China stuck in "dollar trap"

[UpInArms]

Source: Financial Times

China’s official foreign exchange manager is still buying record amounts of US government bonds, in spite of Beijing’s increasingly vocal fear of a dollar collapse, according to officials and analysts.

Senior Chinese officials, including Wen Jiabao, the premier, have repeatedly signalled concern that US policies could lead to a collapse in the dollar and global inflation.

<snip>

The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and start buying far more short-term US government securities, instead of longer-maturity bonds and notes.

This approach is widespread in the market because of expectations that the US will have to raise interest rates in the medium term to deal with rising inflation, as a result of all the money that it is printing.

Read more: http://www.ft.com/cms/s/0/5b47c8f8-488c-11de-8870-00144feabdc0.html?nclick_check=1

[LiberalFighter]

1. If only we could bankrupt China without hurting other countries.

[opihimoimoi]

2. Why would we do thar???

[Towlie]

7. If we did that thar, at least we'd drag them down with us.

[opihimoimoi]

8. But thyats what GOP Bullies do.....when they lose...they want everyone else to lose too

[Fovea]

3. I got litle beef with the Chinese people

And that is who would starve-- the govt would skate like NK over the corpses of millions of Chinese citizens.

China needs to get its head out of its ass just like we do. We are two halves of a
rather dysfunctional relationship. I suspect, however, that China is heading for interesting times.

[izquierdista]

4. Serves them right

For exporting all them damn traps of theirs in the first place!

[AllentownJake]

5. Well if they pull the plug

We stop buying useless shit and crash their economy overnight, if they don't pull the plug they will eventually lose money on the useless shit we are buying from them.

What a beautiful Catch 22.

[mallard]

11. Re: [to] "stop buying useless shit and crash their economy overnight"

You wrote:

"Well if they pull the plug ... We stop buying useless shit and crash their economy overnight, if they don't pull the plug they will eventually lose money on the useless shit we are buying from them."

I would call that a 'Marxian' interpretation, as in straight from Groucho Marx himself!

Seriously, though, there's little connection between China being the source of Ferderal Reserve borrowings and the choice-of-goods-for-trade phenomena. The two are unrelated. Why would people ever stop buying cheap crap from China, why would it matter where the money they had to turn it over came from in that supplier selection process ... because of their ... 'disloyalty', or something?

It's the traders who are more like 'traitors', IMOH.

How could you possibly be serious? Please explain.

[AllentownJake]

12. China funds our debt

because it pays for our trade deficit. In exchange we let the Chinese artificially price their currency lower than what it should be priced. Though we shake our fist at them every so often and they shake their fist at us for our deficits.

If the dollar were to crash, buying useless shit from China would become too expensive for Americans. In addition do the fact the dollar is devalued it will be attractive to make useless shit here.

[no_hypocrisy]

6. Sort of how Donald Trump managed during banks calling in their loans.

He'd tell them, go ahead and do it. And you'll never get your money because I don't have it now. But give me an extension, I'll finish my project and there'll be money for everyone.

[ohio2007]

9. If they would simply pay their carbon taxes...this little fever problem would go away

and so would the trade imbalance
AL GORE

(You think they'll "BUY IT ? )

[Downwinder]

10. China has to keep paying for their proxy army.

[mbperrin]

13. All they really have to do is spend their dollars here buying up assets.

In order to defeat currency valuation differences, simply spend your currency in its home country. All exchange effects are wiped out, and if values are falling domestically, everything's on sale!

I would very much expect there to be much more buying of US assets in the very near future by the Chinese.

http://www.businessweek.com/globalbiz/content/apr2009/gb2009048_271073.htm?chan=top+news_top+news+index+-+temp_global+business
Chinese Investors Are Buying U.S. Homes

http://www.cleveland.com/cavs/index.ssf/2009/05/proposed_chinese_investors_dee.html
Proposed Chinese investors' deep pockets excites LeBron James for Cavaliers potential
by Brian Windhorst/Plain Dealer Reporter

There's really no trap, just a change in tactic. Money no good? Get THINGS.

[ovidsen]

14. China's doing more than buying dollars. It's SPENDING them.

From the NYTimes, January 22, 2009

GUANGZHOU, China — In an effort to hold back the domestic effects of the global downturn, China is starting to spend hundreds of billions of dollars on new highways, railroads and other infrastructure projects.

http://www.nytimes.com/2009/01/23/business/worldbusiness/23yuan.html?_r=2&scp=2&sq=China&st=cse

Guess where those dollars came from? Right.

[IDFbunny]

15. Somebody presented this paradox:

If you take out a small loan, the bank owns you. If you take out a ver big loan, you own the bank.

this is kinda like that, I guess.

[JonQ]

16. Stop selling us poisonous

products that kill us and our pets first, then you can get some sympathy for the fact that our financial collapse is inconvenient for you.

[roamer65]

17. They're making a BIG mistake.

They should be dumping every piece of US Treasury paper they own before the dollar crisis hits.