China & US Bonds

setmefree2

Spot the link between this:-

China slows Purchase of US and other Bonds
http://www.nytimes.com/2009/04/13/business/global/13yuan.html?_r=3&partner=rss&emc=rss

and this
Geithner Refrains From Labeling China a Manipulator
http://www.bloomberg.com/apps/news?pid=20601087&sid=axKYSNiJivbg&refer=home

Generali

The NY Times piece misses one important piece of information - we already knew that China would be selling US bonds as they announced that they would be spending $500,000,000,000 of their accumulated surplus some time ago.

How did people think this would be done if not by selling assets that were bought as the surplus was built up?

In other news, the Saudis also announced ages ago that they are going to run a deficit of $40,000,000,000 this year so they will also be net sellers of US debt.

The real reason for QE IMO is that Governments know that they have no chance at all of financing their deficits through the normal mechanism of selling bonds and so they have no choice but to print money.

*MF*

Generali wrote: »

<snip>

The real reason for QE IMO is that Governments know that they have no chance at all of financing their deficits through the normal mechanism of selling bonds and so they have no choice but to print money.

With a latent inflation risk - yes?

Meanwhile where the Chinese are - in part - reallocating their funds:


In recent weeks, China has been negotiating deals to double a development fund in Venezuela to $12 billion, lend Ecuador at least $1 billion to build a hydroelectric plant, provide Argentina with access to more than $10 billion in Chinese currency and lend Brazil’s national oil company $10 billion. The deals largely focus on China locking in natural resources like oil for years to come.

China’s trade with Latin America has grown quickly this decade, making it the region’s second largest trading partner after the United States. But the size and scope of these loans point to a deeper engagement with Latin America at a time when the Obama administration is starting to address the erosion of Washington’s influence in the hemisphere.

“This is how the balance of power shifts quietly during times of crisis,” said David Rothkopf, a former Commerce Department official in the Clinton administration. “The loans are an example of the checkbook power in the world moving to new places, with the Chinese becoming more active.”

China has also pushed into Latin American countries where the United States has negligible influence, like Venezuela.

In February, China’s vice president, Xi Jinping, traveled to Caracas to meet with President Hugo Ch!vez. The two men announced that a Chinese-backed development fund based here would grow to $12 billion from $6 billion, giving Venezuela access to hard currency while agreeing to increase oil shipments to China to one million barrels a day from a level of about 380,000 barrels.

“This is China playing the long game,” said Gregory Chin, a political scientist at York University in Toronto. “If this ultimately translates into political influence, then that is how the game is played.”

Extracts - more here:

http://www.nytimes.com/2009/04/16/world/16chinaloan.html?_r=1&th&emc=th

Reaper

I find this all rather amusing. China has been lending money to the USA for years by buying Treasuries. The US responded by accusing them of currency manipulation and threatening to slap import taxes on their goods.

Now the penny has finally dropped that they desperately need China to go on lending the US money. As the article says:

The U.S. needs China to sustain its purchases to fund billions of dollars worth of programs aimed at reviving the economy

... so there has been some comical backtracking in peoples rhetoric. Expect a lot more to come.

Meanwhile China is having second thoughts about their mountain of US$. They don't like QE which would devalue it and have been taking about making a new reserve currency nothing to do with the $.

The US has been slow to realise they are dependant on China. While the US will recover I think historians may look back and say 2009 marked the start of China as the new global superpower and the begining of America's decline.

Wookster

Generali wrote: »

The real reason for QE IMO is that Governments know that they have no chance at all of financing their deficits through the normal mechanism of selling bonds and so they have no choice but to print money.

That is Mugabe style economics for sure. It bodes for disaster.

At some point the US & UK will have to cut their dress according to the cloth. That is going to be interesting!

Rochdale_Pioneers

Reaper wrote: »

The US has been slow to realise they are dependant on China. While the US will recover I think historians may look back and say 2009 marked the start of China as the new global superpower and the begining of America's decline.

I've been saying for several years that this will be the century of Chinese dominance.

Generali

Reaper wrote: »

I find this all rather amusing. China has been lending money to the USA for years by buying Treasuries. The US responded by accusing them of currency manipulation and threatening to slap import taxes on their goods.

Now the penny has finally dropped that they desperately need China to go on lending the US money. As the article says:
... so there has been some comical backtracking in peoples rhetoric. Expect a lot more to come.

Meanwhile China is having second thoughts about their mountain of US$. They don't like QE which would devalue it and have been taking about making a new reserve currency nothing to do with the $.

The US has been slow to realise they are dependant on China. While the US will recover I think historians may look back and say 2009 marked the start of China as the new global superpower and the begining of America's decline.

It's interesting - China and the US have gotten themselves into a pretty nasty bind. The Chinese need to lend the Americans money so the Americans can afford to buy their goods and also as an outlet for their savings surplus - if the Americans can't buy Chinese the Chinese fear revolution as they need to find 6,000,000 jobs a year for their new graduates.

The Americans need the Chinese to prop up their standard of living and now their Government spending (Obama's new budget is based on raising only 50% of spending from taxes, the rest will be borrowed or 'quantitatively eased').

To add a little spice into the mix, if the USians default (or devalue their debt via inflation - the surprisingly little derided plan to 'inflate the problem away') then the Chinese lose a huge chunk of their reserves.

Wookster wrote: »

At some point the US & UK will have to cut their dress according to the cloth. That is going to be interesting!

Obama would have to cut the budget in half. The British would probably have to time limit benefits, cut the NHS and raise the retirement age pretty dramatically - the most obvious fat in the British budget is welfare spending as the welfare bill is massive, £800,000,000,000 this year I think.

*MF*

Rochdale_Pioneers wrote: »

I've been saying for several years that this will be the century of Chinese dominance.

Kinda apropos of nothing - but interestingly AIG (yep - that AIG) was actually founded in Shanghai of all places just short of 100 years ago.

They say the Chinese are patient - what goes around etc etc :cool:

purch

China and the US have gotten themselves into a pretty nasty bind. The Chinese need to lend the Americans money so the Americans can afford to buy their goods and also as an outlet for their savings surplus - if the Americans can't buy Chinese the Chinese fear revolution as they need to find 6,000,000 jobs a year for their new graduates

I think the 'keeping the guys employed' option will be far more important to them than worrying about the relative "value" of their USD assets.

Wookster

Generali wrote: »

Obama would have to cut the budget in half. The British would probably have to time limit benefits, cut the NHS and raise the retirement age pretty dramatically - the most obvious fat in the British budget is welfare spending as the welfare bill is massive, £800,000,000,000 this year I think.

The US government has been living beyond its means for decades now. It cannot continue indefinitely, perhaps this is the watershed that starts a redress.

Is there a resource that shows UK government spending by area/ department? I've done a Google, but cannot find it.

Talking of welfare, I believe that 1,000,000 (in Generali talk) people are on long term disability benefits. That's 1.7% of the population and probably equivalent to 1 in 8 working age adults :eek:

Unbelievable!

Generali

Wookster wrote: »

The US government has been living beyond its means for decades now. It cannot continue indefinitely, perhaps this is the watershed that starts a redress.

Is there a resource that shows UK government spending by area/ department? I've done a Google, but cannot find it.

Talking of welfare, I believe that 1,000,000 (in Generali talk) people are on long term disability benefits. That's 1.7% of the population and probably equivalent to 1 in 8 working age adults :eek:

Unbelievable!

I think the £800,000,000,000 might be wrong as it goes. It was from memory and mine seems to be faulty today!

The Blue Book contains details of Government spending IIRC (which I may well not do).

PS I do the number thing to avoid confusion. A billion can have 9 noughts or 12 depending who you ask!