Financial topics

[vincecate]

I think the government deleveraging starts in December myself, we'll have to wait and see, but I do believe several things coming down the line will make some serious changes both in government spending and in taxes. And I do not think it's going to matter much who is President at that point, when certain things MUST happen, they happen.

Why must it start in December? It seems they can print money for awhile longer yet. I expect them to vote away the fiscal cliff and increase the deficit and increase money printing. Only after hyperinflation do I really think that they must cut back government.

[Higgenbotham]

Higgs, it would be terribly easy to make a case for a conspiracy wherein a group of our politicians and CEO's made a deal with China to weaken the US in return for enormous payoffs and free labor. I doubt that happened, stupid shortsighted actions by the greedy is sufficient explanation, but that's no less damaging. You do have to wonder just where the hell they think they are going to live after it all comes crashing down on us.

I also doubt there's any malicious intent, but there is damage regardless and I for one won't feel any sympathy if there are mob accusations of malicious intent and mob punishment that goes hand in hand with such accusations. Nor would I try to deter the mob, as it's human nature to find scapegoats and deal with them accordingly as part of the cleansing process.

I truly believe the CCP has already drawn up the plans on nationalizing all those western investments.

I'm positive that's part of the plan. How else would the Chinese justify taking junk Federal Reserve dollars. The more time that goes by, the further back the US can fall as it loses the ability to manufacture critical parts.

[Reality Check]

I'm positive that's part of the plan. How else would the Chinese justify taking junk Federal Reserve dollars. The more time that goes by, the further back the US can fall as it loses the ability to manufacture critical parts.

It appears since July 2009 China has actually stopped taking more "Junk Federal Reserve dollars".

The assumption that the Chinese are still taking more "junk Federal Reserve dollars" every year, in return for:

1. Ever growing trade surpluses with the United States, and,

2. And ever increasing rates of moving manufacturing, engineering and mining operations from the U.S. to China.

Was correct up until August 2009.

China's benefit from this "unwritten agreement between China and the U.S." continued after August 2009:

After August 2009 China's annual trade surplus with the U.S continued to grow, and,
( Growing steadily from 84 Billion in 2001 to over 300 Billion in 2012 )
http://www.census.gov/foreign-trade/balance/c5700.html

After August 2009 moving manufacturing, engineering and mining operations from the U.S. to China continued a pace, and,

After August 2009, the amount of Foreign Reserve Currencies held by China grew rapidly and steadily.
http://www.chinability.com/Reserves.htm

But the other side of that "unwritten deal - the part that helped the U.S. - and increased the exposure of China to problems in the U.S. economy " ended:

After 2009 the percentage of China's foreign reserve held in U.S. currency ( counting both U.S. dollars and U.S. bonds ) dropped rapidly and steadily, and,
( Dropped from approximately 50% in 2009 to less that 33% today )
http://online.wsj.com/article/SB1000142 ... 3Dcomments

China steadily buying, and holding, substantial amounts of additional U.S. debt each month ended after August, 2009.
( Since August 2009 China experienced one significant increase in U.S. debt in July 2010 - which might be some kind of change in how it was calculated - )
( and from then on the total U.S. debt held by China oscillated around 1.2 Trillion [ plus or minus 10% any given month ] )

China's holding of U.S. Debt in July 2012 was 1.115 Trillion virtually unchanged from what it was in June 2010 at 1.110 Trillion

U.S. Debt Held by China 2000 - 2011 - by month: http://www.davemanuel.com/charts2/china ... _debt.html
More recent debt data below ( through July 2012 )

MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(in billions of dollars)
HOLDINGS 1/ AT END OF PERIOD


Jul Jun May Apr Mar Feb Jan Dec Nov Oct Sep Aug Jul
Country 2012 2012* 2012* 2012* 2012* 2012* 2012* 2011* 2011 2011 2011* 2011 2011
------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------ ------

China, Mainland 1149.6 1147.0 1164.0 1164.4 1144.0 1155.2 1166.2 1151.9 1254.5 1256.0 1270.2 1278.5 1314.9

China is continuing to obtain 100s of Billions per year from the United States as part of a Trade Surplus
China is continuing to see manufacturing and engineering capacity move from the U.S. to China
But China is no longer holding on to those 100s of Billions of new U.S. dollars each year
China is no longer ( after 2009 ) buying ever more U.S. Debt
China is no longer increasing it's exposure to problems with the U.S. dollar - as it was prior to July 2009
China is no longer financing ever increasing U.S. government debt

[Higgenbotham]

The Second Bank of the United States was authorized for a 20-year period during James Madison's tenure in 1816. As President, Jackson worked to rescind the bank's federal charter. In Jackson's veto message, the bank needed to be abolished because:

It concentrated the nation's financial strength in a single institution,
It exposed the government to control by foreign interests,
It served mainly to make the rich richer,
It exercised too much control over members of Congress,
It favored northeastern states over southern and western states,
Banks are controlled by a few select families.

http://en.wikipedia.org/wiki/Andrew_Jackson

[Higgenbotham]

I'm positive that's part of the plan. How else would the Chinese justify taking junk Federal Reserve dollars. The more time that goes by, the further back the US can fall as it loses the ability to manufacture critical parts.

It appears since July 2009 China has actually stopped taking more "Junk Federal Reserve dollars".

The Chinese are taking junk Federal Reserve dollars as part of a long term plan to acquire resources, not as a plan to accumulate "more" junk Federal Reserve dollars.

Since the 2008/9 recession, 2 things have happened to increase the outflow of China's accumulation of dollars. First, Western governments and corporations have become less resistant to Chinese purchases and, second, when asset values dropped the Chinese could take advantage of better prices and so were willing to make more purchases.

As the article below states, the Chinese were willing to reduce their accumulation of junk Federal Reserve dollars in 2005 had the US government been willing to let them purchase Unocal.

Cnooc Ltd.’s $15 billion acquisition of Canada’s Nexen Inc. wouldn’t have made the record books if its most ambitious, and famous overseas foray, had succeeded.

That was, of course, its attempt to buy Unocal Corp. in 2005 for $18.5 billion, the deal that has become the poster child for what happens when U.S.-China trade tensions get in the way of deal making.

Since then, Chinese firms have learned to restrain their appetites by taking minority stakes instead. The world also has grown more accustomed to Chinese takeovers with the U.S. and Europe mired in economic slumps. One recent example is the acquisition of AMC Entertainment Holdings by China’s Dalian Wanda Group Corp. for for $2.6 billion. While the the movie industry isn’t as politically sensitive as the energy sector, the deal nevertheless illustrates how capital flows between the two countries have reversed as cash-strapped U.S. companies seek deep-pocketed buyers. Indeed, Chinese acquisitions in the U.S. hit a record high last year, according to Dealogic.

http://blogs.wsj.com/deals/2012/07/23/c ... l-lessons/

[Trevor]

They're also trying to reduce their dependence on us as much as they can, so if we end up crashing, it won't take them with us. Of course, we'll drag them down no matter what they try, but it fits their plans to put a leash around our necks.

Just wait until they dump our all bonds.

[Higgenbotham]

The Chinese probably would have like to have bought a lot more gold at lower prices than they did, but there isn't much gold for sale. It's not like you can go out and buy $100 billion worth of gold at any given time. A few years ago, the Chinese suggested that the US sell them some of its gold to reduce the deficit. Another factor is when Europe got into trouble, the Chinese were happy to diversify into some Euros to help the Europeans out in exchange for having the door open to do more business in Europe, including more acquistions. About a decade ago, US companies were investing heavily into China. The Chinese have been buying back those investments. Some of the big US oil companies made investments in Chinese oil companies and I think all of those stakes have since been repurchased. I suppose the Chinese got the benefit of state of the art energy technology in exchange. Recently, I think I read the Chinese bought back Yahoo's stake in Alibaba for $7.6 billion (actually it was just half of Yahoo's stake). Another source of Chinese investment is once a target is purchased they typically do an aggressive expansion of that business. And in the cases where they can steal the technology and have enough expertise to copy it, they can invest in their own businesses without puchasing anything from the rest of the world.

[Trevor]

The Chinese probably would have like to have bought a lot more gold at lower prices than they did, but there isn't much gold for sale. It's not like you can go out and buy $100 billion worth of gold at any given time. A few years ago, the Chinese suggested that the US sell them some of its gold to reduce the deficit. Another factor is when Europe got into trouble, the Chinese were happy to diversify into some Euros to help the Europeans out in exchange for having the door open to do more business in Europe, including more acquistions. About a decade ago, US companies were investing heavily into China. The Chinese have been buying back those investments. Some of the big US oil companies made investments in Chinese oil companies and I think all of those stakes have since been repurchased. I suppose the Chinese got the benefit of state of the art energy technology in exchange. Recently, I think I read the Chinese bought back Yahoo's stake in Alibaba for $7 billion. Another source of Chinese investment is once a target is purchased they typically do an aggressive expansion of that business. And in the cases where they can steal the technology and have enough expertise to copy it, they can invest in their own businesses without puchasing anything from the rest of the world.

Not only do they make lots of money, they get their hands on American technology. One of the biggest such examples was the deal with General Electric (or Government Electric, as I like to call them). They've gotten all sorts of aircraft technology that they can use against us. Frankly, I think the technology is even more important to them than money.

[Higgenbotham]

Frankly, I think the technology is even more important to them than money.

Yeah, if hard resources like oil and copper and wheat were all they cared about, they might say pay us in something tangible or you don't get anything from us. But dollars are still the best way to buy the technology they need to convert those resources into things like aircraft or to get resources out of the ground more efficiently.

[Trevor]

It's a means to an end, that's all. It seems like we're helping to build the military that China will ultimately turn on us.