"The US policy has not only increased imported inflationary pressure, but also made China suffer huge losses of foreign reserves."
vincecate wrote:America is dumping $600 billion, what would happen if China also dumped $600 billion dollars? Or some other country dumped their dollars?
Higgenbotham wrote:vincecate wrote:America is dumping $600 billion, what would happen if China also dumped $600 billion dollars? Or some other country dumped their dollars?
Do you know what the durations of the Chinese bond holdings are? In other words, do they own more longer term vs shorter term treasuries? Or are they concentrated more short term? I think that would make a big difference.
vincecate wrote:I don't know Chinese bond durations. The US government has like 30% of debt due within 1 year (see URL below). I think 30% of $13 trillion is enough to ruin the dollar. So in the first year that people stop buying and the US prints to cover the bonds coming due, I think the game is up.
Another point. Even if China had longer term, if they started dumping them they impact other parts on the curve. And there is a good chance that if the Fed has $600 billion to spend they might buy whatever it is China was selling. So I don't really think it would make a big difference what duration China is holding.
http://www.zerohedge.com/article/detail ... d-itself-a
This is correct; as the authors states, Bernanke is doing QE2 because the banks will implode if interest rates go up. It also appears that he's setting aside the money to put the banks into receivership and clean up the mess. It will in all probability be the biggest financial mess in seven centuries.
At this point, it's important to review the 14th Century banking crisis. As I've stated before, the City of Florence attempted in 1343 to shore up the Bardi, but it imploded anyway in 1346. People will say yeah yeah but things are different now and you can't use a 3 year timeline from the 2008 infusion, etc. I see no reason that things will be any different this time.
vincecate wrote:It is not just the 14th century banking crisis. This is the normal pattern. First governments try to shore up the banks, then a couple years later then have a sovereign debt and currency crisis. The name of the book to see many examples of this is, "This Time is Different: Eight Centuries of Financial Folly". Happens time and time again. Japan is a very strange case (so many big local savers trusting the government with their money that the government could borrow crazy amounts form them) and should not be thought of as typical at all. Normal case is sovereign debt and currency crisis next.
vincecate wrote:> John, you have said you can not see a realistic scenario for
> inflation. America is dumping $600 billion, what would happen if
> China also dumped $600 billion dollars? Or some other country
> dumped their dollars?
John wrote:You can't just ignore synthetic securities, since they're the source
of every bubble -- Tulip futures in Tulipomania, South Sea shares,
assignats during the French Revolution, railway shares in the Panic of
1857, and stock shares in 1929.
And as Higgie points out, synthetic securities were a part of the 14th
century Florentine bank bubble and bankruptcy. You can't just say
that they don't matter, because in many ways, they're the only things
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