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China to liquidate US Treasuries: PBOC adviser
China to liquidate US Treasuries: PBOC adviser
TODAYonline | Business | China to liquidate US Treasuries: PBOC adviser
09:01 AM Sep 17, 2011
DALIAN - A key policymaker at China's central bank has let slip that Beijing aims to run down its portfolio of United States debt as soon as safely possible.
"Once the US Treasury market stabilises, we can liquidate more of our holdings of Treasuries," said Mr Li Daokui, a member of the People's Bank of China's monetary policy committee (MPC), at the World Economic Forum in Dalian.
"The incremental parts of our foreign reserve holdings should be invested in physical assets.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way," he added.
China's State Administration of Foreign Exchange holds about US$2.2 trillion (S$2.73 trillion) of US debt. China's policy has been to diversify slowly by investing some of the estimated US$200 billion surpluses accumulated each quarter into other currencies and assets - chiefly AAA euro debt from Germany and France.
The Chinese are clearly vexed with Washington, viewing the US Federal Reserve's quantitative easing as a stealth default on US debt.
Mr Li, one of three outside academics on China's MPC, described the deals on Capitol Hill as "just trying to by time", saying it will not be enough to stop America's "debt dynamic" turning dangerous.
Last month, the US House of Representatives approved legislation to raise the US$14.3 trillion debt ceiling by at least US$2.1 trillion, only one day before a threatened default.
Mr Li came close to calling America a basket case, saying the economic picture is far worse than when then-US President Ronald Reagan took over in the early '80s.
OBAMA's JOB PLAN IN DOUBT
Meanwhile in Washington, President Barack Obama's plan to boost the faltering economy with a US$447 billion job creation plan is facing rejection from Republican lawmakers, creating doubt about whether it can overcome obstacles in Congress.
As Mr Obama tries to rally public support behind tax breaks and spending on schools and bridges, the reaction on Capitol Hill indicates that only a few fragments of the plan may become law - most likely tax cuts to promote consumer demand and hiring. Many Republicans dismiss Mr Obama's proposal as a variant of the 2009 stimulus law they opposed.
Mr Obama proposes paying for the measure with a cap on some deductions and exclusions for high-income taxpayers, along with tax increases for private equity firms, oil and gas companies and corporate jet owners.
Republicans, who have ideas about how to lower unemployment by limiting regulation and expanding domestic oil production, are not ceding ideological or political ground to the administration.
To add to Mr Obama's woes, some rank-and-file lawmakers in his own party have complained about the tax increases in the Bill. Even the Senate's Democratic leader is not rushing to bring Mr Obama's proposal to the floor as he focuses on other legislation such as disaster assistance.
With 14 months until he faces re-election and a 9.1 per cent unemployment rate, the President has been telling the public to press Congress to "pass this Bill".
The White House has been pressing for passage of the entire Bill. Mr Obama's political adviser, Mr David Axelrod, said the administration is "not in a negotiation to break up the package" and Republicans should not consider it an "a la carte menu".
Still, White House Press Secretary Jay Carney said Mr Obama would not veto partial measures. If Congress were to "send a portion of the American Jobs Act, the President would of course not veto it", he said.
"He would sign it and then he would return to press the Congress to get the job done." AGENCIES
China to 'liquidate' US Treasuries, not dollars
By Ambrose Evans-Pritchard Economics Last updated: September 15th, 2011
China to 'liquidate' US Treasuries, not dollars – Telegraph Blogs
China intends to start reducing its portfolio of US debt
The debt markets have been warned.
A key rate setter-for China's central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.
"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."
"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
To my knowledge, this is the first time that a top adviser to China's central bank has uttered the word "liquidate". Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France and the hard core.
We don't know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank's FX arm. The figure is thought to be over $2.2 trillion.
The Chinese are clearly vexed with Washington, viewing the Fed's QE as a stealth default on US debt. Mr Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.
Mr Li, one of three outside academics on China's MPC, described the debt deals on Capitol Hill as "just trying to by time", saying it will not be enough to stop America's "debt dynamic" turning dangerous.
Fair enough, but let us be clear: the reason China has accumulated the equivalent of 6pc of global GDP in reserves (like the US in the 1920s) is because it has held down its currency to gain market share. As Michael Pettis from Beijing University points out tirelessly, the mercantilist policy hollows out US industries and forces America to choose between debt bubbles or unemployment – or, of course, protectionism, though we are not there yet.
Until it abandons that core policy, it has to keep buying foreign assets and lots of dollars. The euro can absorb only so much – 800bn euros so far – before Europeans realize (the French already realize) that Chinese bond purchases are double edged, and the yen the Swissie can't absorb anything at all. (The governments are intervening to stop it). Besides, China has the same misgivings about euro debt as it does about dollar debt. Perhaps more so after Euroland's long-running soap opera.
So what Li Daokui said is not bad for the dollar as such. He said there is "$10 trillion" waiting to be invested in the US, if America will open its doors.
It is bad for bonds – or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.
Yet another reason to be careful of 10-year Treasuries and Bunds below 2pc yields. There is a big seller out there, just itching to let go.
Tags: afe, china, dollars, us, us debt, US Treasuries, world economic forum
TODAYonline | Business | China to liquidate US Treasuries: PBOC adviser
09:01 AM Sep 17, 2011
DALIAN - A key policymaker at China's central bank has let slip that Beijing aims to run down its portfolio of United States debt as soon as safely possible.
"Once the US Treasury market stabilises, we can liquidate more of our holdings of Treasuries," said Mr Li Daokui, a member of the People's Bank of China's monetary policy committee (MPC), at the World Economic Forum in Dalian.
"The incremental parts of our foreign reserve holdings should be invested in physical assets.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way," he added.
China's State Administration of Foreign Exchange holds about US$2.2 trillion (S$2.73 trillion) of US debt. China's policy has been to diversify slowly by investing some of the estimated US$200 billion surpluses accumulated each quarter into other currencies and assets - chiefly AAA euro debt from Germany and France.
The Chinese are clearly vexed with Washington, viewing the US Federal Reserve's quantitative easing as a stealth default on US debt.
Mr Li, one of three outside academics on China's MPC, described the deals on Capitol Hill as "just trying to by time", saying it will not be enough to stop America's "debt dynamic" turning dangerous.
Last month, the US House of Representatives approved legislation to raise the US$14.3 trillion debt ceiling by at least US$2.1 trillion, only one day before a threatened default.
Mr Li came close to calling America a basket case, saying the economic picture is far worse than when then-US President Ronald Reagan took over in the early '80s.
OBAMA's JOB PLAN IN DOUBT
Meanwhile in Washington, President Barack Obama's plan to boost the faltering economy with a US$447 billion job creation plan is facing rejection from Republican lawmakers, creating doubt about whether it can overcome obstacles in Congress.
As Mr Obama tries to rally public support behind tax breaks and spending on schools and bridges, the reaction on Capitol Hill indicates that only a few fragments of the plan may become law - most likely tax cuts to promote consumer demand and hiring. Many Republicans dismiss Mr Obama's proposal as a variant of the 2009 stimulus law they opposed.
Mr Obama proposes paying for the measure with a cap on some deductions and exclusions for high-income taxpayers, along with tax increases for private equity firms, oil and gas companies and corporate jet owners.
Republicans, who have ideas about how to lower unemployment by limiting regulation and expanding domestic oil production, are not ceding ideological or political ground to the administration.
To add to Mr Obama's woes, some rank-and-file lawmakers in his own party have complained about the tax increases in the Bill. Even the Senate's Democratic leader is not rushing to bring Mr Obama's proposal to the floor as he focuses on other legislation such as disaster assistance.
With 14 months until he faces re-election and a 9.1 per cent unemployment rate, the President has been telling the public to press Congress to "pass this Bill".
The White House has been pressing for passage of the entire Bill. Mr Obama's political adviser, Mr David Axelrod, said the administration is "not in a negotiation to break up the package" and Republicans should not consider it an "a la carte menu".
Still, White House Press Secretary Jay Carney said Mr Obama would not veto partial measures. If Congress were to "send a portion of the American Jobs Act, the President would of course not veto it", he said.
"He would sign it and then he would return to press the Congress to get the job done." AGENCIES
China to 'liquidate' US Treasuries, not dollars
By Ambrose Evans-Pritchard Economics Last updated: September 15th, 2011
China to 'liquidate' US Treasuries, not dollars – Telegraph Blogs
China intends to start reducing its portfolio of US debt
The debt markets have been warned.
A key rate setter-for China's central bank let slip – or was it a slip? – that Beijing aims to run down its portfolio of US debt as soon as safely possible.
"The incremental parts of our of our foreign reserve holdings should be invested in physical assets," said Li Daokui at the World Economic Forum in the very rainy city of Dalian – former Port Arthur from Russian colonial days.
"We would like to buy stakes in Boeing, Intel, and Apple, and maybe we should invest in these types of companies in a proactive way."
"Once the US Treasury market stabilizes we can liquidate more of our holdings of Treasuries," he said.
To my knowledge, this is the first time that a top adviser to China's central bank has uttered the word "liquidate". Until now the policy has been to diversify slowly by investing the fresh $200bn accumulated each quarter into other currencies and assets – chiefly AAA euro debt from Germany, France and the hard core.
We don't know how much US debt is held by SAFE (State Administration of Foreign Exchange), the bank's FX arm. The figure is thought to be over $2.2 trillion.
The Chinese are clearly vexed with Washington, viewing the Fed's QE as a stealth default on US debt. Mr Li came close to calling America a basket case, saying the picture is far worse than when Ronald Reagan and Margaret Thatcher took over in the early 1980s.
Mr Li, one of three outside academics on China's MPC, described the debt deals on Capitol Hill as "just trying to by time", saying it will not be enough to stop America's "debt dynamic" turning dangerous.
Fair enough, but let us be clear: the reason China has accumulated the equivalent of 6pc of global GDP in reserves (like the US in the 1920s) is because it has held down its currency to gain market share. As Michael Pettis from Beijing University points out tirelessly, the mercantilist policy hollows out US industries and forces America to choose between debt bubbles or unemployment – or, of course, protectionism, though we are not there yet.
Until it abandons that core policy, it has to keep buying foreign assets and lots of dollars. The euro can absorb only so much – 800bn euros so far – before Europeans realize (the French already realize) that Chinese bond purchases are double edged, and the yen the Swissie can't absorb anything at all. (The governments are intervening to stop it). Besides, China has the same misgivings about euro debt as it does about dollar debt. Perhaps more so after Euroland's long-running soap opera.
So what Li Daokui said is not bad for the dollar as such. He said there is "$10 trillion" waiting to be invested in the US, if America will open its doors.
It is bad for bonds – or will be. The money will go into strategic land purchases all over the world, until the backlash erupts in earnest. It will go into equities, until Capitol Hill has a heart attack. It will go anywhere but debt.
Yet another reason to be careful of 10-year Treasuries and Bunds below 2pc yields. There is a big seller out there, just itching to let go.
Tags: afe, china, dollars, us, us debt, US Treasuries, world economic forum