Chinese State Newspaper Urges 'Abandonment' of USA

**panama hat** · 19-09-2008, 01:09 PM

The work of only one man

bkkandrew · 09-10-2008, 09:09 PM

Main Bank of China in a bit of a bind...
It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.

Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.

Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People’s Bank of China has begun discussions with the finance ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China.

The central bank’s predicament has several repercussions. For one, it makes it less likely that China will allow the yuan to continue rising against the dollar, say central banking experts. This could heighten trade tensions with the United States. The Bush administration and many Democrats in Congress have sought a stronger yuan to reduce the competitiveness of Chinese exports and trim the American trade deficit.

The central bank has been the main advocate within China for a stronger yuan. But it now finds itself increasingly beholden to the finance ministry, which has tended to oppose a stronger yuan. As the yuan slips in value, China’s exports gain an edge over the goods of other countries.

The two bureaucracies have been ferocious rivals. Accepting an injection of capital from the finance ministry could reduce the independence of the central bank, said Eswar S. Prasad, the former division chief for China at the International Monetary Fund.

“Central banks hate doing that because it puts them more under the thumb of the finance ministry,” he said.

Mr. Prasad said that during his trips to Beijing on behalf of the I.M.F., he had repeatedly cautioned China over the enormous scale of its holdings of American bonds, emphasizing that it left China vulnerable to losses from either a strengthening of the yuan or from a rise in American interest rates. When interest rates rise, the prices of bonds fall.

Officials at the central bank declined to comment, while finance ministry officials did not respond to calls or questions via fax seeking comment. Data in a study by the Bank of International Settlements based in Basel, Switzerland, sometimes called the central bank for central banks, shows that many central banks had small capital bases relative to foreign reserves at the end of 2002, though few were as low as the People’s Bank of China.

Given the poor performance of foreign bonds, the Chinese government could decide to shift some of its foreign exchange reserves into global stock markets.

The central bank started making modest purchases of foreign stocks last winter, but has kept almost all of its reserves in bonds, like other central banks.

The finance ministry, however, has pushed for investments in overseas stocks. Last year, it wrested control of the $200 billion China Investment Corporation, which had been bankrolled by the central bank. That corporation’s most publicized move, a $3 billion investment in the Blackstone Group in May of last year, has lost more than 43 percent of its value.

The central bank’s difficulties do not, by themselves, pose a threat to the economy, economists agree. The government has ample resources and is running a budget surplus. Most likely, the finance ministry would simply transfer bonds of other Chinese government agencies to the bank to increase its capital. But even in a country that strongly discourages criticism of its economic policies, hints of dissatisfaction are appearing over China’s foreign investments.

For instance, a Chinese blogger complained last month, “It is as if China has made a gift to the United States Navy of 200 brand new aircraft carriers.”

Continued in my main thread here:

https://teakdoor.com/us-domestic-issu...tml#post793218

**sabang** · 09-10-2008, 09:21 PM

The World needs a second Reserve currency- this would be good for all, including the USA. It cannot be the Yuan- it is not a freely tradable currency.

That leaves either the Euro or the Yen.

**deepee** · 09-10-2008, 09:36 PM

Sabang,
there is at least one other currency- and that is gold !

**lom** · 09-10-2008, 11:57 PM

^How do one print more gold?

bkkandrew · 10-10-2008, 02:35 AM

^I think deepee was referring to the reckless abandonment of gold-backed currencies, noteably by the USD going totally fiat in 1974.

**Thormaturge** · 10-10-2008, 05:14 AM

It is laughable for China to comment on America's current problems.

If China were to become a democracy it would suffer similar problems to Thailand, only worse. With an overwhelming proportion of the country still living a peasant lifestyle the entire country would be run by a peasant-backed government and the industrial base would be bled until the entire country reverted to subsistence living.

When China develops a proper legsal system and a democracy in which everyone is free and has a chance then, and only then, can it seek to criticise the USA.

**baldrick** · 10-10-2008, 06:23 AM

Originally Posted by sabang

The World needs a second Reserve currency- this would be good for all, including the USA. It cannot be the Yuan- it is not a freely tradable currency.

That leaves either the Euro or the Yen.

why do you dismiss the "globar" ?

**keda** · 10-10-2008, 06:56 AM

Look no further than the Euro for the de facto second currency, but must confess not looking good for the $ and can't see it improve regardless who slithers in next month.

**Rattanaburi** · 10-10-2008, 07:15 AM

China will soon implement a half-child policy.

The world is rolling down a hill bouncing into rubble along the way.

**Thormaturge** · 10-10-2008, 07:59 AM

Originally Posted by sabang

The World needs a second Reserve currency- this would be good for all, including the USA. It cannot be the Yuan- it is not a freely tradable currency.

That leaves either the Euro or the Yen.

Is there some reason why you dismiss the Thai Baht? Surely its current strength makes it a candidate.

**robuzo** · 10-10-2008, 10:02 AM

Anybody around ever look at the charts? The dollar has been steadily advancing against nearly every currency but the yen, which is at a high (yay, I'm paid in yen). The Chinese "abandon" the US? Maybe they'll rearrange the ratios in their secret "basket of currencies" against which they peg the yuan, or maybe not. They own not only nearly a trillion in US debt- not being able to find enough of that to put their US dollar inflows into, they also bought roughly US$400 billion in Fannie and Freddie! Their little vendor-financing scheme is crumbling around them; of course, that's a bit unfair, since it is really Bretton Woods II, the biggest vendor financing scheme ever, that is falling apart. Europe is in chaos, hoping the Russians will bail them out. Funny old world.

Charts: 3-month dollar v Euro- U.S. Dollar to Euro Exchange Rate - Yahoo! Finance

Dollar v British squid: U.S. Dollar to British Pound Exchange Rate - Yahoo! Finance

Check out this blog- a bit technical but here is an especially good recent post: Brad Setser: Follow the Money » Blog Archive » The damage spreads ….

"One friend just read me something which he has received from an fx trader which said that the only things that anyone desires to own are the US dollar,the Japanese Yen, gold, bottled water and bullets”

I might add "tinned sardines and camp stove fuel" to that, but otherwise sounds like a plan.Best explanation of what's going on that I've heard so far- "You’re in a room with 100 people, and 20 of those people have a deadly disease that is spread by touch. You have no idea who the 20 are, so your strategy is “touch no one”. The banks have no idea who is toxic and who is not, so lending has frozen." Not only that, but they might be toxic themselves and not know it. Can't trust anybody!

**panama hat** · 10-10-2008, 04:57 PM

Originally Posted by robuzo

"You’re in a room with 100 people, and 20 of those people have a deadly disease that is spread by touch. You have no idea who the 20 are,

If Jet is in the room you have a sure fix on one of them . . .

Owning so much debt is a false positive for China - it sounds scary, but what can they really do with it? Call it in? Hardly likely.

The USD will regain its position as the 'reigning' world currency, I have no doubt . . . with the Thai Baht running a close second . . .

I am joking on one of these points.

**deepee** · 10-10-2008, 08:31 PM

Interestingly the Thai Baht does seem to be holding it's own despite other more respected currencies getting a good old flogging at present.
Maybe some of this talk about Thailand looming as the financial hub of S.E.A does have some merit.
Hey, just struck me we could soon be asking" hows it going in HOSEA these days?" rather than the good old LOS .

**Thormaturge** · 13-10-2008, 07:12 AM

Originally Posted by deepee

Maybe some of this talk about Thailand looming as the financial hub of S.E.A does have some merit.

I needed a good laugh.

I saw a young schoolboy trying to solve a Rubik's cube recently and his approach reminded me of Thai financial management.

After a while none of the sides showed any material difference from when he began, except the mix of colours had admittedly changed. Then I realised the problem, he wasn't stopping to figure anything out, he was just twiddling the squares about in the hope the sides would all match up.

Best analogy I have ever seen for Thai management skills.

**robuzo** · 13-10-2008, 10:37 AM

Originally Posted by panama hat

The USD will regain its position as the 'reigning' world currency, I have no doubt . . . with the Thai Baht running a close second . . .
I am joking on one of these points.

So long as the world runs on oil, and oil is priced in dollars, this will be the case (the first part anyway). People talk about the dollar being a "fiat" currency, but that is only partly true- it's oil-backed instead of gold- or silver-backed (despite the appealing image of hulking gorilla dollars). This is the arrangement that Nixon worked out with the Arabs, and I don't see much happening to change it, however desirable that might be.

bkkandrew · 22-12-2008, 02:03 PM

China says lending to US will not go on forever

BEIJING (AFP) – China warned Wednesday it would not keep lending money to the US economy indefinitely, even as new data showed it had consolidated its position as the top buyer of American government bonds.

"China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis," the China Daily said in an editorial.

The warning from the state-run newspaper, an English-language daily that mainly addresses a foreign audience, came after the US Treasury Department reported a steep increase in Chinese holding of US Treasury bonds.

China held 652.9 billion dollars of US Treasury bonds at the end of October, up 11.2 percent from 587 billion dollars a month earlier, when China became the largest creditor ahead of Japan, according to the data released Tuesday.

China says lending to US will not go on forever - Yahoo! News

Another shot across the bows...

**Mid** · 22-12-2008, 02:17 PM

Another shot across the bows...

just in front of the bridge windows me thinks ..................

we own you !!!!

**Rural Surin** · 22-12-2008, 02:18 PM

They're so subtle, aren't they.

**Muadib** · 22-12-2008, 02:27 PM

Yeah, yeah, yeah... China MUST maintain a minimum of 8% growth in order to sustain their economy, which adds 10 million new workers to their labor force annually... What do you think will happen if they cut off they're largest customer???

Markets & economies will correct themselves... Not without some pain and much needed fiscal responsibility, but at the end of the day it will be business as usual...

**Rural Surin** · 22-12-2008, 02:29 PM

^ Well sure, that goes without saying. Just a game. A game for everyone.

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