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China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings
Zero Hedge ^ | April 24, 2011 | Staff

Posted on 04/24/2011 9:42:07 AM PDT by library user

All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait.

Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be.

Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so.

And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?

From Xinhua:

China's foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.

Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.

And as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:

China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high.

Tang's remarks echoed the stance of Zhou Xiaochuan, governor of China's central bank, who said on Monday that China's foreign exchange reserves "exceed our reasonable requirement" and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.

Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.

However, these strategies can only treat the symptoms but not the root cause, he said, noting that the key is to reform the mechanism of how the reserves are generated and managed.

The last sentence says it all. While China is certainly tired of recycling US Dollars, it still has no viable alternative, especially as long as its own currency is relegated to the C-grade of not even SDR-backing currencies. But that will all change very soon. Once the push for broad Chinese currency acceptance is in play, the CNY and the USD will be unpegged, promptly followed by China dumping the bulk of its USD exposure, and also sending the world a message that US debt is no longer a viable investment opportunity. In fact, we are confident that the reval is a likely a key preceding step to any strategic decision vis-a-vis US FX exposure (read bond purchasing/selling intentions). As such, all those Americans pushing China to revalue, may want to consider that such an action could well guarantee hyperinflation, once the Fed is stuck as being the only buyer of US debt.


TOPICS: Breaking News; Business/Economy; Foreign Affairs; Front Page News
KEYWORDS: china; cwii; obamaconomy
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Well, I was optimistic about Paul Ryan's plan, but now I'm starting to think that we're in for such a mess, it doesn't really matter.
1 posted on 04/24/2011 9:42:09 AM PDT by library user
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To: library user

http://www.youtube.com/watch?v=2N8gJSMoOJc


2 posted on 04/24/2011 9:44:51 AM PDT by djf (Dems and liberals: Let's redefine "marriage". We already redefined "natural born citizen".)
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To: library user
...urgently diversified...

That ain't good...

3 posted on 04/24/2011 9:45:55 AM PDT by moovova (Obama...a president who cannot decide if today is Tuesday or Wednesday...)
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To: library user

Going more into debt and growing Gov’t isn’t going to fix the problem.


4 posted on 04/24/2011 9:46:45 AM PDT by Palter (If voting made any difference they wouldn't let us do it. ~ Mark Twain)
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To: library user

I am starting think think that I wish the disaster would happen NOW while these libtards can take full responsibility, and we can reset the entire systems

Cut the government IN HALF

Not one hundredth of one percent


5 posted on 04/24/2011 9:47:02 AM PDT by Mr. K (this administration is WEARING OUT MY CAPSLOCK KEY~!! [Palin/Bachman 2012])
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To: library user

Unfortunately, it may be the only way ignorant voters in this country can learn a lesson. Equally unfortunate is the fact that we will ALL have to pay for that gross lack of wisdom.

Fortunately, those who trust in God will not be disappointed.


6 posted on 04/24/2011 9:47:55 AM PDT by SumProVita (Cogito, ergo...Sum Pro Vita. (Modified Decartes))
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To: library user

Too little, too late. It would never fly anyway. Maybe later - 6 to 12 months later - when it matters even less.


7 posted on 04/24/2011 9:49:20 AM PDT by Errant
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To: Mr. K
I am starting think think that I wish the disaster would happen NOW

I've been preparing for that since obama was elected.

8 posted on 04/24/2011 9:51:02 AM PDT by matt1234 (Union rank-and-file are now dem brownshirt rank-and-file.)
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To: library user

I’m with you. When China slowed down the acquisition of US Treasuries, the Fed had to become the buyer of last resort (enter QE1, QE2, QE lite, QE to infinity). Bernanke can not monetize enough debt to make up for China’s divestment. The question is: Will China be willing to take a hit to unload them quickly? If they are willing to urgently dump several hundred billion $’s at 85% to 90% maturity value, we will be in for a hell of a ride down the rabbit hole.


9 posted on 04/24/2011 9:51:08 AM PDT by RobertClark (I carry a gun because I can't hurl a rock at 1263 fps.)
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To: library user
The Middle East The Rest of The Story - Lindsey Williams
10 posted on 04/24/2011 9:53:08 AM PDT by Errant
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To: library user

Use ‘em now if you got ‘em.

Their purchasing power is going to start going down more than it already has been.


11 posted on 04/24/2011 9:53:33 AM PDT by Secret Agent Man (I'd like to tell you, but then I'd have to kill you.)
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To: library user
Well, I was optimistic about Paul Ryan's plan, but now I'm starting to think that we're in for such a mess, it doesn't really matter.

I agree completely.

12 posted on 04/24/2011 9:54:56 AM PDT by neutrino (Globalization is the economic treason that dare not speak its name.(173))
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To: library user

If people aren’t well into self sustaining endeavors with the help of God it’s going to get really rough going for them. It’s spring! Get that garden in, get some back yard chickens if you can, and stock up on essentials. Learn to can the produce you grow by using a pressure cooker and dry what lends itself to that. Learn to be self sufficient and be prepared to guard what you have.


13 posted on 04/24/2011 9:55:42 AM PDT by CynicalBear
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To: Mr. K

“Cut the government IN HALF”

For starters. Equally important are excruciatingly strict term limits, and a remaking of the system such that a ‘career’ in politics becomes impossible.

We also need to stop making the academy and law school the farm system for politicians. That leads to group think and a lack of creative ideas. Can anyone here honestly tell me that they don’t already know what an Ivy educated politician is going to say before they say it? It’s that kind of narrow world view that leads to stagnation.


14 posted on 04/24/2011 9:55:42 AM PDT by pieceofthepuzzle
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To: moovova
Chinese aren't stupid. If they want to do this they will do it in a way not to crash the dollar. They are tied to us as their biggest trading customer. You don't impoverish your biggest customer especially when your own economy is straining to hold its own in the face of rising commodity prices.
15 posted on 04/24/2011 9:55:48 AM PDT by hinckley buzzard
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To: library user
What we need to do is Strategically Default on all Foreign Owned Treasuries and let the Chinese pound sand on that.
They probably need to toilet paper anyway.
16 posted on 04/24/2011 9:57:49 AM PDT by Captain Peter Blood (.)
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To: library user

Looks like Bennie and the Feds picked a bad week to end QE2.


17 posted on 04/24/2011 9:58:04 AM PDT by Rockitz (This isn't rocket science- follow the money and you'll find truth.)
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To: library user

If China does this, it will cause the dollar value to fall, making the price of their products higher. Coupled with high energy prices and therefore high costs for container transport, it could trigger a lot of job creation here or elsewhere, and China exports to the US will take a big hit.


18 posted on 04/24/2011 9:58:28 AM PDT by microgood
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To: CynicalBear
If people aren’t well into self sustaining endeavors with the help of God it’s going to get really rough going for them. It’s spring! Get that garden in, get some back yard chickens if you can, and stock up on essentials. Learn to can the produce you grow by using a pressure cooker and dry what lends itself to that. Learn to be self sufficient and be prepared to guard what you have.

That sounds like an awful lot of work. Can't I just use my food stamps?

19 posted on 04/24/2011 9:59:31 AM PDT by gunsequalfreedom (Conservative is not a label of convenience. It is a guide to your actions.)
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To: library user




Rand Paul’s Balanced Budget Plan
20 posted on 04/24/2011 10:01:15 AM PDT by Minus_The_Bear
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