Tuesday, July 28, 2009

U.S. Dollar | Monetary Policy China

U.S. Dollar Monetary Policy

With the outrageous policies of Barack Hussein Obama who is pretending he can spend money at will and not suffer any consequences, this has rightfully caused American trading partners, especially the Chinese, to be concerned over the eventual collapse in value of the U.S. dollar, which could devastate China because of their continual and misguided buying up of Treasury debt.

It is assumed that China must do this to continue prospering, (and to a slight degree that may be true), but this has went way beyond that, and American consumers aren't spending, so China is extremely exposed to devastating harm if they don't do something about it.

As a result, the U.S. dollar should be the major focus of Chinese-U.S. talks starting in Washington today as China pushes the Obama administration on how it will manage the fiscal deficit and protect the U.S. currency’s value. Of course the answer is they can't, and any student of the markets and honest economist will acknowledge that.

Treasury Secretary Timothy Geithner and Secretary of State Hillary Clinton will host two days of meetings talking on topics from the economic crisis to North Korea. The Strategic and Economic Dialogue is the first by the Obama administration with China.

The global recession has underscored the common interests of the economies, ranked first and third largest in the world, as Vice Premier Wang Qishan seeks to preserve the value of the world’s biggest Treasury holdings, while U.S. pushes China to rely more on domestic demand and not exports for growth.

Bizarrely, clueless Timothy Geither and equally clueless Hillary Clinton are pressing the Chinese on becoming even more socialist by providing more social safety in order to combat the wonderful habits of the Chinese for saving rather than spending. These wackos need to step down out of office for even bringing up such rot. They don't belong in a U.S. government position when they seek to export socialism to the Chinese. They're getting wackier and wackier by the moment.

China’s exchange-rate policy will be talked about. The U.S. wants a more flexible yuan, though Geithner has avoided a showdown on the issue, declining to repeat more ignorant comments he made in written communication to lawmakers after his Senate confirmation hearing in January that China was “manipulating” its currency.

Both nations are pumping cash into their economies to revive growth. Though Premier Wen Jiabao said in March he was worried about the safety of the nation’s U.S. assets, China bought $38 billion of U.S. notes and bonds in May, taking its holdings to $801.5 billion. The Chinese should never have done this, and they still be pay in the face of the horrid and inexperience displayed by the Obama administration.

The U.S. deficit could go as high as a record $1.85 trillion for the fiscal year ending Sept. 30, almost four times the previous fiscal year’s $455 billion shortfall, according to the Congressional Budget Office.

Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials about how the U.S. plans to keep inflation in check over the next few years, people advised of the plan said this month. In June, Geithner told China that the U.S. wants to shrink its budget gap as soon as an economic recovery takes hold.

Unfortunately, Ben Bernanke is as clueless about monetary policy as they come, and along with the Federal Reserve, is largely responsible for the continued and lengthening recession, which should have been allowed to work its way out without government interference.

The U.S. dollar will continue to suffer under these tortuous and horrible monetary policies until the Keynesian way of managment is completely abandoned and recognized as outrageously deficient and unable to work, as decades of failure have already proven.

U.S. Dollar Monetary Policy

Friday, July 17, 2009

China US Treasury Investment

China US Treasury investment

Investment in U.S. treasury bills seems safe at this time, as there are no better alternatives amid the global financial market instability, experts told Xinhua Friday after China substantially increased the holding in May. That should change soon, and China investment in US Treasuries could backfire big time.

China, with the world's largest foreign exchange reserves, or 2.13 trillion U.S. dollars, bought 38 billion U.S. dollars worth of the bills in May, the highest monthly increase in nine months. The holding was 801.5 billion U.S. dollars, according to the U.S. Treasury Department's website late Thursday.

"It is within expectation as the U.S. dollar's role in the international monetary system is irreplaceable in the short-run," said Ding Zhijie, deputy director of the School of Banking and Finance of the University of International Business and Economics.

China added 80.6 billion U.S. dollars of foreign reserves in May, according to the figure released by the People's Bank of China. It means 47 percent of the new reserves were used to buy the U.S. treasury bills.

Ding said there are no better investment alternatives as the global financial market was volatile in May. The U.S. economy posted a better performance than other major economies at the time.

Chinese officials have aired concerns that the falling U.S. dollar could hurt the value of China's massive holding of U.S. dollar assets.

The U.S. Treasury Secretary Timothy Geithner said that China's U.S. dollar assets are safe in his visit to China in June.

Chen Bingcai, researcher with the China National School of Administration, said China has been cutting long-term bills and buying more short-term bills to improve investment structure.

He said China does not have to worry too much about the issue alone, since it does no good for the U.S. economy if it relies too much on capital from China.

Wang Tao, a researcher with the China Minsheng Bank, said China still needs to diversify its investment mix to avert risks.

He said China should use the huge stockpile to buy strategic resources, and advanced technologies. He's right, and they need to do that quickly

China investment US Treasury

Wednesday, July 15, 2009

China's Risk with Dollar

China buying U.S. debt dollars Treasurys

Over the short term China will continue to buy up U.S. dollars in order to keep their export business thriving, but over the long term they're definitely taking steps to ensure they're not forced to be put into this position again.

China’s foreign-exchange reserves are growing again, aiding the Obama administration to sell extraordinary amounts of debt as it seeks to pull the world’s largest economy out of a recession.

Stockpiles of currency rose by a record $178 billion in the second quarter to top $2 trillion for the first time, the People’s Bank of China said recently. The numbers are close to two-thirds the size of China’s economy.

The cash holdings are increasing as the central bank sells its currency, the yuan, to try to stop an appreciation that would make the country’s exports more expensive. The yuan sales mean for all the calls by China and other emerging markets for an alternative to the dollar as the world’s reserve currency, it has little choice but to keep buying U.S. government assets.

“People are talking about whether the Chinese may actually one day dump the dollar and Treasuries because of the problem in the U.S., but they are missing the point,” said Stephen Jen, head of macroeconomics and currencies in London at BlueGold Capital LLP. “The reserves are so big because China needs to keep the exchange rate stable for its exports. Therefore, they have to keep buying dollar assets.”

To me, Jen misses the point. Just because over the short term the Chinese are buying U.S. dollar debt doesn't in any way deter the idea that they will have a policy of getting rid of the dollar over the long haul. As the dollar continues to plunge in value and inflation really takes hold, then we'll see what the Chinese will really do.

The need to balance gains in its currency led China, the largest global holder of U.S. Treasuries, to more than double its holdings of U.S. government notes and bonds in three years to $763.5 billion in April, according to U.S. Treasury data. The amount was equal to 38 percent of its reserves at the time.

Stimulus Spending

Barack Obama’s administration is trying to sell a record amount of debt to pay for measures to revive the U.S. economy. New York-based Goldman Sachs Group Inc. projects that government borrowing go as high as $3.25 trillion in the year ending Sept. 30, almost four times the $892 billion in 2008, to finance the budget deficit.

The reluctance to let the yuan appreciate when the world is mired in the deepest recession in six decades means that China will keep accumulating U.S. debt, even if the amount of its purchases declines, according to economists at RGE Monitor, a New York-based research firm headed by economist Nouriel Roubini.

“Despite China’s concerns about the value of its large stock of U.S. assets, reserve diversification will continue to be difficult."

Cash Surge

China’s reserves have grown by almost 14 times over the last 10 years as exports generated a trade surplus that pumped in cash. Capital Economics Ltd. estimates that exports will generate 30 percent of China’s growth this year.

Investors have also recently pushed cash into emerging markets such as China, amid signs that their economies will recover more quickly than those of developed nations.

Such investment inflows mean that “policy makers bought dollars and sold local currency in order to prevent currency appreciation. China will continue intervening to keep the yuan trading at about 6.83 per dollar through the end of this year.

Yuan’s Stability

The yuan’s value has barely changed in the past year, following a 21 percent appreciation in the three years after China scrapped its dollar peg in July 2005. The demand for dollars conflicts with China’s recent calls for the world to consider drawing away from the greenback as its sole reserve currency.

“As the Chinese were becoming more vocal in regard to the need to move away from the U.S. dollar, they were in actual fact buying more dollars than ever,” said Derek Halpenny, European head of global currency research at Bank of Tokyo-Mitsubishi UFJ Ltd.

People’s Bank of China Governor Zhou Xiaochuan urged the International Monetary Fund in March to move toward creating a “super-sovereign reserve currency” to eventually replace the dollar. Premier Wen Jiabao said the same month that he was “worried” the dollar would weaken.

Speaking to Al-Arabiya television yesterday, U.S. Treasury Secretary Timothy Geithner expressed confidence that the dollar “will remain the principal reserve currency.”

Dollar Dominance

The dollar’s share of global foreign-exchange reserves increased to 65 percent in the first three months of this year, the most since 2007, according to the International Monetary Fund.

China is trying to reduce its reliance on the U.S. currency in other ways. It signed 650 billion yuan ($95 billion) of currency swaps this year with nations from Argentina to Belarus and is encouraging trading partners to use the yuan to settle cross-border trade.

The country’s top currency regulator this week relaxed curbs on overseas investment by local businesses, allowing more funds to flow abroad starting Aug. 1.

The 21.4 percent drop in net exports in June from a year earlier means “the yuan is stuck in cement until the middle of next year at least."

“The reserves will continue to pile up,” said Zhu Baoliang, chief economist of China’s State Information Center, an affiliate of the National Development and Reform Commission, the nation’s top economic planning agency. “Over the short term, there is not much that China can do but continue to buy U.S. Treasuries while hoping that the U.S. economy can recover as soon as possible so that China’s investment won’t suffer too much loss.”

However you want to communicate this, China over the long term will continue to diversify and not allow its currency and postion to be so dependent on the U.S. dollar. For now they'll continue to buy, but already they're taking steps to eliminate the inherent risks and very real threat of owning U.S. dollars.

China buying U.S. debt dollars Treasury's