Asian Decoupling is here and I told you So

[Vulcanl]

Parrot22,

That is a fascinating story (about China buying USTs indirectly) - Thanks for posting that. 

This bit in particular makes absolutely no sense whatsoever to me:

"..."To hide the unavoidable extent of China's exposure to low-yield American bonds and try to avoid domestic flak, SAFE is routing money through third countries," he said..."

When one sees stuff like this, one needs to assess it logically - what does China have to gain by trying to hide its ownership?  Do you REALLY think the Chinese government is particularly concerned about 'domestic flak'?  I doubt it

Is this some kind of 'shot across the bow' to the US?  That doesn't make sense either, does it?  China has WAY more to lose than the US does right now.  I don't think they would risk such outright antagonization.

Was this story planted by the US (or other interested parties) to explain the sudden drop in Chinese UST holdings?!?!?

It really could either way, couldn't it?

For me, China cutting its loses and diversifying its reserves is the most logical explanation.

And that black hole of data I mention earlier - well, looks like we just found a new one! 

Brilliant stuff.

[Parrot22]

choose to look at at it anyway you want..but bottom line is the TIC data will report a treasury bought in U.K as a holding in U.K..Not China..and if you don't think there is political infighting going on in China your being naive..just think of the article about a week ago when the Chinese Military was advocating dumping some Treasuries to show the U.S. a lesson over the weapons sales to Taiwan..and trust me I am not an amateur..I know what the flows are..thats why I get a little riled up when I see these incorrect articles being circulated

[Parrot22]

and for these ignorant legislators saying this is a national security concern when they where in a panic last week that china was selling is the biggest joke of all..just don't take every article you read as Bible..peace

[Parrot22]

P.S..that article was from a French website France24..

[Vulcanl]

Well well well...look at what happened AGAIN in January

March 16 (Bloomberg) -- China and Japan, the two biggest foreign holders of Treasuries, reduced their positions of U.S. government debt in January as a measure of demand for American financial assets fell to a six-month low.

China remained the biggest owner abroad of Treasuries, even as its holdings dropped by a net $5.8 billion to $889 billion, according to Treasury Department data released yesterday in Washington. Japan cut its holdings in January by $300 million to $765.4 billion, the report showed.

China has been a net seller of Treasuries for three straight months, the longest such stretch since the end of 2007. Chinese officials have questioned the dollar’s role as a reserve currency and recently sought assurances about the safety of U.S. government debt as the budget deficit widens to a projected record $1.6 trillion this year.

“Foreign central banks stopped buying Treasuries in January,” said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York. “If this were to continue, if China were to stop recycling its dollars into U.S. Treasuries, it could have dire implications for Main Street America in that mortgage rates could move higher.”

International buying of long-term equities, notes and bonds totaled a net $19.1 billion, compared with net purchases of $63.3 billion in December, the report showed. That was the smallest net gain in purchases since July.

Weaker Than Expected

Economists in a Bloomberg News survey projected long-term U.S. financial assets would show a net increase of $47.5 billion in January, according to the median of four estimates.

The selling by China and Japan may be temporary, as the world’s largest economy rebounds from a recession and as concern lingers about government debt of European Union countries such as Greece, economists said.

“In the short haul, there is no need for alarm as portfolio changes often occur at the start of the year,” Rupkey said. “The U.S. will continue to see renewed inflow later this year as its economy remains a relative oasis of calm now that other sovereign credits are experiencing troubles with debt loads.”

Including short-term securities such as stock swaps, total investment flows show foreigners sold a net $33.4 billion after net buying of $53.6 billion the previous month.

Chinese Premier Wen Jiabao this week sought assurances that the U.S. will protect the value of China’s dollar assets.

At a press conference in Beijing marking the end of China’s annual parliamentary meetings two days ago, Wen said dollar volatility is a “big” concern and “I’m still worried” about China’s U.S. currency holdings.

‘Concrete Steps’

Wen urged U.S. officials to “take concrete steps to reassure investors” about the safety of dollar assets, repeating concerns that he expressed a year ago, sparked by a growing U.S. fiscal deficit.

China’s share of U.S. bills, notes and bonds in January amounted to 24 percent of the total $3.7 trillion in Treasuries owned by investors abroad, up from 19 percent three years ago, according to Treasury data.

Win Thin, a senior currency strategist at Brown Brothers Harriman & Co. in New York, said China is selling bills it bought during the financial crisis of 2008 and 2009 and buying longer-term notes and bonds.

“China, as well as many other countries, loaded up on the short end during the crisis,” Thin said in an e-mail. “Now that the crisis has eased, these holders are simply letting these short-end holdings mature and then extending out the curve, rather than rolling it back into the short end again.”

Russia’s Exposure

Russia’s Treasury holdings in January fell by a net $17.6 billion to $124.2 billion, the lowest level in a year, the report showed.

The Treasury’s reporting on long-term securities captures international purchases of government notes and bonds, stocks, corporate debt and securities issued by U.S. agencies such as Fannie Mae and Freddie Mac, which buy home mortgages.

Total foreign purchases of Treasury notes and bonds were $61.4 billion in January compared with purchases of $69.9 billion in December.

Foreign demand for U.S. agency debt from companies such as Fannie Mae and Freddie Mac showed net selling of $5 billion in January, the first drop in three months.

Net foreign purchases of equities were $4.3 billion in January after net buying of $20.1 billion in December. Investors sold a net $24.6 billion in U.S. corporate debt in January, the eighth straight month of selling.

The Standard & Poor’s 500 Index in January dropped 3.7 percent, the biggest monthly fall since February 2009. The Dollar Index, a gauge of its strength against six other major currencies, rose 2.1 percent in January. U.S. Treasuries gained 1.58 percent in January, according to an index compiled by Bank of America Corp.’s Merrill Lynch unit.

Last Updated: March 15, 2010 19:22 EDT

[Real story]

*TOTAL FOREIGN PURCHASES OF TREASURIES WERE $61.4 BLN IN JAN. EX BILLS
* C/Bs sold 25.8 bn bills, bought $600 mn coupons
* UK big buyer, 27.9 bn Treasuries
-- caribbean bought $15.3 bn
--  oil exporters bought 11 bn
-- Russia sold 17.6 bn, Luxembourg sold 9.3 bn.
*TOTAL FOREIGN SELLING OF U.S. AGENCY DEBT WAS $5 BLN IN JANUAR
* SELLING OF U.S. CORPORATE DEBT WAS NET $24.6 BLN
-- JAPAN sold 4 bn Treasuries ex bills
-- CHINA bought 7 bn Treasuries ex bills
-- UK bought 7.7 bn Treasuries ex bills, Swiss bought 5 bn
-- Bahamas bought 5.4 bn Treasuries ex bills, Cayman Islands sold 5.7 bn
** Another massive month for foreign buying in Treasuries, but the trick is to
look at these ex bills (i.e. china bought coupons, let bills mature).  Some of
this came at the expense of agencies and corps which had net selling

[Vulcanl]

Less than 18 months after the GFC of 2008 and Asian Decoupling is now the mainstream working assumption:

Yuan Poised to Become Reserve Currency, Goldman’s O’Neill Says
2010-03-19 00:00:01.4 GMT


By Keith Jenkins
     March 19 (Bloomberg) -- China’s yuan is destined to become a global reserve currency rivaling the dollar and the euro, as the nation’s economic power increases the currency’s allure, said Jim O’Neill, chief economist at Goldman Sachs Group Inc.
     The Chinese government will “eventually” allow the yuan, or renminbi, to trade freely on foreign-exchange markets, dropping the system under which it controls its value, O’Neill wrote in an essay that formed part of a report published today for Chatham House, a London-based foreign affairs research organization.
     “As China moves in this direction, other large emerging economies will presumably gradually move in the same direction and the end result will be something approximating to today’s Western monetary system,” London-based O’Neill wrote. “Under such a system, the renminbi, dollar and euro would all form the linchpin of the world’s currency markets.”
     China is likely to overtake Japan as the world’s second- largest economy this year, said O’Neill, who coined the term BRICs to describe Brazil, Russia, India and China in 2001. In the next decade, along with other large emerging, the size of China’s economy will approach that of the U.S., he wrote.
     The Chatham House report, which included a contribution from DeAnne Julius, a former member of the Bank of England’s Monetary Policy Committee, was titled “Beyond the Dollar:
Rethinking the International Monetary System.” Among its recommendations are a multicurrency reserve system and increased use of Special Drawing Rights as a supranational currency. SDRs are a unit of account, based on a basket of currencies, used in International Monetary Fund transactions.
     “The dollar-based monetary system is no longer adequate for a larger and more integrated world economy,” it said.
“Prominent developing economies are increasingly demanding to be included in any multilateral dialogue that aims to shape the new economic order.”

[$Pripps]

maybe if you keep on writing in this thread for another 20 - 30 years decoupling may become true, but then we all knew that.

[Vulcanl]

More useless bumf from you, $Pripps...I wonder when you will actually contribute to the proceedings?? 

[$Pripps]

More useless bumf from you, $Pripps...I wonder when you will actually contribute to the proceedings??  

Funny, I was thinking the same about you V. When will you finally let this fairy tale thread finally die?

[crapola]

Asian decoupling is a truck load of crapola. Anyone who believes in it is delusional at best.

I wonder when this thread full of $#^& will ever die.

[Vulcanl]

"...Asian decoupling is a truck load of crapola. Anyone who believes in it is delusional at best..."

Thanks Archie.  Must be quite a pleasant alternate Universe you live in  !

"...I wonder when this thread full of $#^& will ever die..."

The thread will at some point, but the reality of this new World we live in will not.   Although I would not have thought this almost a year and a half ago (when I started this thread), it is now abundantly clear that not only has Asia decoupled, but the economic, geopolitical (and eventually military) center of power in the World is shifting from the West back to the East (which was actually the situation thousands of years ago, before even the Roman Empire).

You can go ahead and live in dreamland if makes you feel better.  The World I live in has changed substantially in a scant 15 years or so.  I do not get upset about it.  It is best to just go with the flow!

[Vulcanl]

Archie,

This one is for you.  The IMF has traditionally been a lender of last resort to the developing World.  They are now giving the Western developed countries advice.  I doubt that our Governments will heed it. 

They will instead attempt to inflate our debt away by printing money and purchasing their own debt.  This is shell game that WILL end very badly.

New York Times
March 21, 2010

I.M.F. Warns Wealthiest Nations About Their Debt
By SEWELL CHAN

The global economic crisis has left “deep scars” in the fiscal balances of the world’s advanced economies, which should begin to rein in spending next year as the recovery continues, the No. 2 official at the International Monetary Fund said Sunday.

In a speech at the China Development Forum in Beijing, John Lipsky, the deputy managing director of the I.M.F., offered a grim prognosis for the world’s wealthiest nations, which find themselves at a level of indebtedness not seen since the aftermath of World War II.

For the United States, “a higher public savings rate will be required to ensure long-term fiscal sustainability,” Mr. Lipsky said.

Mr. Lipsky said the average ratio of debt to gross domestic product in advanced economies is expected this year to reach the level prevailing in 1950. Even assuming that fiscal stimulus programs are withdrawn in the next few years, that ratio is projected to rise to 110 percent by the end of 2014, from 75 percent at the end of 2007.

Indeed, the ratio is expected to be close to or exceed 100 percent for all Group of 7 countries, except Canada and Germany, by 2014.

“Addressing this fiscal challenge is a key near-term priority, as concerns about fiscal sustainability could undermine confidence in the economic recovery,” Mr. Lipsky said.

Nations with particularly high debt and deficits have already experienced higher borrowing costs, and in the medium term, large public debts could slow growth.

Maintaining public debt at post-crisis levels could reduce potential growth in advanced economies by as much as half a percentage point annually compared with projections before the crisis, he said.

To bring debt ratios back to the pre-crisis average of 60 percent by 2030, Mr. Lipsky said, would require an 8 percentage point swing — from a structural deficit of about 4 percent of G.D.P. in 2010 to a surplus of about 4 percent of G.D.P. in 2020.

The I.M.F. estimates that the discretionary stimulus spending accounts for just 1.5 percent of G.D.P. Mr. Lipsky said advanced economies will have to take other steps, like changes in pensions and health care programs, other cutbacks in spending and higher tax revenues.

While it makes sense for the world’s largest economies to continue stimulus spending through the end of this year, “fiscal consolidation should begin in 2011, if the recovery occurs at the projected pace,” Mr. Lipsky said.

Mr. Lipsky also said that a “global rebalancing of savings patterns” will be needed to sustain the recovery.

The United States and the European Union have become increasingly concerned about China’s accumulation of an estimated $2.5 trillion in foreign reserves, the result of a massive current account surplus with the rest of the world, as well as actions to hold down the value of China’s currency. Many economists say that China will eventually need to develop its domestic markets and wean its economy away from a dependence on exports.

Mr. Lipsky said that China was taking appropriate steps to shift public spending away from physical infrastructure and toward improvements in education, health and social security programs “that will increase productivity and also directly support consumption by lessening the perceived need for precautionary savings.”

A sustained increase of 1 percent of G.D.P. on health, education and pensions could result in a permanent increase in household consumption of more than 1 percent of G.D.P., Mr. Lipsky said, adding that China should consider boosting household income by shifting the tax burden away from earnings and toward property and capital gains taxes.

Fiscal policy is expected to be a top item on the agenda when leaders of the Group of 20 nations meet for a summit in Toronto in June.

Mr. Lipsky warned governments not to try to inflate their way out of their debts. “A moderate increase in inflation would have only a limited impact on real debt burdens, while accelerating inflation would impose major economic costs and create significant risks to a sustained expansion,” he said.

[$Pripps]

V, its odd that if one looks at the title of this thread and read your postings they are not really the same.

A decoupled Asia is just not possible as has been explained to you many times by people more well-versed in economy than me - see "your" own thread - instead you keep on posting messages about how Asia is becoming stronger and more independent but this isn't the same as decoupling. All countries are becoming increasingly financially coupled due to economic globalization and there is nothing that will change that.

Copy/pasting random articles from net doesn't make your point stronger it just makes you look like some raving mad man..

[I love Vulcan]

This is exactly what he is..... a raving mad man, but very entertaining!!!