PRC Economy - New Reflections : Dec 15 2011

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 17 Dec 2013 13:48

The spike in purchases correlates with the market uncertainity associated with the debt ceiling and budget fight. At that time, the PRC establishment strenuously urged GOTUS to find a quick solution and stabilize the dollar. At the same time, they talked about the importance of alternate reserve currencies.

However, the reality of dramatically greater US treasury purchases during that time just shows that despite all this talk, the basic response to volatility remains to stock up on US treasuries, which means any move out of the USD due to such volatility will take longer, since the markets still view the US economy as strong enough to withstand the poor governance coming out of DC, and to shore up the US position as the biggest economy, as well as the backer of the primary reserve currency.

The 'nuclear option' was a statement by a PRC general to the effect that they'd use the threat of largescale sales of US treasuries to force action when necessary. Unfortunately for him, as the recent episode shows, when there's volatility, in reality they do the opposite of what they threaten.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 17 Dec 2013 16:52

The spike in purchase though no specific figures for China exist in the report is just a very small percentage of the US T bills chinese already hold ...... although the real reason why they keep buying is just to keep their export competitive ..... its more like a symbiotic relations they have developed ....despite the public rhetoric.

Most countries that dont have significant trade with US eg Russia opt of mix bag currency. If I am not wrong we too have heaviliy into dollas and dont keep mix currency.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 17 Dec 2013 19:35

Ausin, the main point is that their actions don't follow their words. 'Keeping their exports competitive' is a mindset that essentially puts them in favor of the status quo, when their utterances have suggested they have no interest in the status quo.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby paramu » 18 Dec 2013 05:39

-

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 19 Dec 2013 14:57

Suraj wrote:Ausin, the main point is that their actions don't follow their words. 'Keeping their exports competitive' is a mindset that essentially puts them in favor of the status quo, when their utterances have suggested they have no interest in the status quo.


Suraj , that comes back to the rhetoric issue I mentioned earlier ... both sides involve in such rhetoric whether it Chinese claiming they wont buy US bonds any more or US political brinkmanship on raising debt ceiling driven by their internal agenda.

Real decision are based on Economic Interest and both sides maintain a you scratch my back I will yours attitude ...which is again driven by their Economic & National interest.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 19 Dec 2013 19:58

So you're saying they'll say something for the press and do something to suit their interests even if it runs contrary to their stated goals and just maintains status quo. That's pretty much what I said too - I just happened to call them out on it :)

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby TSJones » 19 Dec 2013 20:11

Austin, the Renminbi value is not market driven. The Chinese strickly control it in the realtionship to the dollar. The fact that they buy US treasuries really adds no intrinsic value to the renminbi. Why? Because the Chinese take what dollars they earn from their export businesses and use those to buy US treasuries, oil, etc. They try desperately not to use the renminbi outside their borders because they don't want to be forced to break their mandated value. In other words there is very little convertibiltiy. That's why the Chinese gov shut down bit coin deposits in Chinese banks. They didn't want to convert it. Are we on the same page?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 19 Dec 2013 20:53

TS the original Q was the Chinese kept buying US T bills inspite of their stated intention to do other wise ....so I was responding to it .....Ian Shepherdson rightly mentioned why the chinese keep doing that

Four (Big) Reasons Why China Will Keep Buying Treasuries

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 19 Dec 2013 20:54

Suraj wrote:That's pretty much what I said too - I just happened to call them out on it :)


Fine if that makes you happy :)

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby DavidD » 21 Dec 2013 02:17

Austin wrote:TS the original Q was the Chinese kept buying US T bills inspite of their stated intention to do other wise ....so I was responding to it .....Ian Shepherdson rightly mentioned why the chinese keep doing that

Four (Big) Reasons Why China Will Keep Buying Treasuries


I think the article you posted is over-analyzing things like most articles trying to explain the Chinese holdings of American debt is. The bottom line is very simple: China can create massive inflation for the USD, but it will cost them about $2 trillion to do so. So the question becomes: is it worth it? I for one lack the financial acumen to answer this, but if it can wreck the U.S. economy then it just might be.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby TSJones » 21 Dec 2013 02:24

DavidD wrote:
Austin wrote:TS the original Q was the Chinese kept buying US T bills inspite of their stated intention to do other wise ....so I was responding to it .....Ian Shepherdson rightly mentioned why the chinese keep doing that

Four (Big) Reasons Why China Will Keep Buying Treasuries


I think the article you posted is over-analyzing things like most articles trying to explain the Chinese holdings of American debt is. The bottom line is very simple: China can create massive inflation for the USD, but it will cost them about $2 trillion to do so. So the question becomes: is it worth it? I for one lack the financial acumen to answer this, but if it can wreck the U.S. economy then it just might be.


How so? Genuinely curious.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 21 Dec 2013 03:40

DavidD wrote:I think the article you posted is over-analyzing things like most articles trying to explain the Chinese holdings of American debt is. The bottom line is very simple: China can create massive inflation for the USD, but it will cost them about $2 trillion to do so. So the question becomes: is it worth it? I for one lack the financial acumen to answer this, but if it can wreck the U.S. economy then it just might be.

I would think this kind of grand strategizing - on the lines of Mao's statements that he's fine with killing 300M Chinese if he can win, or that an opponent taking on them at the rate of 1M Chinese casualties a day would still take 3 years to win - is no longer in fashion in Zhongnanhai ?

Saying 'China can cause massive inflation in the US at the cost of $2 trillion' seems about as sensible as Pakistan's standard bargaining tactic of 'Give me what I demand or I'll shoot myself and cause a huge mess of scattered brains all over the place!' What if the US responds with the equivalent of 'hold on, let me get the mop and bucket. Ok... go ahead and shoot yourself' ?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby subhamoy.das » 21 Dec 2013 18:32

If China causes inflation in US then it will be like "killing your own customer". China survives on sales to US. So CHINA will be able to do nothing but keep looking at its stockpile of US assets! Water water every where but not a drop to drink!


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Re: PRC Economy - New Reflections : Dec 15 2011

Postby TSJones » 22 Dec 2013 09:18

China is caught in a devil's bargin. If it loosens currency controls too much the Yuan may appreciate too much and make its exports too costly. Countries like the US would then find other countries to make its products. However, China wants to be taken seriously in global finance and resulting prestige, so it must let market forces act upon its currency and resulting convertibility.

Long term prognosis? Manufacturing in China is going to get more expensive.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 22 Dec 2013 11:27

I think the question to ask is how expensive is expensive enough for MNC's in China to look else where ? So the challenge for them would be to maintain the right balance of Yuan appreciation without causing significant loss to export.

The next thing would be to look at internal markets for growth , exports wont last for ever considering Yuan will appreciate eventually so the move from export oriented economy to one thats fuelled by internal growth and demand.

Can India take advantage of appreciating Yuan in coming years to make manufacturing more attractive for MNC who would leave china and look else where ?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Yagnasri » 22 Dec 2013 16:50

Another development is the robotic technology. As already happening west may soon used this extensive to get the uncomplicated, minor or even major manufacturing done at their own place at much cheaper rates. Then I wonder what happen.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby TSJones » 22 Dec 2013 17:58

The US has already given up light value manufacturing. It can easily be redirected. There is just no more call for intensive labor unless it for personal services such as plumbing, house repair, etc. Most manufactuing in the US has gone automated. When I worked as a programmer for John Deere Harvester works, it required over 7.000 people. Now it is down to just a little over 3,000. And they make more product than when 7,000 people were doing it!

We are on the cusp of some weird utopia but I don't know what will happen to all the people. Maybe I am being too Malthusian. I hope so. I certainly don't want it to become where evrybody works in personal service to the money class. That is what my ancestors came to America to get away from, more personal freedom and less servitude but still finding a meaniful livelihood, which for them meant hunting, fishing and growing tobacco for market, then mining coal. Which doesn't support people anymore. So I don't what people are going to do in the US. India still has potential for massive development though, I think.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby subhamoy.das » 22 Dec 2013 18:22

Labor cost will be less and less % of the cost of manufacturing a product due to automation. Transport cost from factory to home will become more and more % of the cost of manufacturing. This would mean that manufacturing will move where the consumers are. Also, consumers countries will push for local manufacturing to keep CAD down to protect their own currency. So I would say that a lot of manufacturing will move to India and a lot of manufacturing in China will server Chinese consumers. Mexico will do a lot of manufacturing to server US consumers.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 22 Dec 2013 21:07

All this talk of automation and robotic technology ignores the fact that they still have 7-800 million people to employ in one way or the other. They're not yet anywhere near rich enough to immediately transition out of their cheap labor strategy, and doing so in haste is a risky approach that may leave them in the middle income trap or cause social instability, the one thing CPC wants to avoid at any cost.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 22 Dec 2013 22:45

Austin wrote:
Can India take advantage of appreciating Yuan in coming years to make manufacturing more attractive for MNC who would leave china and look else where ?



It is already happening.

http://www.business-standard.com/articl ... 833_1.html


High-end bikes & electric cars made in India for China

Harley Davidson, KTM-Bajaj, M&M make India production base for automobiles to be assembled and sold in China


The Fortune 500's forward strategy for China is that it is an end market on par with the US. It's been this way for the past five years. It has to be that way since chiniland buys more cars, steel, pork, etc. than the US. Multi-nationals don't get to be multinationals by staying put anywhere.

This is still an easy market for any foreign brand since the local chinese ones are garbage. Everything from milk to diapers to fast food to cars and airplanes are dominated by Western brands (South Korean and Japanese marks are, for all intent and purposes, part of the Western brand eco system since most of their products are made for the US market.)

Investment like water always finds its proper level. It will never run upstream.

The GOI's job is to not screw up this natural trend. Attract as many mncs flowing out of China as possible and then have them sell back into China from Indian factories. Our competition is not the PRC. It is ASEAN and Bangladesh. Chiniland is the end market.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby chola » 22 Dec 2013 22:59

TSJones wrote:The US has already given up light value manufacturing. It can easily be redirected. There is just no more call for intensive labor unless it for personal services such as plumbing, house repair, etc. Most manufactuing in the US has gone automated. When I worked as a programmer for John Deere Harvester works, it required over 7.000 people. Now it is down to just a little over 3,000. And they make more product than when 7,000 people were doing it!


Globalization, with no hindrance, will lead to equal wages worldwide. There is no model (that excludes political interference) that can show you otherwise. It has nothing to do with manufacturing versus services. Any service that can be exported will be too. India has been a great beneficiary of this. Unless there is political backlash, any service that can be shipped out will be too.

Since the vast majority of the world's people are poor, wages will continue to fall in the developed world.

But in very poor places like much of India, this leveling off will raise wages to the world's median.

You can't escape the tyranny of numbers.

Of course, this is all barring politics. The US can decide to stop all service outsourcing (removing 80% of India's Big Three's revenue) or the GOI can deliberately cut itself off from globalization again.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby vic » 23 Dec 2013 10:52

I did some number crunching for Industrial concerns recently and it was our conclusion that China can sustain wages 4-6 times more than India without hurting their competitiveness.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby PrasadZ » 23 Dec 2013 18:51

vic wrote:I did some number crunching for Industrial concerns recently and it was our conclusion that China can sustain wages 4-6 times more than India without hurting their competitiveness.


Is the difference gov revenues? Or scale?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Christopher Sidor » 23 Dec 2013 19:17

Recently we did a project for a company which wants to roll out an application inside PRC. Due to IPR issues none of the servers inside PRC stored data. Rather they were used as proxies. Dumb proxies. Due to the Great Chinese firewall we found that the latency introduced in the communications between the servers and proxies was equal to some 70% of the total time taken to process an average requests. What struck me in the entire exercise was that the same company wanted to set up a server to actually store data in India but could not do so due to infrastructural constraints. The company actually bitched about it, but with all due respects we could not advise the same company to set up a data centre in India. The same data that this company would not store in PRC it was eager to store in India but could not.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 23 Dec 2013 22:43

vic wrote:I did some number crunching for Industrial concerns recently and it was our conclusion that China can sustain wages 4-6 times more than India without hurting their competitiveness.

Which industry ? Relative wage competitiveness is not uniform, and varies widely by industry.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby DavidD » 24 Dec 2013 05:10

TSJones wrote:
DavidD wrote:
I think the article you posted is over-analyzing things like most articles trying to explain the Chinese holdings of American debt is. The bottom line is very simple: China can create massive inflation for the USD, but it will cost them about $2 trillion to do so. So the question becomes: is it worth it? I for one lack the financial acumen to answer this, but if it can wreck the U.S. economy then it just might be.


How so? Genuinely curious.


It's like with everything else, increase the supply and the value drops. For example, a one of a kind crown worn by Napolean would cost a fortune, if there are 1000 of those, then it wouldn't be worth as much. Similarly, if China dumps $2 trillion onto the market, it would cause a spike in inflation of the USD, as the USD wouldn't be worth as much as before. Of course, as others have pointed out, such an action would have ripple effects not to mention many reactions from around the worst, not the least of which from the U.S. itself, so it's difficult to predict just who it would hurt more. More likely than not, the entire global economy would be hurt badly from this move, so it's truly a proverbial "nuclear bomb", a weapon of last resort.

I think the reserves will come in handy much later down the road, when the CCP feels comfortable letting the Yuan float and become a global currency, as it is beginning to show signs of. By that time, the trillions of dollars of reserves may be used to fight massive inflation such as during the 1996 Asian economic crisis. Right now though, the Yuan is largely protected from such storms.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Suraj » 24 Dec 2013 05:55

David, we understand how the 'nuclear option' works. The question is not even whether China is insane enough to do it, but what it gains by looking that reckless by seriously implying it in the first place. This is not the tactic from an aspiring great power's playbook, but that of one the likes of North Korea follows.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby sivab » 24 Dec 2013 06:15

DavidD wrote:Similarly, if China dumps $2 trillion onto the market, it would cause a spike in inflation of the USD, as the USD wouldn't be worth as much as before.


What will stop Federal Reserve from buying all of that $2 trillion without any effect on market? After all they have bought ~$4 trillion so far and their assets will continue to rise. They can buy it and hold it till maturity if China threatens such a financial war. They have several means to sterilize excess money supply that will result from such a transaction. And who will trade with China after that? China will be the sore loser.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby vic » 24 Dec 2013 08:56

PrasadZ wrote:
vic wrote:I did some number crunching for Industrial concerns recently and it was our conclusion that China can sustain wages 4-6 times more than India without hurting their competitiveness.


Is the difference gov revenues? Or scale?


Labour efficiency, cost of infrastructure, electricity, interest rate and support services.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby sivab » 24 Dec 2013 10:43

sivab wrote:
DavidD wrote:Similarly, if China dumps $2 trillion onto the market, it would cause a spike in inflation of the USD, as the USD wouldn't be worth as much as before.


What will stop Federal Reserve from buying all of that $2 trillion without any effect on market? After all they have bought ~$4 trillion so far and their assets will continue to rise. They can buy it and hold it till maturity if China threatens such a financial war. They have several means to sterilize excess money supply that will result from such a transaction. And who will trade with China after that? China will be the sore loser.


Here is one more way GOTUS can shaft China if it tries to dump those bonds. All the serial numbers of bonds held by Chinese are known to Fed/GOTUS (treasuries or MBS), since interest payments can't be routed otherwise. GOTUS can simply declare those serial numbers to be in default. No one will buy those bonds any more. What can China do then other than declaring a real war?

Seems to me that all cards are held by US and China's position is weak.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby DavidD » 24 Dec 2013 10:45

sivab wrote:
DavidD wrote:Similarly, if China dumps $2 trillion onto the market, it would cause a spike in inflation of the USD, as the USD wouldn't be worth as much as before.


What will stop Federal Reserve from buying all of that $2 trillion without any effect on market? After all they have bought ~$4 trillion so far and their assets will continue to rise. They can buy it and hold it till maturity if China threatens such a financial war. They have several means to sterilize excess money supply that will result from such a transaction. And who will trade with China after that? China will be the sore loser.


Buy it with...what?

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby sivab » 24 Dec 2013 11:05

DavidD wrote:
Buy it with...what?


With almighty dollar of course. Fed can create money out of nowhere (just like they are doing now with QE). The $2 trillion with Chinese are held in bonds (US treasuries and MBS) except for some small cash reserve. If China tries to dump those bonds, Fed can buy those with money created from nowhere. Fed has several ways to sterilize excess money supply resulting from such a transaction. Providing interest for bank reserves parked with Fed is one easy way, there are several others (special bonds, mandatory reserve ratio etc). In any case there will be no monetary inflation because whatever Fed pumped in will be taken out by sterilization operations.

The difference between QE and China dumping is, Fed is not doing any money sterilization with QE. Assets held by Fed from QE is 2 times already than what China holds.

This is not something new. RBI used to do similar thing with market stabilization bonds in local currency for foreign exchange reserves it holds. China central bank probably does something similar.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Sri » 24 Dec 2013 12:51

sivab wrote:Here is one more way GOTUS can shaft China if it tries to dump those bonds. All the serial numbers of bonds held by Chinese are known to Fed/GOTUS (treasuries or MBS), since interest payments can't be routed otherwise. GOTUS can simply declare those serial numbers to be in default. No one will buy those bonds any more. What can China do then other than declaring a real war?

Seems to me that all cards are held by US and China's position is weak.


Sir Jee, This is not how the financial networks work. Bonds are not attached to any name, nation or organisation. The one in possession has the right to trade, exchange, gift and redeem without prejudice no matter what.

The moment US does this, dollar will be history as no would be able to bank on it, including US. This will mean that value of $ one holds will be decided by the proximity of the holder in eyes of GOTUS. Thats not possible as currency is ultimately unit of value which can be exchanged. There is a reason why central banks are independent autonomous bodies.

Anonymity of exchange without prejudice is at the heart of currency system.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby sivab » 24 Dec 2013 13:10

Sri wrote:
Sir Jee, This is not how the financial networks work. Bonds are not attached to any name, nation or organisation.


Paper treasuries are not issued anymore. Treasuries are issued purely in electronic form. A lot of things have changed to prevent money laundering. Then there is taxes. One needs to register for interest/principal payments and taxes. Same is true for MBS.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby DavidD » 24 Dec 2013 13:16

sivab wrote:
DavidD wrote:
Buy it with...what?


With almighty dollar of course. Fed can create money out of nowhere (just like they are doing now with QE). The $2 trillion with Chinese are held in bonds (US treasuries and MBS) except for some small cash reserve. If China tries to dump those bonds, Fed can buy those with money created from nowhere. Fed has several ways to sterilize excess money supply resulting from such a transaction. Providing interest for bank reserves parked with Fed is one easy way, there are several others (special bonds, mandatory reserve ratio etc). In any case there will be no monetary inflation because whatever Fed pumped in will be taken out by sterilization operations.

The difference between QE and China dumping is, Fed is not doing any money sterilization with QE. Assets held by Fed from QE is 2 times already than what China holds.

This is not something new. RBI used to do similar thing with market stabilization bonds in local currency for foreign exchange reserves it holds. China central bank probably does something similar.


I think I'm gonna need you to explain to me more clearly just how you can "sterilize" $2 trillion of excess money supply. None of the moves you proposed is without consequences, certainly they can hurt the economy just as much as inflation as a result of a gigantic treasury dump would. In any case, I think they fall well within range of my aforementioned "ripple effects" and "reactions" from the U.S. that makes the exact results of such a move unpredictable.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Sri » 24 Dec 2013 14:01

sivab wrote:Paper treasuries are not issued anymore. Treasuries are issued purely in electronic form. A lot of things have changed to prevent money laundering. Then there is taxes. One needs to register for interest/principal payments and taxes. Same is true for MBS.


This argument is not relevant to my post. Currency is currency whether paper or electronic form. Value of any currency cannot be decided based on prejudice or any kind of value judgement. You are confusing measures against money laundering with basic currency management.

A $ in hands of Kim Jun Un will have equal value to $ in hands of Anna Hazare. Same for bonds. Value of bonds and currency can only be decided market forces.

A currency note or a bond is ultimately a Promise without any '*' or conditions.

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Re: PRC Economy - New Reflections : Dec 15 2011

Postby TSJones » 24 Dec 2013 14:08

DavidD wrote:I think I'm gonna need you to explain to me more clearly just how you can "sterilize" $2 trillion of excess money supply. None of the moves you proposed is without consequences, certainly they can hurt the economy just as much as inflation as a result of a gigantic treasury dump would. In any case, I think they fall well within range of my aforementioned "ripple effects" and "reactions" from the U.S. that makes the exact results of such a move unpredictable.


I think you are somewhat confused as to what constitutes US money.

Money is created and destroyed by fiat from the Federal Reserve. As you already know the Federal Reserve is constituted from member US banks. Right now, the way the Fed controls the money supply is by requiring a. increase or decrease of intersted charged for loans at the Fed discount window for member banks. US banks love the fed dicount window. If I was a bank I would love it too. The other way is by changing reserve requirements for bank members. That means holding more bonds or less bonds to back up bank loans.
The fact that they are buying and holding US treasuries is because A. they are fairly reliable and B. There are huge amounts of them to buy. Now pay very close attention.......it doen't have to be US treasuries, it can be corporate bonds, it can be fannie mae or freddie mac bonds. In point of fact under the Fed QE3, the Fed has been buying fannie mae, freddie mac and ginnie mae bonds by the gobs. We know them by another name, mortgage backed securities.

So what would the effect of dumping $2 trillion US treasuries on the open market be? It wouldn't do anything to our money supply because only so much money is authorized by the Fed itself. What it would do would raise havoc on the US govrnment's ability to raise more debt. They sell treasuries on the open market too. It would n't last long though. Right now, the rest of the world can't enough US treasuries. The ECB is having huge troubles, etc. Please consider that the US budget deficit is 3% of US GDP and with the new budget deal and sequestration it is going down, not up as a % of US GDP. Should less than 2% by 2015

And Neshant is going to love this, the US banks could be required to hold or sell gold as reserve requirements for their loans. They don't need bonds necessarily.

So what happens if China dumps 2 trillion in treasuries.

1. The US government would goto the Fed and say, hey, "I'm having trouble selling my bonds. China is committing suicide." Fed says "My condolences. Was it a long illness?" "Treausry says "Yes the fires of nationalism caused a great psychosis of delusions of grandeur". Fed says "Pity, how much do you need ?" US Treasury says "about a trillion until the market stablizes and the excess is soaked up". Fed says ok issue me a trillion in treasuries and I will hold onto them until I can slowly release them on the market and get my money back. I will credit you with a trillion until the market improves." See how that works?

PrasadZ
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Re: PRC Economy - New Reflections : Dec 15 2011

Postby PrasadZ » 24 Dec 2013 15:18

TSJones wrote:
DavidD wrote:I think I'm gonna need you to explain to me more clearly just how you can "sterilize" $2 trillion of excess money supply. None of the moves you proposed is without consequences, certainly they can hurt the economy just as much as inflation as a result of a gigantic treasury dump would. In any case, I think they fall well within range of my aforementioned "ripple effects" and "reactions" from the U.S. that makes the exact results of such a move unpredictable.


I think you are somewhat confused as to what constitutes US money.


There may also be a confusion about trade volumes. Monthly volume in only USTs touches 10 billion most months. Absorbing 1 trillion will take time even for that humonguous market. In effect, China will end up with a private sale to Fed and the Fed will end up sterilising that volume as they see fit. China oversells this case too much, David.

Austin
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Re: PRC Economy - New Reflections : Dec 15 2011

Postby Austin » 24 Dec 2013 15:32

These kind of arguments are juvenile , China selling Bonds enmass is as good threat as US Defaulting on its debts.

Markets are based on sentiments and either of these threats can have domino effect on world economy and can lead to another recession.

China and US need each other as much as one would like to think other wise and beyond the rhetoric one hears from Communist party members or Senators from either side all these threat are just good for theoretical discussion and does not hold much ground.


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