that said, i would not be surprised if we see the dollar going stronger again very soon. the recent pattern is that any bold move (which is initially viewed as only money printing) is ultimatelly viewed as the one that is going to help the economy - and the US economy first... with gold that is a different matter though...
China is going to love this alright. If they have any brains they will just hit the fed's bids and take this opportunity to get out of US treasuries.
or... 4. the PRC will be on the other side of the Fed's trade, taking a very nice capital gain on their treasury holdings and repatriating the $ to put to work to further their needed domestic projects to nudge their own consumer spending. not saying they'd sell out, but it wouldn't exactly be reckless for the PRC to take 1/4 trillion off the table. now would be THE time to do it, as the Fed is now saying they'll be on the other side of the trade to prop up T bonds. the only question is how much could they sell without attracting too much attention. like i said, if there was ever a time to be able to do it, now is the time. they could always come out after the sells, when they have to disclose, and say that they are committed to their remaining treasury holdings but chose to repatriate some to spur domestic demand, or even to seed a social security-like program (something they need to do to some degree to create some level of safety net so that their people will dare to spend some $). i'm not too thrilled about another trillion $ sleight of hand where we borrow from the printing machine to buy our own shit. all in an attempt to get the US consumer back spending beyond their means. and, like i've said b4, i have a hard time believing that we need to prop up property prices- the main goal here. sure, prices have come down. but, on the street i live on, that means the average house is now worth $1.4mm instead of 1.7mm (i live in CA and these are NOT mansions- they're 3000-3,500 sq ft homes in a nice area- nothing special). starter homes in not exactly great neighbourhoods are still >600m. housing may be more affordable than it's been in years in the midwest, but the east and west coast population centers still seem to be WAY overpriced vs median incomes.
But you can't right now. Eurozone is borked for the near-term, China is even worse. As bad as the USD will get, it will still be strong in relation to other currencies.(read: strong == less violent moves)
Here is what's going to happen. China is definitely not going to buy US treasury. To match US dollar for dollar in a peg system, they will have to print an exact amount to what the Fed print. So, if you believe they have a stronger economy, they will overheat before us. At the same time, Fed will buy up all treasury at a fixed rate. Fed will eventually be the sole owner of US treasury with gigantic balance sheet like 20T. Then, one day, Fed is going to say all treasury Fed owned will charged no interest which allow the government to eliminate cost to service debt. Remember, in great depression, gold was seized.
not gonna happen. PRC is not trading treasuries - that would be another huge game changer. the reductions would happen by not rolling they reserves forward at auctions...
Am I missing something here? How does one gov agency prints the money to buy debt from another gov agency will lower the interest rate. Isn't it just moving funny money around?
I think in the short term it won't hurt. Its classic Beggar Thy Neighbor. PRC is caught in the middle. On the one hand as was said, U.S. is going to take the long term treasuries of their hands. On the other hand, the dollar should weaken, which will hurt PRC exports. I say should weaken because, as was just mentioned everytime the FED does something bold and inflationary dollar rallies. I think however Gold jump quite a bit, and the market is seeing this for what it is, and outright helicopter drop. So they dollar may start to fold here.