Joined: Oct 15, 2004 Posts: 2185 Location: Arkansas
Posted: Thu Mar 22, 2007 7:23 am Post subject: China will stop "stockpiling" foriegn reserves
China has announced it will stop "stockpiling" foriegn reserves but not significantly alter the breakdown of those reserves, and put a portion of those reserves into some type of investment fund.
Quote:
China will stop stockpiling its massive foreign exchange reserves, China's central bank governor Zhou Xiaochuan said in an interview published Tuesday.
Quote:
Many people say that foreign exchange reserves in China are [already] large enough," Zhou told the Emerging Markets magazine, whose latest issue was released at a meeting of the Inter-American Development Bank in Guatemala.
"We do not intend to go further and accumulate reserves," Zhou said, adding the government will "cut a small piece of reserves" for a new agency to be set up for the management of its massive foreign reserves, which have swollen because of the trade surplus.
He did not say how much money would be passed to the agency.
China's premier, Wen Jiabao, said last week that plans to form a new agency to invest part of the country's swollen foreign exchange reserves, the world's biggest at more than $1 trillion, would not have an adverse impact on the U.S. dollar.
China's central bank also said last week it would not significantly adjust the composition of those reserves. A large part of them are denominated in dollars.
As the reserves have ballooned on the back of China's record trade surpluses, demands have grown for part of the hoard to be invested more aggressively.
Investors have long fretted over Beijing's plans to diversify its foreign exchange investments because of their potential impact on global markets.
Studies have shown investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by as much as 2 percentage points.
The state of Chinese trade affects such companies as IBM, Wal-Mart and HSBC.
Posted: Thu Mar 22, 2007 9:57 am Post subject: Re: China will stop "stockpiling" foriegn reserves
Quote:
Studies have shown investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by as much as 2 percentage points.
So...who's ready for an 8% prime rate? _________________ The whole of human history is a refutation by experiment of the concept of "moral world order". - Friedrich Nietzsche
Posted: Thu Mar 22, 2007 11:41 am Post subject: Re: China will stop "stockpiling" foriegn reserves
Dreamtwister wrote:
Quote:
Studies have shown investment by China and other Asian countries in U.S. bonds has reduced long-term American interest rates by as much as 2 percentage points.
So...who's ready for an 8% prime rate?
I think you should be saying "Who's ready for an 8% inverted yeild curve"
The rate they're talking about is the treasuries and bond rates. When China stops buying, these things will drop in value but go up in interest. This means the US will have to get its easy cash from somewhere else. This is where Helicopter Ben will earn his reputation and drop the prime rate tp 0%, but your mortgage will cost you 20%.
The result:
Banks, big investment houses, and China's FED (and maybe even the US FED as well) get easy money to pour into the world markets
You get a foreclosure notice, borken knees for a Credit card late payment, and a Coke and a smile at $50 a pop. _________________ Angry yet?
Joined: Mar 04, 2007 Posts: 504 Location: Hong Kong
Posted: Thu Mar 22, 2007 4:23 pm Post subject: Re: China will stop "stockpiling" foriegn reserves
The Chinese central bank says that it is going to stockpile foreign reserves. I would guess that means that they are going to spend some of it. I remember the Russian central bank a few years ago saying that they didn't want to spend any money from their reserves, because it would spark inflation.
The Chinese are probably going to put the money into some social or infrastructure projects, despite the risk of inflation. Beijing has already introduced social security for the peasantry and improved labor laws for the workers.
Also, they could use some more investment in railroads to bring coal down south to the provinces of Guangdong and Zhejiang. Guangdong is importing coal from Malaysia despite the fact that China has the fourth-largest reserves in the world.
In other words, the new Chinese fund will function like a development bank; handing out money in exchange for economic benefits, political alliances and military power.
This is the exact same thing that the British and Americans each did in their days as the world’s most dominant nation.
This makes sense. The BBC has already been commenting on trends to this effect in Africa. Not everyone agrees with it, some view it as neo-colonialism. Especially the fact that *gasp* the Chinese actually show up in person to manage the business. Well duh. Just like HEIC in its day. Which is ironic really, given the history.
Half a trillion dollars goes a long way in some parts. And I bet for all their symbolic crackdowns on middle-ranking officials, the Chinese won't be too scrupulous about how they win those resource rights either.
Quote:
As China will be buying less foreign currencies and more assets, this will be bad for the dollar and low yielding currencies like the Euro, but better for the high yielding currencies like the British Pound.
Posted: Thu Mar 22, 2007 8:46 pm Post subject: Re: China will stop "stockpiling" foriegn reserves
bump _________________ ___________________________
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Posted: Sat Mar 24, 2007 10:02 am Post subject: Re: China will stop "stockpiling" foriegn reserves
seahorse wrote:
What does this mean? Does this mean they will quit buying US treasuries? If so, what are the implications from that?
It means a lot of things.
First it does mean that China will invest its earnings in other parts of the world and not the US. Meaning they will attempt to create more markets for their products, thus moving their eggs to more then one basket. This will benefit everyone.
As the world has been dependent on the US to buy its goods and services and would catch pneumonia every-time the US sneezed, the Chines move will be a catalyst to end this situation. By creating consumer markets all over the world, the Chines can assure that there is a place for their goods and other's if there is a downturn in the US.
China says this won't affect the value of the dollar. Maybe so, maybe not. But, for every dollar not used to purchase US debt means there won't be capital to secure future US borrowing, either private or public. It means higher interests in the US and a greater slide into poverty for the middle class.
The EU, especially Germany is doing wonderful as of recently. Mostly because they have sought and found other markets for their products then just the US. They may still be dependent on the US, but less so then before and in the future even much lesser.
This course makes it less threatening when the US pressures companies and banks who deal with US enemies from being cut off from US business.
In the future being cut off from the US won't be such a bad thing for those cut off and a denial of products and services to the American consumer will result in less choices and higher prices.
Posted: Sat Mar 24, 2007 10:07 am Post subject: Re: China will stop "stockpiling" foriegn reserves
seldom_seen wrote:
Probably for the planning for the future forum, but is everyone stocking up on wheel barrels to haul their cash around for daily items?
People in South America in the times of hyperinflation didn't need wheel barrows of cash because most had hidden foreign currency to use in the hard times. Americans can spare themselves the same fate by stockpiling euros and other currencies to protect them when the dollar is worth nothing.
I doubt they will, so maybe a good investment would be in a company that makes wheel barrows and soup. Don't forget the poverty will cause soup kitchens to flourish.
As China will be buying less foreign currencies and more assets, this will be bad for the dollar and low yielding currencies like the Euro, but better for the high yielding currencies like the British Pound.
Meaning what? Dollar drops, pound hits the ceiling? That'll make our economy so wonderfully competitive. Though I must admit, lately the manufacturing industry has ceased to issue its quarterly complaints about being ruined by exchange rates. Maybe it's gone. The last remnants I see are working purely on bespoke items for the internal market, production runs too small to be worthwhile for anyone employing economies of scale. Sad.
Most likely wishful thinking on the part of the British as they see the end of the carry trades cause interest in the pound to dwindle.
The British pound has to be high yielding if it is to attract the foreign capital to secure British debt, which is just as bad as the US. But here is a nasty scenario, the EU is raising rates too, and catching up to the UK. Thus the euro can and will become a high yielding currency too. The trouble is, if they go higher, the British will have to go even higher to keep them 2 % ahead, if they are to maintain any advantage over the euro. But how far can they go before their action bankrupts the entire middle and lower classes dependent on cheap loans to finance their consumer spending?
As the euro spreads and becomes the national currency of more countries and more economies, it will have the strength to wipe out the pound economy.
The British have been praying for seven years for the euro to die and it has only become stronger.
Joined: Apr 06, 2005 Posts: 999 Location: 38 km west of Warsaw, Poland
Posted: Sat Mar 24, 2007 2:19 pm Post subject: Re: China will stop "stockpiling" foriegn reserves
Euric wrote:
seldom_seen wrote:
Probably for the planning for the future forum, but is everyone stocking up on wheel barrels to haul their cash around for daily items?
People in South America in the times of hyperinflation didn't need wheel barrows of cash because most had hidden foreign currency to use in the hard times. Americans can spare themselves the same fate by stockpiling euros and other currencies to protect them when the dollar is worth nothing.
I doubt they will, so maybe a good investment would be in a company that makes wheel barrows and soup. Don't forget the poverty will cause soup kitchens to flourish.
I actually think that wheel barrows would be a better investment. At least you can haul horse and cow crap around for the gardens.
What is some dude in Iowa going to do with his buried Euros when all the banks are shuttered after the collapse of the US housing market? The days remaining for making a living or profit off currency exchange rates are limited.
Trying to extrapolate from what worked in the past for a few folks in South America will no longer be applicable in the NWO (or disorder - NWD). _________________ Remember, with globalisation "everyone is a winner" in the "race to the bottom". - rogerhb
Any sufficiently advanced technology is indistinguishable from magic. A.C. Clarke
Joined: Sep 25, 2004 Posts: 4527 Location: Boston, MA
Posted: Sat Mar 24, 2007 2:59 pm Post subject: Re: China will stop "stockpiling" foriegn reserves
Personally, I don't think hoarding Euros will be particularly helpful because in all honesty, will your local supermarket accept Euros for payment? What about your local hardware store?
People will need dollars to operate in the dollar economy. It's best to purchase something that will gain ground as the dollar declines and that can be easily converted back into dollars.
I guess one could consider a 500 Euro bill to fit that description because most banks would allow you to convert it back into dollars, but your local businesses will have a hard time taking foreign currency.
We would need to see a massive collapse in the purchasing power of the US dollar before Euros For Groceries will be considered a viable option. (I'm talking about an exchange rate of at least 3 to 1).
But we can only speculate about such things at this point. _________________ "www.peakoil.com is the Myspace of the Apocalypse."
Posted: Sat Mar 24, 2007 4:10 pm Post subject: Re: China will stop "stockpiling" foriegn reserves
Tyler_JC wrote:
Personally, I don't think hoarding Euros will be particularly helpful because in all honesty, will your local supermarket accept Euros for payment? What about your local hardware store?
People will need dollars to operate in the dollar economy. It's best to purchase something that will gain ground as the dollar declines and that can be easily converted back into dollars.
You obviously do not live in a hyper inflationary country. Your response shows lack of critical judgement.
Do the supermarkets in Zimbabwe accepts Euros? You can bet your life, they will. Because when your local currency is hyperinflating, your shopkeeper will accept any strong foreign currency that is stable.
Don't believe me? Why don't you go to Zimbabwe and see for yourself.
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