The A-bomb of this whole huge mess

Discussion in 'Wall St. News' started by cgtrader, Sep 26, 2008.

  1. An agreement is needed so that no nation rushes to sell.

    WOW- If you didn't believe global finance was a HUGE HOUSE OF CARDS, ready to FALL at any minute, read below.

    WHAT A SCAM!!!

    Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu Says

    By Kevin Hamlin

    Sept. 25 (Bloomberg) -- Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.

    ``We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. ``If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

    An agreement is needed so that no nation rushes to sell, ``causing a collapse,'' Yu said. Japan is the biggest owner of U.S. Treasury bills, holding $593 billion, and China is second with $519 billion. Asian countries together hold half of the $2.67 trillion total held by foreign nations.

    China, Japan, South Korea and others should meet soon to seal a deal, said Yu, a former academic member of the central bank's monetary policy committee. The talks should involve finance ministers, central bank governors and even national leaders, he said.

    ``Whether some kind of agreement between them to continue to hold Treasury bills is viable, I'm not sure,'' said James McCormack, head of sovereign ratings at Fitch Ratings Ltd in Hong Kong. ``It would be unusual. If it became apparent that sovereigns in Asia were selling Treasuries the market would take that quite badly, it's something to be avoided.''

    The global credit crisis, triggered by a housing slump in the U.S., has saddled financial companies with more than $520 billion in writedowns and losses, collapsing Bear Stearns Cos. and Lehman Brothers Holdings Inc. in the process. Insurer American International Group Inc. and mortgage giants Fannie Mae and Freddie Mac also were rescued by the government.

    `Grave Threats'

    U.S. Treasury Secretary Henry Paulson is urging Congress to pass a $700 billion plan to remove devalued assets from the banking system. Federal Reserve Chairman Ben S. Bernanke said Sept. 24 that the U.S. is facing ``grave threats'' to its financial stability.

    China's huge holdings of U.S. debt means it must bear a large proportion of the ``burden of sorting things out'' in the U.S., Yu said. China is not in a hurry to dump its U.S. holdings and communication between the two nations every ``couple of days'' is keeping Chinese leaders informed and helping to avoid a potential panic, he added.

    ``China is very worried about the safety of its assets,'' he said. ``If you want China to keep calm, you must ensure China that its assets are safe.''

    Currency Manipulator

    Yu said China is helping the U.S. ``in a very big way'' and added that it should get something in return. The U.S. should avoid labeling it an unfair trader and a currency manipulator and not politicize other issues, he said.

    ``It is not fair that we are doing this in good faith and are prepared to bear serious consequences and you are still labeling China this and that, accusing China of this and that,'' he said. ``China knows what to do. We don't need your intervention.''

    The U.S. financial crisis had taught China a lesson and that was: ``Why are we piling up these IOUs if they may default?'' China's economic expansion strategy, which emphasizes export growth that has led to trade surpluses and the accumulation of $1.81 trillion in foreign-exchange reserves, is the main problem, said Yu.

    ``Our export-growth strategy has run its natural course,'' he said. ``We should change course.''

    China should stop intervening in the foreign currency markets and thus allow rapid appreciation of the yuan, he said. While this would cause pain for exporters, China could ease the transition by using its strong fiscal position to aid those who lose their jobs. It also should stimulate domestic demand to offset lower income from overseas sales.

    Without yuan appreciation, China will continue to accumulate foreign reserves, which means further accumulating ``IOUs from the U.S.,'' said Yu. ``This is paper and it may default and it will not increase China's national welfare.''

    If China doesn't allow the yuan to appreciate and continues to promote export-led growth it will lead to confrontation with the U.S. and Europe, Yu said.

    To contact the reporters on this story: Kevin Hamlin in Beijing at
  2. vv111y



    Who would they sell too?

    There's also a section at RGE with a bunch of articles about this.
  3. Good question, who is on the bid?

    Must be fake bids
  4. The Fed
  5. Rocko1


    This is from Bloomberg, therefore naturally seeking support for "The Bailout" that'll instantly punish all US taxpayers and reward the banking execs.

    Is this all valid? Given that most of us were aware of the Credit derivative storm since early 2007, could it be that both China and Japan's treasury management had absolutely no hedge against the US debt positions? Are they really that stupid?
  6. W4rl0ck


    They should have sold Treasuries a few days ago.

    Rumor has it that the Chinese were in on nekkid short selling US financials coming out of Dubai. Don't tell anyone.
  7. The Fed will buy back it's own debt?

    With what money?
  8. Mvic


    They can get an unlimited amount from the treasury, as long as the rest of the world is valuing the USD as strongly as it is now it isn't such a bad strategy. If the USD collapses everyone is fucked, who is china going to sell all its goods to if USD collapses and we can only afford to buy a small fraction of their crap. They will suffer a collapse that will make what we will go through look like a walk through Disneyland. The whole decoupling myth was just that, if we are fucked the rest of the world is doubly so.

    This bailout is not just to keep the Us system afloat but in actual fact more so to keep the European and in part Asian banks from collapse. Read Roubinis stuff and you can see that most of the counterparty’s to WS debt are European banks and they are still leveraged at 50+ to 1, I don't think there is one Us bank over 30:1 at the moment. Also these European banks are huge and pan European, who will save them?

    Rogers is right, let the correction happen and lets get back on solid fundamental ground again, lets get back to true value vs. artificial propped up prices where no market can function. Let the small businesses rise up from the ashes with new ideas and better mousetraps and allow the new bull cycle to be born rather than creating a stagnant bloated economic morass for the next decade.

    It won't be the great depression revisited, the US is still too rich and there is still a lot of money around ready to invest (the famous $6T sitting in Money market accounts), probably not in the stock market unless it gets to more attractive levels where there is a real relationship between price and earnings again, but they will invest in private businesses where they can see a real return and have transparency, this is the only way we get the growth we need. We don't even need to worry too much about the USD either because if the collapse happens there will be no better place to put your money than the USD, the political risk premium will come back in to place like china, India, Russia , brazil etc. and I wouldn't be surprised to see some of those economies take a few big steps back from capitalism and free enterprise just to maintain control of their people. Sucks for them and it is a shame that they will have to go through that but relatively speaking the US will do well. In fact the very best thing that could happen to us is if the foreign debt holders panic sell it all, we would be able to buy back the national debt for cents on the $.
  9. charts


    I guess that's why the Fed screwed everybody raising rates too aggressively, then being to slow to reverse course ... It created the dominos chain: real-estate / mortgage / bank / financial, and the energy / economy fiasco.