They sold 25B of notes/bonds (or something like that, according to the tics report) in august and the bond market went up. Hedge funds gladly bought from them in their flight from equity trade. In 2 yrs China could get entirely out of US assets without hurting their bottom line too much. And remember, going forward now, the EU is a bigger trade partner to China than the US, so I don't know how worthwhile your points are. They'll make another few hundred billion a yr from the rest of the world and have no issue.
For China it wont all be down hill racing. All stock markets correct or crash. Theres will also, and boy will that rock the boat. China must know that capitalism does have things called recessions. I guess socialism did as well.
Not only will they cut, they will cut aggressively! It's in the cards.. They know about the 'taxes' on the economy - the high oil, the high food prices... But they can do whatever they want.... They can cut to 2.75...don't think they won't! The Fed always overextends... The change in policy last month was just that...a change in policy...trade it like it is...
I agree with your point 'trade it like it is'... but overextended policy has to stop at some point.. when China stop buying USD (if they are smart enough) like the Japs did in 2004, who will pick up the tabs??
China will decouple even further if we get another rate cut. This isn't some economic 'surprise attack' thats caught China with their pants down. They are well aware and monitoring closely. Cheap crap from China is Bernackes last card. Once thats done, its over. Who's going to finance federal debt at 5% when inflation is running at 15%? Think about it. The real estate bubble was created by a cheap dollar. Now an even cheaper dollar is going to save us? That flies in the face of every economic law known to man. It really isn't different this time. The music might play a little longer, but the USD is going to shit. That means prices at home are on the rise (don't believe the hype). The more we deflate, the faster we inflate. The more inflation, the more capital flight from T-Bills = increase in bond rates, and soon, domestic rates. What happens then? Thats right. Tankerino. Thats just supply side. Demand side - more inflation means the American consumer has less to spend on forerign and domestic goods. When the American consumer buy less in absolute terms, the global economy slooooooows dowwwwwwwwwn. The average American gets screwed too. 10% of their check goes to finance Bernackes recklessness. Those on fixed income and the poor get hit the hardest. At some point, Americans will wake up to the massive price inflation and start demanding wage hikes. Good luck with that. Thats called the inflationary trap. Recession with increasing prices. hahah. You guys think you got it all figured out.
You're right. Close to $30 billion in international selling. That's an awful lot of $$$ for hedge funds to absorb. If fed cuts again, bonds are going to soar and there should intensify the selling. What's that mean for the US? My previous prediction has been proven wrong.
Not really. World reserve status affords us a different set of rules - up until a certain point. But that point is fast approaching at an accelerating speed. How long will Bernacke play Chicken with the laws of economics, is anybodys guess I've read policy papers outside the realm of traditional stewardship that call for the trashing of the dollar. It jives with recent Fed decisions - that 20 years ago would seem blasphemous. The dollar will not be defended. Why? Global imbalances? The global imbalances were created by a CHEAP DOLLAR. And an even cheaper dollar will fix it? Economic disaster. Inflation at 15% and bond yields at 5%. LOL!! GET REAL.