Author: yuan_zcen

China ‘Worried’ About Safety of U.S. Treasuries [Copy link] 中文

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Post time 2009-3-17 13:38:24 |Display all floors

Reply #16 idiot8's post

>China's trade surplus is more of a problem for third world nations in Africa and South America who have seen their limited manufacturing jobs out competed.

Actually throughout most of its history China runs a trade deficit with commodity producing nations, which includes most of the 3rd world. I've posted this in other threads as well, but I'll give a short rehash. China's recent merch trade surplus is probably an anomoly. It coincides with a massive, artificial and unsustainable boost in American spending. For the last few years, US spending has averaged about 105% of income. That was accomplished via borrowing. That's not sustainable in the long run and now it is ending. And with it is China's merch trade surplus. PRC just released Feb merch trade numbers this week. Do you know what they said? They exact same thing the Jan numbers said. The merch trade surplus is down by around 90% for each of the last two months.

The reason China historically has run a trade deficit with commodity producing nations and a trade surplus with the US/Europe and overall has had about a rough balance in its total merchandise trade surplus is that much of China's trade revolves around buying raw materials from abroad, adding in labor value and then shipping the goods on to consumers both domestically and abroad. This is also why when the US complains about China's trade surplus with the US, China's response is always the same - if it wasn't for us, you'd simply have a bigger trade deficit with Japan. But no, 3rd World countries that have their act together in general are not worried about China as a trading entity. That's not to say that they wouldn't have some segments of their economy feeling pinched by newfound competition from PRC goods. But overall they run a trade surplus with China.

BTW, WTO is a sham. But that is a different topic....

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Post time 2009-3-17 13:51:37 |Display all floors
Originally posted by Da_Zhao at 2009-3-17 13:38
BTW, WTO is a sham. But that is a different topic....

It may well be a sham, but being involved in the sham changes things none the less.

not all third world countries have resources to export and not all of them run trade surpluses with China.  Many are running deficits.

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Post time 2009-3-17 14:39:03 |Display all floors
Da,

You miss the part where many of these resource exporters lost their domestic industries, usually textile concerns, to China.
"Justice prevails... evil justice."

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Post time 2009-3-17 15:30:11 |Display all floors
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Post time 2009-3-18 02:46:14 |Display all floors
>not all third world countries have resources to export and not all of them run trade surpluses with China.  Many are running deficits
>You miss the part where many of these resource exporters lost their domestic industries, usually textile concerns, to China.

I do believe I mentioned that some segments of these conomies would feel pinched. But overall it is a FACT that the PRC habitually runs trade deficits with these countries.

>Pls look AIG gives USD165 as Bonuses

This AIG bonus thing is a big firestorm in the US, but people that focus on it are IMO losing track of the forest from the trees. Every companies has business contracts. Some are with suppliers and some are with customers. In this way, contracts with employees can be seen as the same as with suppliers. Unless the firm declares bankruptcy it is required to fufill those contracts. When the US gov't bailed out AIG so it would be able to fufill its insurance obligations, it then left it obligated to also fufill its other contracts. If the US gov't wanted AIG to fufill some obligations and not others, it should have allowed AIG to go into bankruptcy and then availed itself in bankruptcy court of the right to payoff (fufill) its obligations by the basis of seniority of claims rather than across the board. For insurance companies the claims of insured parties does rank before those suppliers and employees. In other words the US gov't could have achieved all the objectives it now claims to desire, but it didn't. It didn't because it didn't think ahead.

What is the lesson of this story? That the US gov't is a rank amateur when it comes to business dealings. To be fair, the US gov't is probably no worse than other central gov'ts in this matter. But as a rule, when governments (local or national) get involved in business dealings they are always the chump in the room. And they WILL be taken advantage of.

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Post time 2009-3-18 06:21:31 |Display all floors

China must stop throwing good money after U.S. SUB-PRIME treasury bonds

U.S. does not have money to pay back the long term 30-year Treasury bonds.  U.S. treasury securities are in fact another kind of SUB-PRIME loan to the U.S. government and nation.  A loan is "sub-prime" when the borrower is unable to pay and unqualified to take out the loan in the first place.

Would you loan your money to a beggar?  Would you loan your money to a government that is trillions in debt and piling up with more debt?

China must be serious to stay away from sub-prime foreign government loans.  By buying U.S. treasury bonds, the money that China throws into it, is used to pay interest to China and others.  There is no new money.  It is the same as an old pyramid ponzi scheme.  

When and if China stops buying treasury bonds, Washington won't have any new money to pay interest.  The game stops.  Washington defaults on interest payments.  Foreclosure?  Bankruptcy?  No, Washington would most probably print paper money to pay debtors.  When hundreds of thousand tons of paper money is printed, the value of the U.S. dollar would plunge steeply.  Depreciation of the U.S. dollar would make the value of treasury bonds worth a lot less.  China will get hurt.  Inflation will follow the dollar depreciation, and also lead to high interest rates.  High interest rates will cause China's treasury bond holding to be worth less.  China will get hurt again.

[ Last edited by myfriend at 2009-3-18 06:26 AM ]

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Post time 2009-3-20 14:44:43 |Display all floors

Allure of US Treasuries set to fade

By Wang Xu (China Daily)
Updated: 2009-03-18 07:27

Holdings of US Treasury bonds rose in January, but the increase is the slightest since last June, indicating the country's appetite for the securities is set to diminish as a result of the falling trade surplus and rising concern over investment security.
The country's reserves of US Treasuries rose by $12.2 billion to $739.6 billion by the end of January, according to the latest International Capital Report by the US Treasury Department. Although China remained the largest creditor of the US government, analysts say its future purchases would shrink.

Treasury debt holdings grew by $14.3 billion in December.

"Purchases of US Treasuries are set to decline, given the fall in the trade surplus," Erh-Cheng Hwa, chief economist of Bank of Communications, told China Daily.

http://www.chinadaily.com.cn/china/2009-03/18/content_7588430.htm
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