Thursday, February 12, 2009

The Debts of the Lenders: China Continues to Invest in World's Biggest Ponzi Scheme -Treasuries

A Chinese minister gave an unusually frank and honest assessment about the US and the state of the global economy yesterday. In comments published by the Financial Times, Luo Ping, director-general at the China Banking Regulatory Commission, said that China would continue to buy Treasuries. But that's not all he said.

"Except for US treasuries what can you hold? Gold? You don't hold Japanese government bonds or UK bonds. US treasuries are the safe haven. For everyone, including China, it is the only option."

Comment: See what I mean about watching the UK for signs of hyper inflation? In fact, if one is particularly adventurous, shorting gilts could be a good trade. Once the BOE cuts rates to 0% then there is not much they can do except buy their own debt back. The BOE and Exchequer can also play similar games to what Bernanke is doing w/control of the repo market. But such moves are illusory and also highly inflationary. Just look at gold's surge since early 2009.

"We hate you guys. Once you start issuing $1 trillion-$2 trillion we know the dollar is going to depreciate, so we hate you guys but there is nothing much we can do."

Comment: Jim Rogers is right. The USD continues to be the last man standing... but only because there is a lack of viable alternatives.

"There will be no bottom fishing of financial institutions, particularly in the US, because there is a lot of uncertainty about the quality of the books."

Comment: Well, there you have it. The Chinese have single handedly destroyed Wall Street's attempts to obfuscate things through a suspension of mark to market or "fair value" accounting as it is referred to in some circles. Banking chiefs and fixed income vultures must be disappointed that America's biggest foreign creditor remains reluctant to re-enter the private debt or equity markets.



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