China Favors Euros Over Dollars as Bernanke Shifts Course on Fed Stimulus

[The Northerner]

China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.

The nation has been buying “quite a lot” of Europe’s bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan’s Ministry of Finance said Aug. 9 that China bought 1.73 trillion yen ($20 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.

“Diversification should be a basic principle,” Yu said in an interview, adding that a “top-level Chinese central banker” told him to convey to European policy makers China’s confidence in the region’s economy and currency. “We didn’t sell any European bonds or assets, instead we bought quite a lot.”

China’s position may make it harder for the greenback to rebound after falling as much as 10 percent from this year’s peak in June as measured by the trade-weighted U.S. Dollar Index. The Asian nation cut its holdings of U.S. government debt by $72.2 billion, or 7.7 percent, through May from last year’s record of $939.9 billion in July 2009, according to the Treasury Department, which releases fresh data today.

Read more: http://www.bloomberg.com/news/2010-08-15/china-favors-euros-over-dollars-as-bernanke-shifts-course-on-fed-stimulus.html

[xchrom]

1. Recommend

[jtuck004]

2. This is probably a good thing.

If they get more diversified so they are not so dependant on U.S. currency, it might prevent them from making hasty decisions based on an overexposure to our dollar.

Last I read, consumers still only make up about 30% of their economy, so they still have a lot of growth to encourage, not to mention a lot more cities to bring on line...

[Old and In the Way]

11. China will diversfy, but no one is buying their USD holdings.

They can't dump USD without hurting themselves (and us) in the process. They clearly understand this and are moving to diversify at a rate that provides security, but not economic devaluation. We need to understand this and prepare for the future when the USD loses it position in the world trade market. That's what happens when you no longer have the world-s #1 financial instrument.

Remember this. It wasn't US economic policy that screwed us. It was US corporate policy that looks out for this balance sheet, not the greater good. This being said by a small entrepreneur who has tried to adapt to the changing rules.

[jtuck004]

12. Yup, I agree with you. And I do think they are being smart to

diversify. I mean, after you have a couple trillion in USD, how many more closets do you need to fill?

I read a talk Geithner had in China at the university - someone asked him how safe their investment was in US treasuries. He said it was very safe. The audience laughed at him.

As far as US economic policy and corporate policy, with Greenspan, then Rubin, his shepherding of Geithner and Summers, other people in the admin from Government Sachs, and Obama saying his thinking follows Bernanke - the line between US economic and corporate policy is invisible. And that's the problem.

China is not our problem. We are our problem.

[Po_d Mainiac]

3. Same events...different interpretation....currency manipulation

China is on a collision course with Washington after steering its currency sharply lower to protect its export industries, despite a near record trade surplus of $29bn (£19bn) in July.

The yuan dropped at the fastest pace in almost two years last week and is now 1.8pc lower against a basket of currencies than in June, when Beijing announced the end to its fixed peg against the dollar.

Western economists had seen yuan liberalisation as a sign that China is abandoning its mercantilist policy in a step-by-step move towards a floating currency, which was expected to rise. They misjudged China's motives badly.

more at link

http://www.telegraph.co.uk/finance/currency/7947089/US-and-China-to-clash-over-yuan-fall.html interpretation

China announces a missile capable of wiping out an Aircraft Carrier, then informs Washington that they have no intention of sacrificing their wealth for a growth in the US job market...Hmmm No one could have seen this coming
YMMV
:tinfoilhat:

[jtuck004]

5. But, but, but

don't they know we have announced that we want to double our exports? How can we do this if they keep the yuan cheap? Don't they know we're #1?

[Po_d Mainiac]

6. They know we are #2 ...They also know that we are fucked ...read story below

Rare Earth Elements: The World Is Rapidly Running Out And China Has Most Of The Remaining Supply

Most people have no idea what rare earth elements are, but a wide array of the technologies that we use every single day are dependent on them. Without rare earth elements, we would have no hybrid car batteries, flat screen televisions, cell phones or iPods. Without rare earth elements, the entire "green economy" would not be able to function, because almost all emerging green technologies use them. Not only that, but rare earth elements are used by the U.S. military in radar systems, missile-guidance systems, satellites and aircraft electronics. Without rare earth elements, the U.S. military (and militaries all over the globe) would not be able to function. There are 17 key rare earth elements that we rely on every day. But there is a huge problem. China owns more than 85 percent of the known global reserves of rare earth elements. Right now, the rest of the world is absolutely dependent on China's exports of these metals. Without these Chinese exports, the western world would quickly run out of these precious resources. But in just a few years, the rapidly expanding Chinese economy will gobble up the entire domestic production of Chinese rare earth elements. So what will the rest of the world do at that point?

http://theeconomiccollapseblog.com/archives/rare-earth-elements-the-world-is-rapidly-running-out-and-china-has-most-of-the-remaining-supply

[jtuck004]

7. Yet another idea for a 21st century push. R&D to develop technologies

that don't need these. (Already some of this being done).

Between that, maglev trains, photovoltaic roads, and growing enough food to feed everyone without our current petroleum-based fertilizers and on insufficent arable land - we have a great agenda for some investment by the government to hire people.

[Old and In the Way]

14. China gets it......50% of the US don't.

That's why we're fucked.

[Old and In the Way]

13. It sucks, PO'd....but the rules aren't in our favor.

"There are 17 key rare earth elements that we rely on every day. But there is a huge problem. China owns more than 85 percent of the known global reserves of rare earth elements."

Well,,,what's the option here? Do an Iraq? Consequences will be different/worse. Or invest in what makes us great? Innovation...1st gen manufacturing....new energy / transportation technology? My response is: all of the above.

[Old and In the Way]

8. Don't panic, my friend.

The Chinese are not our enemy. They're just taking advantage of US economic policy. The fact that they aren't investing in our military fantasy (multi-billion dollar aircraft carriers) is our problem, not theirs. Their investing in low cost missiles that can kill carriers....we ought to understand that, but we are too wedded to the US MIC to really understand the next threat to this country. We'll get killed by a $700BB/year military budget, not by what the Chinese are doing in the So. China Sea.

[Po_d Mainiac]

15. PRC has succeeded in illustrating our failed

military and fiscal policies in a way no others have been able to do.

A multi-million $ missile renders a multi-billion $ carrier task force impotent.

By controlling their currency as vs the USA version of having an "independent":puke: Federal Reserve (creating money out of thin air) they've told bumhanky enough is enough.

The PRC rewards corrupt banksters with a cranial lead injection. The US simply doles out a few more hundred billion bucks and says thank you for the butt sex.

[madrchsod]

4. what wonderful idea....i hope they start tomorrow

[Old and In the Way]

9. Shocker!

Sorry, misread the OP...but I still call BS. They can't buy Euro's at a rate that won't make their USD worth less.

They own so much US debt that they can't dump USD - whose buying USD? not us.....we'd have to, if they'd dump them...otherwise we're screwed. Big surprise. If you owned $2,45TT, what would you think would happen if you dumped 50% of those holdings on the world market? Instant devaluation for the USD..and the Chinese that are holding these securities, Believe it or not, the Chinese want the USA to recover from our economic mess, because their economic future, and ours, are tied together.

[Old and In the Way]

10. Important to read the facts.

China - holds $2.45 Trillion USD. China buys $20BB USD yen. BFD. China will continue to diversify from their USD holdings...but not at a rate that hurts their USD holdings. And that is to our advantage.