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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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To: library user

Hmmm, wonder how this would effect the markets tomorrow? If I were China’s top money man, I would definitely start ridding my country of US dollars as quick as possible. obamma and his RAT thugs are taking this country down into a sewer hole very fast. Hyperinflation is coming!


21 posted on 04/24/2011 10:02:11 AM PDT by rawhide
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To: library user

if anyone thinks (no posts this thread yet) the Chinese would hurt themselves by selling treasuries and hurting market value the vast issuance has been short term paper,bills and notes as opposed to bonds. They can dump the longer end and simply let the shorter paper mature which would be a pretty painless way for them to lower exposure.


22 posted on 04/24/2011 10:02:33 AM PDT by wiggen (The teacher card. When the racism card just won't work.)
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To: library user

Blame Obongo & Democrats suicidal debts and spending and Federal Reserves Quantitative Easing programs. These are so in your face to the ChiComs that we are trashing the US dollars they are holding. They know we have been playing them for suckers and they want out. They can easily dump US dollars and buy-—>>

gold
silver
copper
Canadian dollar bonds
Australian dollar bonds
Oil companies around the world
Natural resources companies around the world


23 posted on 04/24/2011 10:02:33 AM PDT by dennisw (nzt - "works better if you're already smart")
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To: library user

This would bring down the current administration which has no intent of reducing spending. The one mitigating factor normally would be other nations stepping in to buy higher yielding treasuries. I’m not sure who’s left out there to buy our paper.


24 posted on 04/24/2011 10:06:12 AM PDT by wiggen (The teacher card. When the racism card just won't work.)
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To: gunsequalfreedom
>> That sounds like an awful lot of work. Can't I just use my food stamps?<<

Sure! They will be worth exactly what a dollar will be.

25 posted on 04/24/2011 10:10:56 AM PDT by CynicalBear
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To: hinckley buzzard
"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."

It's not so much about something the Chinese do to us as it is what we are doing to ourselves. The Chinese are just facing the reality of a devaluing dollar. They can't stop it, but they can make the best possible choice concerning their existing dollar holdings. If they get it out of dollars and into tangible assets they can try to protect what they have. Not a bad strategy for anyone.

26 posted on 04/24/2011 10:13:09 AM PDT by mlo
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To: library user

Maybe this is the reason why all of those US Senators are on a trip to China for undisclosed reasons. An international begging trip.


27 posted on 04/24/2011 10:13:13 AM PDT by Sawdring
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To: CynicalBear

That’ll work great till people lose their homes...

No home = no yard = no garden.


28 posted on 04/24/2011 10:16:46 AM PDT by RockinRight (Maybe Trump's a stalking horse for Palin...)
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To: rawhide

Watch gold and oil prices tomorrow. That will tell you what the world is thinking.


29 posted on 04/24/2011 10:16:46 AM PDT by fhayek
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To: fhayek
Watch gold and oil prices tomorrow.

And Silver too. Never forget about Silver!

30 posted on 04/24/2011 10:18:50 AM PDT by library user (Just because you're homeless doesn't mean you're lazy.)
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To: Mr. K

and eliminate the illegal income tax!


31 posted on 04/24/2011 10:19:28 AM PDT by fabian (" And a new day will dawn for those who stand long, and the forests will echo with laughter")
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To: mlo

Selling Low and Buying High? This is awesome. Single-handedly destroying hundreds of billions of accumulated wealth that they’ll never see again.

All I know is that I’m still long on the USD. :D Dollar drops again, I can buy more USD.


32 posted on 04/24/2011 10:19:32 AM PDT by BenKenobi (Don't expect to build up the weak by pulling down the strong. - Silent Cal)
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To: dennisw

Yes, but now they take it in the shorts. Massively.

They are getting whipsawed, with few to any chances of recouping that money because they are buying into stuff that’s already high.

What happens with the long term deflationary effects bite and commodity prices drop again?


33 posted on 04/24/2011 10:22:00 AM PDT by BenKenobi (Don't expect to build up the weak by pulling down the strong. - Silent Cal)
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To: library user
"It's time to fundamentally change the way that we do business in Washington. To help build a new foundation for the 21st century, we need to reform our government so that it is more efficient, more transparent, and more creative. That will demand new thinking and a new sense of responsibility for every dollar that is spent."

-Barack Hussein Obama

34 posted on 04/24/2011 10:22:00 AM PDT by Oldeconomybuyer (The problem with socialism is that you eventually run out of other people's money.)
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To: RobertClark

I suspect that China can unload a lot fairly quickly by simply not rolling them over as they come due. I don’t know this for a fact, but it seems logical that they are holding short term stuff.


35 posted on 04/24/2011 10:22:29 AM PDT by ChildOfThe60s ( If you can remember the 60s....you weren't really there)
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To: RockinRight
>> That’ll work great till people lose their homes...<<

That’s why I sold my home and live in my motor coach and live on land paid for. People need to downsize if they can. This coming time is not going to be for the light hearted.

Vegetables can be grown with hydroponics also which I am doing on a small scale in case I need to know how. Very little space is needed.

36 posted on 04/24/2011 10:25:21 AM PDT by CynicalBear
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To: library user

So will we see 7500 on the Dow tomorrow?


37 posted on 04/24/2011 10:28:19 AM PDT by Shady (Our quest is to rebuild the United States of America as it was founded by the Founders!)
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To: RockinRight

“That’ll work great till people lose their homes...
No home = no yard = no garden.”

Which is already the case for the millions who live in apartments, or homes where raising chickens in the back yard is prohibited, or the back yard is the size of a postage stamp.


38 posted on 04/24/2011 10:28:31 AM PDT by Magic Fingers
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To: library user

Who would be on the buying end? That’s a lot of money.


39 posted on 04/24/2011 10:33:46 AM PDT by unique
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To: ChildOfThe60s
I suspect that China can unload a lot fairly quickly by simply not rolling them over as they come due. I don’t know this for a fact, but it seems logical that they are holding short term stuff.

Therein lies the problem. If they do not accept new debt in increasing amounts as payment for the maturing bonds, we have to 'pay the note'. Where in heaven's name are we going to get that much cash from? Printing it would collapse our currency into a Zimbabwe style hyperinflation.

40 posted on 04/24/2011 10:34:30 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

If I were China and Russia, I would be running from Dollars and Euros as fast as I could go.

Russia holds huge amounts of Euro debt, and 300 billion of US debt. They also have a large amount of dollars and euros in reserve that they want to discharge.

Brazil, India, Iran, Saudi Arabia, Venezuela, Syria, Bolivia, and other nations are also seeking to get rid of much of their dollar and euro holdings.


41 posted on 04/24/2011 10:34:49 AM PDT by Thunder90 (Fighting for truth and the American way... http://citizensfortruthandtheamericanway.blogspot.com/)
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To: Mr. K

Doesn`t matter.

It`s what the left wants, a crippled USA.

Either way they win, a crippled USA with no influence or a crippled USA with no influence and taken over by the Statist Totalitarian left.

It`s a win win.


42 posted on 04/24/2011 10:34:49 AM PDT by Para-Ord.45
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To: Mr. K
I am starting think think that I wish the disaster would happen NOW while these libtards can take full responsibility

Wishful thinking I'm afraid...the plan is to stall it off so the next administration has the disaster to deal with. Their plans seem to be working so far dispite the resistance....they just work around it.

43 posted on 04/24/2011 10:34:55 AM PDT by caww
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To: library user

Irresponsible leaders, China has been warning them all along.


44 posted on 04/24/2011 10:39:16 AM PDT by opentalk
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To: unique

I am on the buying end. Been selling whatever I could to get USD since the CDN hit par.

Still nothing to indicate I should stop buying. Quite the opposite.

The Dollar isn’t going to fall forever. Barry O leaves in 2012, what’s going to happen then? If it jumps back up to historical levels at around 0.8 CDN to the USD, I’ll make excellent money, selling my USD for CDN again. :)


45 posted on 04/24/2011 10:39:45 AM PDT by BenKenobi
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To: library user
Obama, you economic mental midget, your damn budget speech and campaign language is really screwing the pooch. Now, STFU and stay far away from the cameras and microphones.
46 posted on 04/24/2011 10:41:49 AM PDT by Chgogal (American Mugabe, get your arse out of my bank, my car, my doctor's office & my elec. utility.)
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To: Sawdring

If it is they just got the biggest slap in history...


47 posted on 04/24/2011 10:42:36 AM PDT by Shady (Our quest is to rebuild the United States of America as it was founded by the Founders!)
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To: Thunder90

Euro, yes. USD, no. There’s simply too much cash floating around for both the EU and the USD to tank. CDN and AUS won’t be able to soak it all up.

Commodities? Sure, but there’s actually decline on the demand pressure. This has me really nervous. Sure people are stocking up, but there comes a point when everyone who is stocked up has enough and they don’t need anymore.

Sure China can spike commodities prices, but that will hurt them more than anybody else because they are the largest consumer outside the US. If they dump all their holdings in USD, the Chinese consumer is going to break.


48 posted on 04/24/2011 10:43:05 AM PDT by BenKenobi
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To: opentalk

Our ‘leaders’ know exactly what they are doing and the result is exactly what they way. The Chinese aren’t some super intelligent people, they are like everyone else. A corrupt govt comprised of mostly corrupt people who only care for themselves.


49 posted on 04/24/2011 10:43:20 AM PDT by driftdiver (I could eat it raw, but why do that when I have a fire.)
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To: BenKenobi

They aren’t destroying the dollar, they are reacting to its destruction. We are destroying it by pilling up trillions of dollars of debts that can’t possibly be paid, except by printing the necessary dollars.


50 posted on 04/24/2011 10:44:11 AM PDT by mlo
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