Friday, March 13, 2009

China: I just as soon kiss a Wookie

I feel compelled to comment on this China bullshit. You've already read the story, but in case you have been living under a virtual rock here it is.

Ohmigod! China is going to sell their Treasuries! We all gonna die!!

Look, Wen Jiabao, don't make threats when you have nothing to actually threaten. Where are you going with your trillions? Japan? Yeah, they know how to handle a banking crisis. One of these decades they'll get themselves back on track. Eurozone? Yeah, everything is just peachy over there. Except for Fortis... And BNP... And UBS... er... Britain? Uh, Lloyds, HBOS, etc.

I'm not being jingoistic here. Its just that there is no market in the world large enough to take China's money other than the U.S. That's a fact. And as far as diversifying, every where else in the world is as bad or nearly as bad as the U.S.

And the media and half the hack bloggers just eat it up. Look, I'm not happy about the U.S. deficits either, but to suggest the U.S. is risking its status as a credible nation? Its tantamount to calling Michelle Obama fat during the U.N. recess time. Ridiculous.

Memo to Wen Jaibao: You are along for the ride. Get used to it.

23 comments:

John (Ad Orientem) said...

I doubt China will begin any kind of mass dumping of their Treasuries. The understand that such a move could seriously destabilize the already battered world economy. But that's different from saying they will buy more. Recently Chinese economists expressed a strong preference for building China's gold reserves over buying more U.S. debt. Frankly I think that would be a rather sensible move on their part.

The more I read on the subject the more I think our national debt is a major albatross. Between the massive deficits and the mass printing of money I see no way around a major devaluation in the dollar and likely a sharp spike in domestic inflation. Per capita USD currency in circulation is at an all time high and is much greater than during the height of the severe inflation of the late 70's and early 80's.

I wish I was sanguine as you are. But I am not. I am very very nervous about what may be coming.

mxq said...

Wen is dreaming...Nobody but the US will put up with that type of massive, outright currency manipulation. The EU certainly wouldn't and as you said, japan is certainly out of the question, but more so because of their direct, competitive status.

Sprizouse said...

It's actually better if they stopped buying our treasuries (or cut back at the very least). To fund the stimulus and everything else, Obama's administration has issued debt up the waazoo, but none of that's a problem if most of the debt is actually bought by US Citizens (through 401k's, pension plans and other mutual funds we actually just end up going into debt to ourselves to fund the stimulus).

But when China buys up 20% of our treasuries that means we have to pay them back. And this can be rather disconcerting when looking at the size of the current federal deficit.

Finally, @ John (Ad Orientem): A major devaluation of the dollar and a sharp spike in domestic inflation would be WONDERFUL problems to have in the next year or two... somehow I sincerely doubt we'll get either though.

gingersue said...

When Hollywood does the remake of "An Officer and a Gentleman", instead of Richard Gere, we should cast Wen Jiabao as the character of Zack Mayo.

This will especially be fitting when Zack Mayo, crying, famously says.."I got nowhere else to go"!

REdaddy said...

Whoa there AI. That was a mouthful of shit-vomit that went *splat* on my monitor. So please humor my "Devil's advocate" moment for just a sec.

What makes you so sure they won't - or can't - take up a defacto IMF role and be the central banker flowing capital to latchkey nations in need of support? Far-fetched? Maybe. But dumping good $Benjamin$ after bad makes no sense, either. Hell, they have enough problems of their own to subsidize, I don't see why they would continue subsidizing ours. We've got 350M people, they've got ~1.3B that they could easily (tongue n' cheek) turn into consuming citizens.

Who really has the upper-hand here?

In Debt We Trust said...

China is continuing its commodity buying spree in Africa:
http://www.time.com/time/photogallery/0,29307,1884396_1854944,00.html

They are also using this opportunity to secure cheaper oil in the Mid-East and Russia.

Then there are the rumors of Beijing stocking up on gold.

But this is all collateral.

I suspect Monday's TIC data will either be in line or surpass forecasts. Not the least b/c of China's whining.

Purple said...

The only aspect of China's economy that is stable right now is low wage manufacturing (see Walmart numbers, also). They can't increase those wages without losing out to Indonesia and friends. So domestic consumption will remain weak.

I suspect this had something to do with the South China Sea dispute. It was a somewhat reckless warning, after the somewhat reckless move by Obama to send destroyers off of Hainan island.

Jake said...

Guy... we have it all wrong... the problem must be lost in translation. Maybe Wen Jaibao just means it is time to buy US stocks...

Jake said...

Maybe they should buy CDS on their bonds... who can sell them enough to make them comfortable... I have an idea, AIG!

vm said...

Indeed they should be buying CDS on US treasuries if they are so concerned. BTW I havent heard them complain about the massive profits they have made as yields came down.

addtree said...

Like Stalin did propaganda after the World War II, in the lack of trust because he failed to hang Hitler in front of his people, Wen did the same thing after China industry hit by the U.S economics crisis.

In Debt We Trust said...

Huge news from G20 this weekend.

They did.....

Nothing.

Surprised?

j said...

I just like to point out that the actual comment from Wen's mouth is the safety of China's holding, much more about the return of capital than the return on capital.

I sense quite a bit of china bashing sentiment here, but let's put ourselves in their shoes right now. What's the quickest way for US to reduce deficit? there have been cases where countries protect their domestic debt holder and screw the foreigners. US at this point following this path sounds unlikely, but who knows what will happen in the future when deficits become even more manageable than it is now?

China's holding is huge. They can't get out when danger become imminent. at this point, for them to ask the Obama administration to commit to the safety of their holdings will at least protect thru 2012.

A moratorium on debt to Chinese will sound appealing to many americans. and this may translate into political gains in the next election cycle.

Accrued Interest said...

I for one am not anti-China. Its just that it was a foolish statement by a high-ranking Chinese official. And second, it is foolish for the American media to take the comment so seriously.

It is fair to say that our massive deficits have put us into a mutual assured financial destruction position with China.

SS said...

Accrued,

Whether anti-China or not, I'll take you at your word that you are not, you certainly were not at all polite. In fact the language toward the Chinese was very demeaning along with that of several others on this post.

Did you hear Denis Neal on CNBC call Taleb, Mr. Black Swan instead of using his name? He didn't laugh when saying it either. This is the same way your tone struck me. Give them the same respect as another American. Attack their ideas virulently if you wish but not the person of people you don't know and have no personal contention with. Otherwise I enjoy the blog.

SS

Zvi said...

When you owe the bank $1000 you have a problem. When you owe the bank $1,000,000 they have a problem.

I'm really not worried about China selling US Treasuries. In fact, they've painted themselves into a corner, for now, by pegging the CNY to the USD in the Bretton Woods II" system.

China's real effective exchange rate is close to its highest since their deval in early 1994. (Run JBXRCNY index GP M if you have a Bloomberg.) I'm sure they'd love to pick this moment to float the CNY, because it would sink like a stone. Capital would flow out of China since the future returns on the malinvestment going on there now are highly negative. But they're stuck...they are now part of the system. Pulling out of BW II would relieve them of the burden of buying more Treasuries, but impart such a deflationary shock to the world that they just can't do it.

On buying protection (CDS) against a deterioration in US credit quality: Where the counterparty that's big enough to take on China?

In Debt We Trust said...

Wow was I wrong about the TIC data.

WASHINGTON (Dow Jones)--Net foreign sales of long-maturity U.S. securities totaled $60.9 billion in January, following purchases of $24.3 billion the month before, according to a U.S. Treasury Department report released Monday.

I was partialy right about China being angry - they are angry b/c they are stuck being the bagholders while other bond bulls were free to fade the rally.

Accrued Interest said...

SS:

Rude? Wen didn't say "Hey, we're a little worried about the impact of all this spending on the dollar..." No. He said, the U.S. risked its credibility as a nation. Talk about rude.

John (Ad Orientem) said...

I think China is discovering that Bernie Madoff was really George Bush's Secretary of the Treasury for the last eight years and are concerned that they might be the last ones to sink money into the giant ponzi scheme.

nades said...

I think Michelle Obama is haut!

In Debt We Trust said...

China just realized this weekend that they have been bailing out Europe by through the AIG back door!

Deutsche Bank
Societe Generale
HSBC

were among the top 10 AIG CDS counterparties.

What are your thoughts on how they will respond to European quantitative easing?

Richard said...

Periodically, world leaders have to posture among their constituents to preserve their power. Who better to be brave against than the United States? There is no downside, it is popular at home and takes the minds of the locals off their local problems. Think about it: when is some foreign leader gonna throw a shoe at Putin, anyway? That leader would wake up dead of radiation poisoning the next day, and he knows it.
Consider Wen's comments in that context. He has to know that there is no out, that he cannot cash in his Treasuries without destroying his best customer's currency. He would be better off throwing a shoe at Putin!
The Chinese are facing problems too. Their market has zoomed from 6000+ to about 2000 in the last year and one-half. They have to send about 20 million itinerant workers back to the villages. They have bad loans to poorly-run state-owned enterprises. And on and on.
In the recent past, China fanned anti-Japan sentiment for local political purposes. Another safe target.
Like many other countries, when they have a crisis, they need a foreign devil, and some countries are just more convenient fall guys than others.

Mollie said...

Here, I don't really believe this will work.