Looks like Chinese policy makers will continue to purchase US Treasuries as they see them as the “only safe haven” in the market today.
This, despite the fact that they verbally recognized the fact that the dollar will depreciate due to large, future increases in deficit financing.
That’s a big Christmas present for Team Obama. Think others will follow the Chinese? For how long?
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Who knows. However, when they decide not to, the market effects could be very quick and devastating.
JE Dorner
Translation: The Chinese elite find it necessary to prop up the US system, for now. Maybe to keep their own system propped up, maybe to blackmail the US empire to hand over Taiwan.
I read some months ago they were increasing their gold reserves.
I suspect the idea is to engineer a gradual decline of the American dollar – which is a difficult, if not impossible, feat to pull off. But as Luo Ping puts it, are there real alternatives? If everyone were to exit the dollar… other currencies are poor alternatives (largely ‘pegged’ to the American dollar anyway), and there’s only so much gold going around.
The Chinese however are not stupid.
This reminds me of KY Leong’s article here on Mises blog a while ago. Wonder what he makes of current happenings.
I thought that this line from the article was particularly good, and worth reading.
Quote: From the linked article
“Mr Luo, whose English tends toward the colloquial, added: ‘We hate you guys. [In regard to the US] Once you start issuing $1 trillion-$2 trillion [$1,000bn-$2,000bn] . . .we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do.’ ”
Ha! The guy is a total communist, but he’s classy.
How much longer? As soon as the money leaves the banks’ reserve accounts and starts hitting the money supply.
At this point in time, the idea of the US as a safehaven investment seems absurd to the point of being a prime example of “cognitive dissonance” at work in the marketplace.
Here in America, we seem to be floating along on our past reputation (preeminent world power and all that) while running up all manner of debts and obligations (toxic, or “legacy”, assets are the latest hit) that will have to paid off in the future.
As Marc Faber, Jim Rogers, and others have pointed out, the recent bailouts and bank rescue plans are a looming disaster and likely to result in very high rates of inflation in the not too distant future. Will all this hanging over our heads, how can anyone refer to the US as a safehaven and keep a straight face?
P.S. I’d like to entertain some more positive arguments for good-old American resiliency and a societal turnaround, so please don’t hesitate to correct my view if you have some thoughts!
It’s less risky than the yuan, which may nosedive if communism exits the scene. Which it might.
I came here looking for more information on Mises, because it seems his ideas might be helpful here. I’m seeing anti-keynesian aplenty, but nothing about real solutions.
I think we’re missing a bit of perspective here. Nearly every major government in the world is behaving as recklessly as we are and, as a result, the Chinese don’t have anywhere else to put their money.
Needless to say, I think that Peter Schiff’s advice to invest in overseas assets is incorrect. Foreign-denominated assets could decline as fast, or even faster, than US-denominated assets.
Your best bet is to do what you always do in times of inflation: buy income-producing assets that are linked to inflation. The best example is rental property.
Investing in precious metals is a luxury for the well-to-do. If that’s you, by all means speculate to your heart’s content.
For the common man, the best defense against inflation and the accompanying economic evils is to own your home and invest in rental property.
In every country I know of that has experienced hyperinflation, the common denominator among ordinary people who prospered was that they owned their home and other real estate. Housing costs are the largest component of your budget, and if they are fixed (a fixed rate mortgage…) or non-existent, you are way ahead of your renting or variable rate mortgaged neighbors.
Real estate has hit a bubble lately, but the underlying value of real estate as an investment always remains. Commodities wax and wane, stocks can lose their value as corporations fail, and all kinds of businesses come and go. But with few exceptions, land and improvements are always worth something and hold their value in all economic conditions–provided you made a wise purchase and are not over-leveraged and lose your shirt.
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Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?†he asked. “Gold?
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This guy must be kidding.
“Except for US Treasuries, what can you hold?†he asked. “Gold?”
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wink, wink…hint, hint…
asian subtlety is not what it used to be….3000 years of diplomacy and cunning for this…
To David Spellman:
Owning precious metals used to be a luxury for the well-to-do, just like stocks.
Nowadays, I can type “buy gold” or “buy silver” into my browser search bar, and find a plethora of options. Plus, I can search on the reputations of the companies and people in question.
Isn’t technology grand?
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