IPFS
Has the dumping of US securities begun? A blog post at Asia Watch has everyone talking.
Written by Found Zero Subject: Economy - InternationalChina Dumps US Asset Backeds and Corporates February 9th, 2010
By David Goldman
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take–Beijing does not mix investment and strategic policy–and would be hard to substantiate in any event.
"Our President can, with the wave of a pen, reduce our outstanding Federal Debt by a trillion dollars. He can issue an executive order that declares that every bond the Chinese Government holds is worthless."
1 Comments in Response to Has the dumping of US securities begun? A blog post at Asia Watch has everyone talking.
Today's press on the subject still has me wondering. Today's press on the subject is alternative media. How do you know in these occasions if the info isn't unsubstantiated anecdote?
The markets would react and frankly at this point, I don't even bother watching the markets, they stopped making sense to me about 2 years ago. I let Mish and Denninger figure it out for me. I guess I just called "no panic" because a lack of interest in today's market doesn't predicate a "dumping" just like that. And more specifically, as someone said, the Chinese have never tied economic policy to political policy. Which is slightly historically inaccurate but pretty insightful nontheless. Before I was reminded of that little tidbit I saw things primarily in structural terms as I see them now.
I suspect this news drop on Asia Watch blog was dropped, I know enough to know this game isn't economic, it's political and it's a back-channel discussion.