The Fed: Money For Nothing

[Victor Galis]

Son, what I'm demonstrating is an intuitive grasp of fundamental micro, macro and finance. A grasp which Vickie (and yourself) do not share. The fact that I have intelligence (in spades) to go with it is most certainly not in question, as will be attested to by any honest person with half a brain in their own head who has spent five minutes with me. As far as modesty goes, I've never felt the need for it any further than is required by intellectual honesty. Which, again, I have in spades. When I don't know something I'm proud to admit it. It's easy for me to do because unlike most people I don't spend my entire life knowing nothing.

No, you have shown a great deal of arrogance and dogmatism. You have a wonderful ability to build a great argument on untenable assumptions. Economics isn't physics, yet you can't seem to figure that out.

I tolerate it because I used to be much more like that. The reality is that neither of us are professional economists (yet), the difference is that I can accept that I am sometimes wrong, whereas you can't.

Become? I've always been a dick.

I think there was a huge difference when you also happened to be right.

[KrazyHorse]

You have a wonderful ability to build a great argument on untenable assumptions. Economics isn't physics, yet you can't seem to figure that out.

Massive fail, son. I have the wonderful ability to build an argument, period. All you have is the ability to spout a bunch of chicken little nonsense which is so outlandish as to defy imagination. You are fuzzy on basic concepts, but you want us to believe that you're somehow intuiting answers to complex questions. You constantly whine about over-reliance on models yet constantly fail to produce empirical evidence in their stead, instead posting random pieces of idle speculation from those who are no more informed or intelligent than yourself.

In short, you're a normal person. I don't blame you for it, but I do know how little of value you're likely to provide me with.

[KrazyHorse]

Other than the constant gift of humiliating you in public, of course.

I'm beginning to understand O'Brien in 1984.

[Victor Galis]

All you have is the ability to spout a bunch of chicken little nonsense which is so outlandish as to defy imagination.

You must not be very imaginative.

You are fuzzy on basic concepts, but you want us to believe that you're somehow intuiting answers to complex questions. You constantly whine about over-reliance on models yet constantly fail to produce empirical evidence in their stead, instead posting random pieces of idle speculation from those who are no more informed or intelligent than yourself.

This is an internet forum not a research paper, you can't honestly expect me to take the same amount of time or use the same amount of rigour. Still I prefer to be approximately right than precisely wrong. Also, I'm fairly certain that Paul Krugman and others I've linked are at least a bit smarter and more informed than myself.

[The Mad Monk]

So, anyway...

Beijing is caught in 'trap' over dollar

By Jamil Anderlini in Beijing

Published: May 25 2009 03:00 | Last updated: May 25 2009 03:00

China's official foreign exchange manager is still buying record amounts of US government bonds, despite Beijing's increasingly vocal fear of a dollar collapse, according to officials and analysts.

In recent months, senior Chinese officials, including Premier Wen Jiabao, have repeatedly signalled their concern that US policies could lead to a collapse in the dollar and global inflation.

But Chinese and western officials in Beijing say China is caught in a "dollar trap" and has little choice but to keep pouring the bulk of its growing reserves into the US Treasury, which remains the only market big enough and liquid enough to support its huge purchases.

In March alone, China's direct holdings of US Treasury securities rose by $23.7bn (£14.9bn) to reach a new record high of $768bn, according to preliminary US data, allowing China to retain its title as the biggest creditor of the US government.

"Because of the sheer size of its reserves Safe [China's State Administration of Foreign Exchange] will immediately disrupt any other market it tries to shift into in a big way and could also collapse the value of its existing reserves if it sold too many dollars," said a western official, who spoke on condition of anonymity.

The composition of China's reserves is a state secret but dollar assets are estimated to comprise as much as 70 per cent of the $1,953bn total. China owns nearly a quarter of the US debt held by foreigners, according to US Treasury data.

The collapse of Fannie Mae and Freddie Mac, the US mortgage financiers, last summer prompted Safe to adjust its strategy and buy far more short-term US government securities, instead of longer-maturity bonds and notes.

But Safe has not fundamentally changed its strategy of allocating the bulk of its burgeoning foreign exchange reserves to US Treasury securities, a western adviser familiar with Safe thinking told the Financial Times.

He said Safe traders were "very negative" on sterling because of expectations of renewed weakness of the UK currency, but Safe was neutral on the euro and bullish on the Australian dollar.

The pound ended last week at its strongest since December, shrugging off a warning over the UK's soaring public debt from ratings agency Standard & Poor's.

The US dollar fell to its lowest level of the year against major currencies last week. Treasury yields spiked to six-month highs as investors focused on the willingness of creditors to fund a deficit that was expected to be about 13 per cent of GDP this year.

China's buying of US debt helps Washington fund its soaring deficit and there is no indication that Beijing will shy away from purchases, the Obama administration's budget chief said last week.

Chill wind, Page 17

http://www.ft.com/cms/s/0/cb2e1262-48c3-11de-8870-00144feabdc0.html?nclick_check=1

...the Chinese can't keep up, but they can't back out, either. It looks like they will follow us all the way down.

[Jon Miller]

Does anyone else hold such large foreign currency reserves?

JM

[The Mad Monk]

No, and that's part of the problem. They can't buy from anyone else without seriously screwing the other's economy, and we have nobody else that can take our debt.