have a dead economy and a few more
> purges. They should think before they start something that will end
> up hurting themselves as well as their trading partners.
>
> It's not like buying copper and iron will end up helping them. It
> just encorages people to mine more of the stuff faster. Then, unless
> the population doubles, what will you do with it all, start making
> iron apartments to replace concrete ones? Think of the electrical
> problems with a short circut in one of those.
>
> Get real, countries hoarding raw materials just show how newb China's
> economist really are. You only make your economy strong long term
> by increasing productivity and consumption. What the world is asking
> China to do is good for it whether or not they realize it.
>
> Of course, the US curbing it's appitite is also good for it long
> term too, whether or not it likes it either. The two of them are
> making an imbalanced global system that will haunt the entire world
> economy. It's not a one sided problem like China would claim. Geithener
> should make that fact quite clear rather than grovel.
I would say it in another way:
Commodities/stocks are rising from the sugar (artificial stimuli) being fed into the world economy. Right now the popular thesis is that the stimuli are actually working to bring the "real economy" back. Only the Chinese are expanding into the teeth of the worst global downturn since the 30's. They say they will will try "a thousand ways and a hundred plans" to stabilize external demand.
(online.wsj.com/article...)
"The Chinese government has offered tax breaks and rebates to help exporters keep exporting whether profitable or not. It is offering incentives and threatening punishments for companies to retain workers whether necessary or not. And it is urging banks to loan more money — and the first four months have seen a massive increase in domestic loans to companies (though primarily to state-owned enterprises, not the private sector) to help them fulfill their employment and export requirements — whether profitable or not."
There's a real danger of a trade war in the not too distant future when China starts dumping their cheap goods onto the global market.
"The first shot was their dumping of steel onto Europe. The Euro zone is already complaining. You can't expand into a massive contraction. Free markets wouldn't do it, but the China command economy thinks that it can. China thinks they can avoid this downturn by expanding supply. I am sorry, but that is as dumb as thinking the US can avoid this downturn by more consumption."
On Jun 02 01:42 PM Moon Kil Woong wrote:
> LOL Geithner just lost face to China. So when do we need to grovel?
> The simple fact is China has been ranting and raving for the last
> year about the reveral of all their magic bond profits as rates went
> down to Zirp. This is just a reveral of a abnormality that made them
> richer playing the let's not let our currency float.
>
> Sure, they can buy up all the copper and steel they want. They can
> refuse US dollars. Then they can have a dead economy and a few more
> purges. They should think before they start something that will end
> up hurting themselves as well as their trading partners.
>
> It's not like buying copper and iron will end up helping them. It
> just encorages people to mine more of the stuff faster. Then, unless
> the population doubles, what will you do with it all, start making
> iron apartments to replace concrete ones? Think of the electrical
> problems with a short circut in one of those.
>
> Get real, countries hoarding raw materials just show how newb China's
> economist really are. You only make your economy strong long term
> by increasing productivity and consumption. What the world is asking
> China to do is good for it whether or not they realize it.
>
> Of course, the US curbing it's appitite is also good for it long
> term too, whether or not it likes it either. The two of them are
> making an imbalanced global system that will haunt the entire world
> economy. It's not a one sided problem like China would claim. Geithener
> should make that fact quite clear rather than grovel.
On Jun 02 06:43 PM Fighting Yoda wrote:
> China will have to skillfully maneuver its position – geo-politically
> and financially. It is making the moves – currency swaps with Brazil
> and other Asian countries, promoting internal consumption – stimulus
> etc. China will come ahead.
>
> Problem is for the US, after Japan it found China, it has to look
> for the next sucker – India?
On Jun 02 08:48 PM chopshop wrote:
> Today the Economic Times (India) spoke about the BRIC countries having
> talks about a common currency. What should be the chances of the
> United States and the Amreicas to join with a common currency????