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You know the US is screwed when China is lecturing us on capitalism.
Luo Ping, a director general at the China Banking Regulatory Commission, gave a speech in NYC decrying the upcoming depreciation of the dollar and proclaiming that China has no option other than to continue to buy US credit.
Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
Mr Luo, whose English tends toward the colloquial, added: “We hate you guys. Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.”
However, Mr Luo said Chinese officials would encourage its banks to finance domestic mergers and acquisitions rather than provide rescue finance to distressed financial companies in other countries: “There will be no bottom-fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books.”
Luo goes on to decry the repeal of Glass-Steagall and posits that additional regulation in the financial industry may not be the worst thing.
Reading this, a lot sticks out. Why can't the Chinese buy British, Japanese or European debt? Currency exposure isn't a concern anymore. Why can't they reinvest domestically? China is clearly trying to defend it's massive stash of US government IOUs but look for them to quietly move away going forward.
President Obama's nominee for U.S. EPA's second highest post abruptly pulled out of the Senate confirmation process today because of an investigation into the nonprofit group where he once served on the board of directors.
Essentially a treasury ("T" from now on) is an IOU. So, the gov "prints" a T and says, hey I'll sell you this $100 T for what you think it's worth and in 10 years give you back $100. The market sets the going rate for those T's based on demand. Say the going rate for that T is $97.50. That means you pay $97.50 for it today and then hold it to maturity (10 years) and the gov gives you back $100 after 10 years, for a gain of $2.50 or 2.5%.
If demand drops for that T then the price goes lower to entice more buyers.
Simple supply and demand.
If the price drops to $95 then the yield on that T when held to maturity rises to $5 or 5%.
So, you can see that T price and yield are inversely related. Higher demand, higher price, lower yield. Lower demand, lower price, higher yield.
Now, since T's are normally seen as the "safest" place to park your cash, if investors are scared and think the stock market is going down they move into T's, thus upping demand, upping T price, and dropping the yield.
If investors think the market is going to rally they sell their T's so they can buy stocks, thus dropping T demand, dropping T price, and upping yield.
You are correct about what KD said happened yesterday. And if you check today, stocks are down, but T yield is also up. That signals investors dumping stocks, but also dumping T's. Not normal. This indicates that foreigners, like China may be dumping T's.
You have it a little backwords on the China, fed buying thing. It's not if China sells that the Fed HAS to buy. It's if the fed starts buying then China will sell! Normally, China couldn't sell without screwing themselves. Before they could sell a fraction of their T holdings the market would be flooded with them and T price would plummet. Then the rest of China's T's would drop in value big time and hurt them.
However, if the Fed offers to buy at premium price it gives China the ability to sell at will, without consequence of losing value before they completely divest themselves of T's.
Eventually, China and everyone else would have sold all their T's to the fed and the fed would own all of them. This means T demand would essentially be 0. Since the gov. can only fund itself through tax revenue or through selling T's it means that gov's ability to spend would be severely limited if demand for T's becomes low or 0. Now they can only spend what they collect in taxes.
Combine this with the economy going south, businesses losing money, laying off workers, gov paying more unemployment and you can see that the gov's tax revenue also drops. The end game is the gov is forced to severely contract its spending.
IE cut SS, Medicare, military, welfare, education, etc, etc. Then it's pitchfork time in a hurry, if it hasn't already happened by that point.
More at link...
City alarm as Treasury fails to sell Government gilts
Britain's ability to borrow tens of billions of pounds to fight the economic crisis has been called into question after the Treasury failed to sell Government gilts for the first time in more than a decade.
Fears are growing on the financial markets that Britain may not be able to repay the billions of pounds in debt it is amassing to rescue banks and revive the economy.
The Government admitted yesterday that, for the first time since 1995, investors had been unwilling to buy the full complement of its so-called gilt-edged bonds at one of its official auctions.
Gilts are the financial instrument it sells to investors to fund public spending. If future gilt sales are unsuccessful, it could be devastating for Gordon Brown because he might have to scale back his spending plans.
The failure of yesterday’s auction followed a warning from the Governor of the Bank of England on Tuesday that the country could not afford to introduce another fiscal stimulus package of spending rises and tax cuts.
Although some experts attributed the failure to confusion in the market, rather than concern over Britain’s solvency, it was highly embarrassing for Mr Brown coming just days before world leaders are due to meet in London for the G20 summit to discuss the economic crisis.
George Osborne, the shadow Chancellor, said: “The failed gilt auction, the first for many years, should be of real concern to everyone.
‘‘It is too early to say, but the risk is that at some point the Government will not be able to fund its huge debts.”
Pentagon report: China's missile development "shifting balance of power in region"
Beijing's lack of transparency could lead to unintended conflict, report says
Cessation of talks between nations' militaries partly to blame, U.S. admiral says
Report: Cyber warfare capability among the few areas of China's "truly global" reach
Old Second National Bank -62
Kellogg's Cuts Production Workers
Greka Energy -30
CA Unemployment Forecast 12%
Halliburton Planning More Cuts
IBM Layoff Update -5,000
and how interesting....
IBM Transfering USA Jobs To India
Moosehead Brewery -13
Canadian Broadcasting Corp. -800
BFG Industries Cutting Heads
Columbus Components Group -135
LM Glasfiber -725 Charlotte Transit System -10
Visual Resumes Pick Up Steam
Craftex Mills Closing Plant -80
RainSweet Closing Onion Plant -120
Semitool Inc. Layoffs Coming -520
Atlanta Journal-Constitution -93
Appalachian State U. Cuts 200 Classes
Android Industries May Close -250
Synovus Financial -200
Syracuse NY Schools -70
Alienware Closing 2 Plants
Flint MI May Close 8 Schools
also in Flint
Flint Contemplates Shutting Down Some Neighborhoods
ANN ARBOR, MI (2009-03-18)
Nearly a third of the homes in Flint have been abandoned. Some Flint officials say it's time to consider shutting down parts of the shrinking city. Interim Mayor Mike Brown said last week the city might have to consider shutting down depopulated neighborhoods. His spokesperson later stressed the remark was hypothetical. But Dan Kildee says it's time to seriously consider it. He runs the County Land Bank, which tears down blighted houses in Flint. Kildee says the city just can't afford to provide public services for its large, underpopulated footprint. sustainable part of Flint.
HSBC In UK -1,200
Lyon County NV -17
Arbitron Inc. -110
St. Vincent Infirmary -200
Hernando County Schools -200
Western Assets -100
Puyallup Schools -160
Post-Star Newspaper -11
TOTAL - 10,000+