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Forbes: China's U.S. Debt Quandary [Copy link] 中文

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Post time 2009-3-22 06:58:00 |Display all floors
Gady Epstein, 03.19.09, 06:00 PM EDT

U.S. investors may have cheered the Federal Reserve's decision this week to pump more than 1 trillion new dollars into the economy, but at least one faction in China was on the verge of tears.

"I want to cry, really want to cry," wrote one Beijinger on Thursday, posting on one of China's most popular portals, Sina.com. The problem was that by issuing more currency, the Fed was potentially weakening the U.S. dollar, making China's dollar-based investments worth less. "Those elites insist on buying American bonds."

One of "those elites" under fire is Premier W en J i ab ao. When he expresses public angst about the safety of China's holdings of U.S. debt, he is speaking partly to domestic critics who believe Chinese leaders have unwisely tied their country's fate to the U.S. economy. Many of the critics may be crackpots and conspiracy theorists, but they have a point.

They know that their government is now America's largest creditor, with more than half of its $2 trillion in foreign exchange reserves invested in Treasury securities and other U.S. government bonds. Some of these critics suspect that the Federal Reserve essentially prints more money not just to stimulate the economy, but also to devalue China's U.S. dollar portfolio, undermining a rival power.

It may be a paranoid theory, but it is a popular one. One of China's bestselling books in the past 18 months is Currency Wars, a conspiratorial screed that suggests that Western financial interests, including the Federal Reserve, seek to destroy the Chinese economy. The book has sold more than 1 million copies officially, and probably several million more pirated copies, and remains a bestseller now as economic conditions deteriorate.

Any leaders who choose to ignore this populist thinking risk being branded as sellouts. Last fall, as the financial crisis was unfolding, an incendiary letter circulated on the Internet claiming that a clique of Chinese elites, led by investment banker and former Premier Zhu R ong ji's son Levin Zhu, formed a "foreign financial interest cartel" that has betrayed the interests of the Chinese people to enrich themselves and their cronies.

The letter named as co-conspirators the men running China's $200 billion sovereign wealth fund, whose disastrous investments in the Blackstone Group (nyse: BX - news - people ) and Morgan Stanley (nyse: MS - news - people ) have lost China billions. People's Bank of China Governor Zhou X iao chuan, China's Ben Bernanke, was singled out for investing too much in Treasurys as the dollar was depreciating--more reasoning straight out of Currency Wars.

The believers are not just fire-breathing ideologues. "Many technocrats believe in this argument that the U.S. is trying to screw over China by cheapening the dollar," says Victor Shih, a political economist and China specialist at Northwestern University. Shih learned of the influential reach of "Currency Wars" when he visited last summer with bureaucrats from the People's Bank of China.

[ Last edited by shanhuang at 2009-3-22 06:59 AM ]

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Post time 2009-3-22 07:19:18 |Display all floors

China must stop buying U.S. treasuries

China has accumulated enough and too much of U.S. treasuries.  It's time to stop buying anymore.

The U.S. Central Bank is said to be going to print $1 trillion of paper money.  When you don't have money and you start printing such large quantity of paper money, it would make the U.S. dollar worth less, i.e. devaluation.
With devaluation of the U.S. dollar, the USA suddenly owes foreigners less because the U.S. treasuries already sold to foreigners are worth less.  China and Japan will see their portfolios of U.S. treasuries worth less.

So it is time for China to stop buying anymore of the U.S. treasuries.  Those who have caused China to buy too much already must be punished appropriately and promptly.

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Post time 2009-3-22 07:44:49 |Display all floors
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Post time 2009-3-23 07:41:35 |Display all floors

Reply #1 shanhuang's post

It's too late to retrieve the steps now.

The entire pro-American approach started under the auspices of Jiang Ze-min was overshooting its mark and is actually against the Three Represents doctrine.

Now this mess.

I guarantee to you that there will be political repercussions.  But again, that's perhaps what the Americans like to see -- political turmoil in China.

Bookworms in the Bank of China thought America would never do that to the Chinese people and "hurt their feelings" -- actually read or understood neither Western nor Chinese history as the Great Man did, and never truly treasured their economic independence.

I've critiqued this Forbes article in the thread on how China morphs in the New Economy.

The important thing is to try to find remedial solutions -- I still believe Gaige Kaifang itself was a success, but that we'll need to change our course of action sharply.

The first thing to do is to buy as many tangible assets with the dollars we do have in reserve, and stop buying T-bonds altogether.

We can't sell all the T-bonds in one scoop because the American public would then be misled to believe that we are the ones sabotaging their recovery plans.  But we'll have to start converting them into tangible assets starting now.  The speed at which we shall do this will depend on the April meeting between Hu and Obama.

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Post time 2009-3-23 11:32:59 |Display all floors
this is the Price to PAY for TRUSTING Blackie or whiteys CHEATERs

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Post time 2009-3-24 22:37:38 |Display all floors

Good advice

From wchao:
We can't sell all the T-bonds in one scoop because the American public would then be misled to believe that we are the ones sabotaging their recovery plans.  But we'll have to start converting them into tangible assets starting now.  The speed at which we shall do this will depend on the April meeting between Hu and Obama.


Interesting to be a fly on the wall during this April meeting.

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Post time 2009-3-24 23:22:29 |Display all floors

one thing leads to many...

china is expected to push for developing nations to have a greater say in global finance at the G-20 meeting in London next month.
on monday, IMF chief Dominique Strauss-Kahn warned that developing countries are facing a dramatic rise in unemployment that could trigger social unrest and even wars...this is just another worldwide turmoil  

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