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Asia Needs Deal to Prevent Panic Selling of U.S. Debt, Yu Says

Saturday, September 27, 2008, 3:21 PM

Uh oh.

File this one under "oops".

Quote:
Sept. 25 (Bloomberg) -- Japan, China and other holders of U.S. government debt must quickly reach an agreement to prevent panic sales leading to a global financial collapse, said Yu Yongding, a former adviser to the Chinese central bank.

"We are in the same boat, we must cooperate,'' Yu said in an interview in Beijing on Sept. 23. "If there's no selling in a panicked way, then China willingly can continue to provide our financial support by continuing to hold U.S. assets.''

An agreement is needed so that no nation rushes to sell, "causing a collapse."

Link (Bloomberg)

This is exactly why I have been counseling people to remove at least part of their assets from the banking system.  The first country to "cut 'n run"  is going to trigger a stampede that you will not find out about until valuable milliseconds have passed. That's a joke there.  Sort of.  What I mean is that the big players are all electronically linked into the trading floors in such a way that a "run" will be over well before it makes it onto the news.

This is why I offer an Alert service, because, for some reason, I watch the markets obsessively and believe that a quick response to a rapid decline in the dollar and spike in interest rates (which is how we'd experience what China is warning about) could really make a difference in preserving your wealth.

Frankly, I am a little surprised that China has stuck with the program this long.  Not helping anything is that, somehow, through it all, China feels the US is being high-handed, stingy, and not appropriately contrite.

Quote:
Yu said China is helping the U.S. "in a very big way'' and added that it should get something in return. The U.S. should avoid labeling it an unfair trader and a currency manipulator and not politicize other issues, he said.

"It is not fair that we are doing this in good faith and are prepared to bear serious consequences and you are still labeling China this and that, accusing China of this and that,'' he said. "China knows what to do. We don't need your intervention.''

And he goes on to warn that perhaps China's export-led growth model has run its course, which is another warning loosely translated as, "We were getting ready to sever our cord here anyway."

For China, these are remarkably blunt words.  Which is why I think they are being printed on a Saturday, even though the interview took place last Tuesday.

I am always suspicious when very important news like this is released at 1:45 a.m. on a Saturday morning after occurring last Tuesday.  Like a bright yellow and red banded insect, it says, "Look at me!  I'm dangerous!"

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17 Comments

joe2baba's picture
joe2baba
Status: Martenson Brigade Member (Offline)
Joined: Jun 17 2008
Posts: 807
oops indeed

holy shit chris i am not sleeping as it is.

i am naive but i have money in a bank owned by wal mart

exports over? wa mu is awfully close to wal mart.

damn it chris straighten these guys out.

does anyone know of a domestic suppplier of depends?

 

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
We lend you long time

"An agreement is needed so that no nation rushes to sell, causing a collapse." -- Yu Longdong

Hey, I've got an idea. Why don't we lend our Asian friends $700 billion to buy our bonds? Seller financing, as it were. Same way you move real estate these days.

Oh, wait -- we don't HAVE 700 billion dollars. And they are the only folks we could borrow it from.

Pat Buchanan expressed the problem in a nutshell:

"Thus America would be borrowing from China, Japan and the Middle East to tidy up the balance sheets of the banks of China, Japan and the Middle East."

http://www.lewrockwell.com/buchanan/buchanan98.html

If this sounds circular, IT IS! But so is the Bretton Woods II global exchange system, with its sovereign check-kiting protocols. And so is a dollar bill, which you can redeem only for ... another dollar bill just like it.

As the bumper sticker goes, "Visualize whirled peas." Yell

 

gsti's picture
gsti
Status: Bronze Member (Offline)
Joined: Jul 21 2008
Posts: 60
It's not really funny...

It's not really a joking matter., but it would be just great if the USA were the first country to drop the dollar ;)

Amero anyone?

miranda's picture
miranda
Status: Bronze Member (Offline)
Joined: Apr 29 2008
Posts: 28
interest rates rising

Do you think it's of any relevance that tax-free municipal money market account interest rates have jumped from barely 1% to 4.67% in the last week or so? Due, according to a UBS fact sheet, to "VRDO pricing dislocation." (see below)

Or is that just part of a primarily U.S. based credit crisis?

Wave of tenders trigger liquidity providers to step in: In normally functioning markets when bonds are tendered new buyers can be easily found. Until the recent credit crisis, few bonds had ever experienced remarketing failures and when they did liquidity providers were able to step in with minimal risk to their balance sheets. The current financial crisis has prompted a wave of investors to tender VRDOs creating tremendous pressure to the remarketing agent and in turn the liquidity providers that are called upon to support tenders. If a new buyer cannot be found, the trustee or tender agent will draw upon the liquidity provider. The provider must then take ownership of the securi-ties (known as ‘bank bonds”) which earn an interest rate contained in the individual issue’s offering documents. High volumes of liquidity draws can lead to drains on liquidity providers which need to be moni-tored.

On another topic, Chris - I can't stop thinking about the issues raised by your  "seamless power structure down in DC" post - a post of mine in response to  which you were so kind as to respond. I definitely know that I'm having a hard time letting go of my historical "hard-core free market republican = bad guys" "democrats = good guys"  biases. On the other hand, it feels crucial to correctly identify the enemy, otherwise the fight will be wasted. And, despite your convincing analysis, I'm still not don't have total clarity about who I'm fighting - besides the Wall Street gang. (Who have been winning for a long time, since most of us didn't understand their weapons...)

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Just call 'em "voodoos"

"The current financial crisis has prompted a wave of investors to tender VRDOs."

I don't even know what VRDOs are -- I'm guessing "Variable Rate Debt Obligations."

But just for convenience among ourselves, let's call 'em "voodoos."

LifeisGood's picture
LifeisGood
Status: Bronze Member (Offline)
Joined: Aug 16 2008
Posts: 27
Amero?

Chris, I'm sure you're aware of it but why aren't you ever talking about the Amero or the North American Union? Could it be that you're afraid it is too "hush hush" to discuss about yet?

Zeitgeist, the movie: http://video.google.com/videoplay?docid=5547481422995115331

Watch 1:39:00  through 1:50:00 for more info on the North American Union and be shocked to see/hear and read!

 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
Echoing Charles DeGaulle

In 1971 when the gold window was slammed, it was France under the leadership of Charles De Gaulle that was credited(?) with being the nation responsible for creating a run on the US gold supplies.

Here we are 37 years later and it looks like history might be rhyming.

[quote]"Laissez-faire is finished, the all-powerful market that is always right, that's finished," Sarkozy said in a widely anticipated speech, his first in France on the economic crisis.

As a result, it is "necessary to rebuild the entire global financial and monetary system from the bottom up, the way it was done at Bretton Woods after World War II," Sarkozy said.[/quote]

Link

I think he's right...this desperate move by the US to immediately restore what is obviously a broken system shows a profound lack of leadership and awareness.

And the US wants to do it without even the slightest trimming back on the x-mas tree baubles. Check out the most recent spending plan hammered out this weekend.

[quote] The spending plan, passed by a vote of 78 to 12, totals more than $630 billion. It includes nearly $23 billion in disaster aid for storm-ravaged parts of the country and also allows the expiration of a quarter-century-old ban on new oil drilling off the Atlantic and Pacific Coasts, handing Republicans a political victory. It also provides $25 billion in loan guarantees for the auto industry.[/quote]

Looks like DC wants one of everything and a pony too.  Not the slightest hint of spending cuts ... more, more , more.

EndGamePlayer's picture
EndGamePlayer
Status: Platinum Member (Offline)
Joined: Sep 2 2008
Posts: 546
Unbelievable Truth

Crying, sobbing and shaking. . . I don't know whether to run, hide or get a weapon.

The best video on the internet if you want the Real Truth. 

newbs1's picture
newbs1
Status: Member (Offline)
Joined: Sep 7 2008
Posts: 2
Banking Reform.. Now is the time.

 

This banking system was a scam from the word go... what do you think the American revolution was about?

This time we'll need world-wide banking reform... Good luck with that BTW.

BeyondFossilFuel.com's picture
BeyondFossilFuel.com
Status: Member (Offline)
Joined: Sep 18 2008
Posts: 3
then what?
If the US monetary system fails.. doesn't the world system fail?  Is this the reset button Chris? Or does the world just put more crap on top of crap and lull everyone to sleep again?
kiwidave's picture
kiwidave
Status: Bronze Member (Offline)
Joined: Sep 7 2008
Posts: 37
Foreign debt holders

Hi Chris, thanks for this timely  series. It surprises me that sovreign wealth funds haven't tried tying their loans (and therefore US dollar value) to a basket of commodities - oil, metals, wheat etc. I guess that may be one way they could be willing to extend further credit, possibly even renegotiating existing contracts on condition of further support. They must be rather nervous now. We have broadly similar issues in our country, so don't you Americans think your alone with this.

Cheers,

David, New Zealand

kiwixport's picture
kiwixport
Status: Member (Offline)
Joined: Jul 18 2008
Posts: 10
NZ Stuff

Hello David,

 

       Im a kiwi currently living in the UK (have been for the last 6yrs), Id love to talk to you off line or via this forum about risks facing the NZ economy etc as its hard to keep a finger on the pulse as it where. Namely Id be interested in how stable the NZ banking system is and what you expect property prices to do. Your thoughs would be much appreciated.

 

Cheers

 

Gary

PS If youd prefer to discuss this offline im on ([email protected])

machinehead's picture
machinehead
Status: Diamond Member (Offline)
Joined: Mar 18 2008
Posts: 1077
Urgent warning from Bush's valet

Bush's personal valet, John "Bonesman" Kerry, jacks the hyperbole to an apocalyptic level. From Bloomberg:

Voters "don't want a bailout of Wall Street and neither do we,'' Democratic Senator John Kerry of Massachusetts told reporters yesterday. "What we are talking about is not losing 3 million jobs in a matter of weeks'' and helping "small banks and small businesses literally keeping their doors open.'

Three million unemployed in a few weeks! OMG, who could bear to see that many lobbyists, fixers and flunkies thrown out on the street?

"Bonesman" Kerry says it would be the end of America. I say:

"SCHOOL'S OUT FOREVER. WAHHH-HOOOOOOOOOOOOOOOOOOOOO!!!!!!!!!" Cool

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5752
School's out...

The falacy buried in Kerry's logic is that somehow providing the "fix" will prevent the inevitable.

After all this talk about how the "free flow of credit" is vital to America it is somehow never asked "who's going to borrow it and for what?".

We are now at the beginning of the collapse of a credit bubble and people are going to be borrowing for basic living expenses, but that's about it.

Talk about 'pushing on a string'.

 

jdownie's picture
jdownie
Status: Bronze Member (Offline)
Joined: Apr 7 2008
Posts: 58
banking system

Hi Gary

If it helps any, the NZ banking system is probably about as stable as the Australian banking system, which is about as stable as the UK, US etc banking systems.

In the last week the RBA has swapped billions and billions of its (government credit) for all sorts of worthless paper. In other words the AUD (the liability of the RBA, and ultimately the government) is now backed by more worthless paper than ever before, in an attempt to prop up the financial system.

I fail to see how the Australian banking system could be considered sound, when it is obviously insolvent or nearly so. I expect the RBNZ has been inflating similarly.

kiwidave's picture
kiwidave
Status: Bronze Member (Offline)
Joined: Sep 7 2008
Posts: 37
NZ Situation

Hi Gary, happy to give you an outline of the Kiwi stuation as I see it, I'll email  you directly as we may get off topic.

Our banking system is exposed to declining property value risks and is largely composed of Aussie banks that may have become tangled up in this derivatives nonsense - they are denying significant exposure. Otherwise be looking at Kiwibank, a state owned enterprise or the likes of TSB . Government debt is OK at 20% GDP. Property values are holding up surprisingly well, around 10% fall thus far but sales volumes at a 25 year low so expect a sharp drop coming. We have had most of our second tier lenders (finance companies) go belly up this year (at great cost to retirees) mainly due to the stalled property market and consequent failed developments.

We have been on the dreaded credit fuelled spending spree so personal debt and balance of payments are far from healthy. Agriculture is experiencing a boom, God knows where we'd be without the cockies! I'm on the lookout for a few acres of quality land, not far from the small town I live in, good contacts and support.

Cheers,

David 

doggett's picture
doggett
Status: Member (Offline)
Joined: Jul 29 2008
Posts: 6
A little history

 

"This banking system was a scam from the word go... what do you think the American revolution was about?"

Not what you probably think. Have a look at this for a start;

http://www.counterpunch.org/hudson09232008.html

You then might like to dig around and find out what the Boston Tea Party was really about.

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