China wants US guarantees for Treasuries

Discussion in 'ETFs' started by ETFDesk, Feb 15, 2009.

  1. ETFDesk


    Scary: China should seek guarantees that its $682 billion holdings of U.S. government debt won’t be eroded by “reckless policies,” said Yu Yongding, a former adviser to the central bank.

    Could be a good play on TBT
  2. It already is. I've been long TBT since $37.

    In addition, a minister from South Korea just this week said, "It's time to sell U.S. Treasuries". It doesn't get much clearer than that.

    The Fed will try to stop the tsunami, but the bond market is bigger than the Fed, and the Fed's got plenty of other fires they'll be busy trying to put out to throw all their printing press ammo at the long bond.

    I expect to see Treasuries at 10 year lows by summer.
  3. when you say Treasuries to 10 year lows do you mean price or yield?
  4. Price.
  5. the guy is a FORMER advisor. So he is nothing.

    PS: if he wants guarantees, make one of the islands close to china to go under water, and then he will understand that the existence of guarantees, and he will stop talking and start thinking.
  6. ETFDesk


    I agree the best thing for China to do is keep on buying, but their fear is that if the stimulus doesn't work, the fed has to start printing money and the dollar dives.
  7. Remember - the minute trade slows down via protectionism/etc in response to this type of talk, likely US (and european) consumption of goods from these countries will slow. With that considered, less dollars get exported, more saved locally, thus neutralizing the effect.

    The new paradigm is that which Japan draws: with 1.9% 30 year treasuries. That is, less of US being an importer, narrower trade deficits (or even surpluses as Chinese panic to get value out of their dollars, turning their treasury savings into consumption [exports by the US]).

    When that happens, the money flows back to American workers / tax revenues, etc and fund continued purchasing of treasuries.

    The CA = (S-I) + (T-G) identity explains all.

    I wouldn't get carried away expecting a treasury crash...
  8. CateFul


    "Chinese are intellectually inferior"

  9. But if less dollars are exported, that means less dollars available by foreign creditors to purchase the out of control debt needs the U.S. government is incurring. Which then further inspires the need for interest rates to rise to attract enough buyers of the debt.

    Ah, but there are three key components that make our situation different from Japan's. One is that Japan had a much higher domestic savings rate with which to fund their debt purchasing internally. Even with people cutting back, the savings rate here is abysmal, and nowhere near enough to adequately fund the treasury purchases that are needed by the out of control government spending and debt incursions.

    Two, Japan had a robust manufacturing base, so their import/export situation was nothing like ours.

    And three, and most importantly, is that unlike Japan, the U.S.' currency is the world's reserve currency. This fact distorts any direct parallels to Japan's situation.

    Looks like we'll have to agree to disagree on this one, and let time bear out who is right. :cool:
  10. I wouldn't bet on that.

    What makes you think chinese are intellectually inferior and what does it mean exactly?
    #10     Feb 15, 2009