zaterdag 10 maart 2012

China: Turning US Treasuries Into Hard Assets

A month ago I indicated in this article that China is massively buying copper. It seems that this trend hasn't stopped yet, and it won't stop anytime soon. The LME copper warehouse stocks level has been trending down since late last year (Chart 1), which incidentally coincided with China decreasing its margin requirements on banks, which I discussed in this article.

Today, China posted one of the largest deficits in their history, to see why this is, go to: China converting US treasuries into hard assets.

3 opmerkingen:

  1. They may have already dumped their hoard of dollars by committing to long term dollar denominated contracts to purchase commodities and commodity producing assets.

    This may seem a smart way to dump the dollar without pushing down its exchange rate in the process, but it's not without risk: If Ron Paul wins or if the US finally stops its policy of devaluing the delusional perception of the dollar's worth, then Treasuries will be defaulted on. This could put China into a position where they are also forced to default.

    1. Ron Paul winning the election? I think you are dreaming too much. :)

      What China will do is let their treasuries mature (as noted by Peter Schiff), this will become problematic for the USA.

  2. Letting them mature doesn't eliminate the risk for default; it also doesn't protect them against the opposite: Dollar devaluation. They would be wise to start selling now and take their losses. They could also pledge them as collateral for purchases of recourse generating properties, assuming they can find suckers to accept treasuries as collateral without any other recourse.

    Ron Paul will have a large number of delegates at the convention; there's a real chance he can win. If he doesn't, then many who would have voted for him will vote for Obama as the lesser evil; not that he's less evil, but with Republican control of both houses he'll be less able to do evil than the equally fascist Romney. Barring some terrible misstep by Obama, Paul is the only Republican that can win.