Financial topics

[shoshin]

why is China buying risky European debt?...

http://online.wsj.com/article/SB1000142 ... lenews_wsj

I don''t get it...

[John]

Dear David,

> why is China buying risky European debt?...

> http://online.wsj.com/article/SB1000142 ... 44432.html

> I don''t get it...

For exactly the same reason that the United States forgave
German debt in 1932.

** The bubble that broke the world
** http://www.generationaldynamics.com/cgi ... rett071009

Unlike Wall Street, Beijing is scared to death of a world financial
crisis.

John

[shoshin]

but, according to you (and GD), it can't work!...maybe they are trying to postpone the crash until they are better positioned to take advanagte of it?....they are not stupid, but....

[John]

Dear David,

> but, according to you (and GD), it can't work!...maybe they are
> trying to postpone the crash until they are better positioned to
> take advanagte of it?....they are not stupid, but....

It absolutely can't work, just like it didn't work in 1932.

John

[vincecate]

why is China buying risky European debt?...

http://online.wsj.com/article/SB1000142 ... lenews_wsj

I don''t get it...

European governments have taken substantial "austerity" steps. They are making real changes that bring them closer to having balanced government budgets. The US has made no real moves toward balancing their budget. In fact reducing the social security tax will increase the US deficit. Europe overall is about balanced as far as trade imports vs exports while USA runs a huge trade deficit. In some sense the US prints money so that it can import oil. So by some objective measures the dollar looks worse than the Euro. It is reasonable for China to want to diversify their reserves, which are currently heavily weighted in dollars.

[Higgenbotham]

why is China buying risky European debt?...

http://online.wsj.com/article/SB1000142 ... lenews_wsj

I don''t get it...

Spanish daily El Pais on Thursday cited Spanish government sources as saying China has committed to buy about €6 billion ($7.89 billion) worth of Spanish sovereign debt. The report couldn't be immediately confirmed.

I've noticed the Chinese are buying small amounts of the most risky debt, and that's been covered in more detail elsewhere. Elsewhere I also read that it's believed one reason they are doing it is to foster good relations with Europe. I haven't read this, but one thought I had ties in with what Vince said. China wants the US to know they have other alternatives and they want to show the world by example that the US is not properly handling its finances. The subtle point they are probably trying to make is that Spain's junk paper is on par with US government debt. But they're really only buying token amounts. I think China can buy those $8 billion in Spanish bonds with about one or two week's worth of its trade deficit with the US.

[vincecate]

Unlike Wall Street, Beijing is scared to death of a world financial crisis.

I think Beijing has a better understanding of what is going on than Washington or Wall Street and has been taking reasonable steps to improve their position. It seems mostly rational and methodical and not really scared.

Washington and Wall Street have the most to lose if the dollar loses its status as the world reserve currency, yet they are not taking any steps to guard that status. Beijing is taking all kinds of steps to weather that mess when it comes. They are working on bilateral trade agreements. They are buying up all kinds of real resources.

China is moving toward a position where it would be fine if the dollar loses reserve status and the US would be devastated. At some point China will really be able to dump their treasuries and crash the dollar, or threaten to do so to get something (say Tiawan?).

[John]

Dear Vince,

> European governments have taken substantial "austerity"
> steps. They are making real changes that bring them closer to
> having balanced government budgets. The US has made no real moves
> toward balancing their budget. In fact reducing the social
> security tax will increase the US deficit. Europe overall is about
> balanced as far as trade imports vs exports while USA runs a huge
> trade deficit. In some sense the US prints money so that it can
> import oil. So by some objective measures the dollar looks worse
> than the Euro. It is reasonable for China to want to diversify
> their reserves, which are currently heavily weighted in dollars.

I can assure you that almost no serious analysts consider that
anything that the Europeans have done is remotely close to making any
real changes. Three or four nations have made token reductions in the
budget deficit, usually because they're being forced to do so by the
IMF, but even in those cases, the countries are headed for default
anyway. I've written a number of articles on this, as I'm sure you
must know.

The euro is not on the road to becoming a reserve currency. That's
absurd. The euro is on the road to collapse, probably this year.

The Chinese are aware of this, and are propping up the euro in the
hope of preventing a total collapse, so that they can continue to pour
Chinese goods into Europe -- just like they purchase US Treasuries to
prop up the US economy so that they can continue to pour Chinese goods
into America.

John

[vincecate]

Three or four nations have made token reductions in the budget deficit, usually because they're being forced to do so by the IMF, but even in those cases, the countries are headed for default anyway. I've written a number of articles on this, as I'm sure you must know.

The euro is not on the road to becoming a reserve currency. That's absurd. The euro is on the road to collapse, probably this year.

If the countries default that means the central bank does not have to print money to cover that debt (or buy it up) and that is good for the value of the existing currency. Usually when a central bank bails out a government it is with newly printed money and so bad for the value of existing currency (eventually results in inflation). Even when doing bailouts the European Central Bank has tried to not increase the total amount of money. So far the European Central Bank and the countries of the EU are showing *FAR* more fiscal and monetary restraint than the US is. There are no riots about US federal government spending cuts because there are no spending cut, only taxes have been cut, which is not "austerity".

I do not think the Euro is going to become the reserve currency. My bet is on gold and silver for that. I personally would not invest in Euros. However, I can understand how China, with over $1 trillion US dollars, might be better off to move some money into Euros. It is harder for them to just move everything into gold and silver.

[John]

Dear Vince,

> I think Beijing has a better understanding of what is going on
> than Washington or Wall Street and has been taking reasonable
> steps to improve their position. It seems mostly rational and
> methodical and not really scared.

I totally disagree with this.

The Chinese Communist Party (CCP) is probably the most paranoid
government on earth, facing tens of thousands of anti-CCP riots and
demonstrations every year, facing an astronomical real estate bubble,
facing enormous food inflation, and yet still having to grow the
economy by 9% a year just to keep enough people employed so that there
won't be a civil war -- which everyone knows could occur at any time.
Geopolitically, China is facing anger from all of its Asian neighbors
because of its aggressive military buildup, and because it's demanding
control over all the islands and waterways in the region, even those
historically owned by other countries.

To say that the CCP is "mostly rational and methodical and not really
scared" is absurd.

You seem to think that every country is worse than America. You
praise the Europeans, when their fiscal policies are just as bad as
(or worse than) those of the U.S., and you praise China for being
"rational and methodical," when they're actually much worse off than
America. Why is that?

John