The US economic picture by all accounts (except George Bush's) is deteriorating with forecasts that as many as 300 US banks may fail and that Stagflation is becoming an ever greater reality (stagnant growth accompanied by rising inflation).
US investors concerned that Fannie Mae (FNM) and Freddie Mac (FRE) would not be able to manage their debt service when combined with their payoff guarantees on $12 trillion of US mortgages, sold both companies' stock, calculating that a Fed bailout was certain and that stockholders would lose out. Russia, and perhaps other sovereign investors, likewise have reason to sell their US government sponsored holdings. Russia is paying back the Bush Administration for its aggressive and unfriendly behavior, missile defense systems in the Czech Republic and the US intervention to derail World Bank loans for Russian oil pipelines.
But not China. China reportedly increased its holdings in US Government mortgage-back securities a thousand-fold from 2000-2006 according to the US State department. And recently, according to a Bloomberg news report by Andy Mukherjee, China Investment Bank (for the 12 months ended April) again sharply increased its holdings in Fannie and Freddie debt some 26% compared to a year earlier by purchasing an additional $67 billion more debt.
Now we can assume that China is a contrarian investor seeking to catch a falling knife using its foreign reserves to speculate for gain, or we can speculate that China may have an inside track to the US Treasury (i.e. that China has been reassured by Treasury Secretary Paulson that they have no need to fear and sell). Indeed the Treasury would be much obliged if China were to purchase Russia's redemptions as well, because the US Treasury will stand behind the debt.
No, SeriousBull has no proof of this, but go figure — there are no buyers in the US and China already holds an estimated $1 trillion in this toxic waste. Why not concentrate the debt in one holder's hand and work out the details later? Besides, under this scenario, the Treasury appears to be flush not printing more dollars and we just have to go to the Beijing Olympics and support China's one nation status with regard to Taiwan and Tibet. No moral hazard in that?
Disclosure: None
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This article has 6 comments:
- Ames Tiedeman
- 687 Comments
My Website
Jul 16 07:41 AM- paultaut
- 1060 Comments
Jul 16 09:35 AMUsing this analogy, I doubt whether they will be eager to use good money to buy more American Pesos.
The Money Supply keeps surging ever higher, don't expect help from the FED either since BB announced yesterday that their primary focus was the Financial Crisis in the face of the Highest inflation in 26 years.
Gold will be above 1100 by year end and the Dow around 9000.
- Did U Think The Ponzi Scheme Would Last?
- 158 Comments
Jul 17 04:40 AMNo, you missed the real reason: China is not quite ready for the Ponzi scheme, in which they have played a pivotal role, to end.
China has slave labor. The workers make dick, the elitists get it all. The elitists have been working the slaves to produce goods for us to consume at low prices. Why?? Because they wanted to show the rest of the world they had a huge trade surplus with a huge economic partner. Why did they want to show all this? SO THET COULD GET LOANS in huge amounts using their trade surplus as proof of credit worthiness.
When their trade surplus craps out (as it is right now), someone is going to call those loans in and when they do you will want to be holding FXP. China is highly leveraged and they are going to suffer greatly in the coming economic collapse.
- User 137065
- 1 Comment
Jul 17 02:35 PM- messy
- 49 Comments
Jul 18 06:27 AM- Did U Think The Ponzi Scheme Would Last?
- 158 Comments
Jul 27 11:21 PMThat's a whole other rant of mine: the gov't sponsored retirement programs are nothing more than a boomer trap. They put a little sugar in there and the ants walked right in. All those stored savings are now locked into the system and the trap has been sprung. People will now watch their life savings evaporate because 401ks do not allow direct investment in anything tangible like land or gold. You have to invest in financial instruments which are subject to fraud and are always denominated in USD so that inflation affects them. And now the final insult is nigh: the stock markets are crashing leaving only 1 place to hide: US treasuries!!! Who in their right mind wants to own US debt? But it's the only place to shelter your 401k from collapsing markets. The gov't has suceeded in getting all retirees to accept 2% interest on their money in a 7-10% inflation environment. This is nothing more than a tax on your retirement savings. The gov't want everyone to be penniless in their old age so that they will vote for more nanny state "something for nothing" "gimme a handout" socialistic gov't.