(11 am. – promoted by ek hornbeck)
Earlier today, Karl Denninger double-dog-dared China to start dumping US bonds, arguing that the Chinese were at the mercy of U.S. Presidential fiat with respect to (a) the value of China’s reserves and (b) our superior military. He may be right, but that won’t stop the Chinese from dumping other assets in an escalation of…one thing or another:
Dollar-denominated risk assets, including asset-backed securities and corporates, are no longer wanted at the State Administration of Foreign Exchange (SAFE), nor at China’s large commercial banks. The Chinese government has ordered its reserve managers to divest itself of riskier securities and hold only Treasuries and US agency debt with an implicit or explicit government guarantee. This already has been communicated to American securities dealers, according to market participants with direct knowledge of the events.
It is not clear whether China’s motive is simple risk aversion in the wake of a sharp widening of corporate and mortgage spreads during the past two weeks, or whether there also is a political dimension. With the expected termination of the Federal Reserve’s special facility to purchase mortgage-backed securities next month, some asset-backed spreads already have blown out, and the Chinese institutions may simply be trying to get out of the way of a widening. There is some speculation that China’s action has to do with the recent deterioration of US-Chinese relations over arm sales to Taiwan and other issues. That would be an unusual action for the Chinese to take-Beijing does not mix investment and strategic policy-and would be hard to substantiate in any event.
One zerohedger views this as political retaliation.
Anyway, we’ve always been at war with […]. I’m sure it bodes well for all.
On a related side note, we have now been in a continuous state of national emergency since September 14th, 2001. I believe that state of emergency means that despite the fact that Murray has standing to sue Geithner, in which case we might find out something about the bailout mess, Geithner will never, ever be deposed, based on national security concerns, which look increasingly real in present circumstances, unlike all the fake Bush/Cheney bullshit preceding and indeed leading up to our current actual state of pre-collapse.
Via GW linked above:
As Business Week wrote on May 23, 2006:
President George W. Bush has bestowed on his intelligence czar, John Negroponte, broad authority, in the name of national security, to excuse publicly traded companies from their usual accounting and securities-disclosure obligations.
In other words, national security has been discussed for years as a basis of keeping normal accounting and securities-related disclosures secret. While “national security” and a state of “national emergency” may not be exactly the same, they are variations of a single theme – an existential threat to our nation – which has dominated American since September 11.
On the other hand, the judge in the Murray v. Geithner case specifically cited the issues of national crisis in the exercise of governmental “latitude:”
While the Court empathized with the defendants as: “the circumstances of this case are historic, and the pressure upon the government to navigate this financial crisis is unfathomable”, the Court stated that “[t]imes of crisis, however, do not justify departure from the Constitution.”
It will be interesting to see how that [national security v. constitution] turns out.
n the meantime, let’s savor this quote from Pat Leahy:
“If we learned anything from 9/11, the biggest mistake is to pass anything they ask for just because it’s an emergency”
Emergency Stabilization Act? Lesson learned! And Leahy is one of the better Dems. Gah!
Anyway, here’s a subset of the China-dumping-securities problem from a private group, the Sovereign Wealth Fund Institute, that invests for SAFE and has SAFE members on its board, and has a website here, showing their recent growth in foreign assets.
Obviously, they haven’t updated the site in some time, but the graph shows the massive increase in holdings over the past eight years coinciding with the general housing-related asset bubble.
Dear god in heaven.
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I’d much rather be flying my own kites than watching their counterproductive dogfights.
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UK Telegraph
China is feeling its own power as a state that has managed to maintain coherence despite its plunge into the global marketplace culture. Its leaders know that the United States is losing coherence as a state and as a culture — it is rapidly fragmenting rather than holding together. It is in severe decline not just economically but mainly culturally. Whatever qualities that made the United States the most powerful culture in the world after WWII have been petering out for a couple of decades of steady cultural decline.
China believes, rightly in my view, that it is better positioned to take advantage of globalization than the United States because it has a more disciplined population who are very much aware of their “Chineseness” and how that plays out on the realpolitik playing fields governed by only by force. American’s sense of being American is so steeped in fantasy and nonsense that it is not even worth commenting on. If you know anything about Chinese culture you know of its depth and profundity and you also know that American culture is entirely opposed to profundity of any kind — which is the most destructive quality of our culture.
Meanwhile the U.S. elites are rapidly losing interest in the well-being of the American public and are busy, because of the public’s cultural decline, in looting what is left of American prosperity — if things get bad they can always move — though I don’t think the elites even think that far because they’re too busy gorging.
It is interesting that the Chinese leadership snubbed Obama — why should they deal with a lakey like Obama when they’d rather deal with those that actually have power? — which they do on a regular basis underneath the radar of the MSM web of fantasies.