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The Fuss Over Treasuries
By: InVivo Analytics   Friday, March 13, 2009 2:14 PM
  • Burger-thy-neighbour policies
    Those who argue that the yuan is still too cheap point to three factors: China's foreign-exchange reserves have surged; it has a huge current-account surplus; and prices are much cheaper in China than in America. Start with official reserves. If China had not bought lots of dollars over the past few years, the yuan's exchange rate would have risen by more. So does the yuan's fixed level against the dollar in recent months mean that intervention has risen? On the contrary, in the fourth quarter of 2008, China's reserves barely rose, despite a record current-account surplus. This suggests that private capital is now flowing out of China.
  • Chinese Savings Helped Inflate American Bubble
    The United States has been here before. In the 1980s, it ran heavy trade deficits with Japan, which recycled some of its trading profits into American government bonds. At that time, the deficits were viewed as a grave threat to America's economic might. Action took the form of a 1985 agreement known as the Plaza Accord. The world's major economies intervened in currency markets to drive down the value of the dollar and drive up the Japanese yen. The arrangement did slow the growth of the trade deficit for a time. But economists blamed the sharp revaluation of the Japanese yen for halting Japan's rapid growth.
  • More on the Yuan and the Chinese Trade Balance
    And what is the pace of CNY appreciation? In nominal terms, the answer is straightforward — at least against the USD: 8% (in log terms). In trade weighted terms, 6%. The difference highlights the fact that the important measure (overall CNY appreciation) depends upon variations in the USD, as long as the Chinese manage the CNY against the USD.
  • Imagine how many newsletters Bill Bonner will be able to sell this weekend by scaring the shit out of the people on the Agora mailing list.

    Yes, China can and will find a way out of their predicament lest Plaza Accord II is foisted upon them, but who will buy the Treasury Bonds if the Chinese slow down? As they say in economics, a new equilibrium will be found. We can already hear the giant sucking sound of money leaving emerging markets in the form of a financing shortfall to the tune of up to $700 billion.

    U.S. investors will also step up to fill the void. Americans are responding to a decline in household wealth by increasing their personal savings like squirrels socking away nuts for winter.



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    3/13/2009 2:49:42 PM
    by jay
    US Brad Setser reports: “Foreign demand for U.S. corporate bonds and equities remains very weak. Foreigners aren’t therefore providing the flows needed to sustain the dollar (and the US current account deficit) by buying risky US assets. But that doesn’t matter so long as Americans are selling their foreign portfolio. Over the last three months of data (October to December) net sales have generated a flow of close to $100 billion dollars.” (see article) Conclusion: America is winning a zero-sum game. Via Stock Research Portal
    Rating: (0) (0)
    3/13/2009 10:21:25 PM
    China concerned about Treasuries by Ron
    China should be worried about their dangerous over investment in US Treasury obligations. Washington’s long-term choice is either repudiation or monetization. For monetization to be effective, the depreciation in the dollar would have to be substantial and this in turn would dramatically raise prices of imports for American consumers which would mean a tremendous drop in foreign imports. Debt monetization would cause more disruption to exporting nations than selective repudiation of Treasury debt.

    Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall.  Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.

    The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See:  http://www.facebook.com/group.php?gid=67594690498&ref=ts
    Thanks, Ron Holland
    Rating: (0) (0)

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