China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

Zero Hedge ^ | April 24, 2011 | Staff

[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.

[CynicalBear]

>>You need 4-6 cubic yards at least for a years supply for two.<<

First of all we are in a 40 ft. coach with a freezer and plenty of storage. It’s the same body they use for the buses with the full storage area they have for luggage. Also, we stay pretty much in the South so we can grow vegetables almost year around. I go back to the farm in Iowa in the fall to butcher and freeze enough for the coming year as far as meat goes. I cure and smoke my own ham, bacon etc. We keep around 15 chickens so have all the eggs we can eat and hatch enough to grow enough chickens to eat. The coop for the chickens is built to be winched into the trailer when we move.

[LomanBill]

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

After 20+ years as a husband who's followed and supported an LCMS Lutheran School teacher through her educational ministry, I can verify that.

We've never gone without; and were never given more than we could be good stewards with, either.  Many times it's been like padding a kayak in a storm on the open ocean with huge waves crashing and burrying us under water -- and us wondering "well, I wonder what happens next?" -- where He always faithfuly brought us back to the surface; with each wave making us stronger and better able to endure the next.

God does provide to those who trust HIM.

But OTOH, those who trust primarily in their perch upon the rungs of a ladder in some man-made Religion...

Hos 12:7-9
7 The merchant uses dishonest scales;
he loves to defraud.
8 Ephraim boasts,
"I am very rich; I have become wealthy.
With all my wealth they will not find in me
any iniquity or sin."

9 "I am the Lord your God,
[who brought you] out of Egypt;
I will make you live in tents again,
as in the days of your appointed feasts.
NIV

...not so much.  We have His Word on that.

[blam]

Deepening Economic Crisis: Inflation, Rising Interest Rates, Surge In The Price Of Gold And Silver

[indthkr]

chicom bump for later.......

[goodnesswins]

hhmmmm....

[TCH]

http://www.kitco.com/market/

Silver

Bid: $47.86
Ask: $47.91

[Magic Fingers]

“The story of The Three Little Pigs. The original, brutally honest version. The version told before our society was feminized with a bunch of fantasies.

It’s not a feel good story, but a cautionary tale about reality. Don’t plan ahead, don’t be smart, don’t work hard, don’t lay a lasting foundation for your life, and you get eaten when the time comes.

Many individuals will suffer and die. It seems inevitable by now. It’s unfortunate for those clueless or lazy individuals in a certain sense, but it will be a blessed purging for the sake of society, a society grown fetid and bloated with riffraff of boundless sloth and stupidity.”

So everyone who didn’t get a house with a yard suitable for farming and raising chickens is guilty of not working hard, not planning ahead, not being “smart”?

[TCH]

I’ll “accept poverty” only after we stand every last one of the bastards in D.C. up against a wall and ... Well, you get the point, I am sure.

[VanShuyten]

.Have garden started in basement under growing lights

Until the cops review your electric bill and decide you're growing pot.

[Joya]

Thanks L.U.

= = =
Ping to the usual freepers.

[Free Vulcan]

The other shoe has dropped.

[Quix]

THANKS THANKS.

[Free Vulcan]

bookmark

[Smokin' Joe]

If that happens, oil, coal, steel, mining, and transport will lead the way. We still have that, but for a while it will be tied up 'wishing for more wishes', building the things we need to build the things we will need. We will have to shift away from the environmentalist bit somewhat, although efficiency will still be important: our focus will have to be on getting things done, up and working.

Mining will be the hardest industry to replace, so many strategic materials have been imported for a long time, that many mines were shut down and reclaimed, stripped, and filled in. While there may be an effective way to solution mine those old workings, it will take time to implement something like that.

In addition, with the institution of new Wilderness Areas and National Monuments and buffer zones, a lot of Federaly owned land has been off limits to prospecting for new mineral wealth (or completely uneconomical to do so), and many of the skills to do so have been lost as those who did it have died off.

The other problem area will be in semiconductors, because China currently produces over 95% of the world's Rare Earth elements--something which was already going to be a problem with the electric vehicle market, but will adversely affect any growing manufacturing capability.

[caww]

Your life must be interesting to say the least. Nice to have so much under your own control, and time and places which you go. When did you start to begin all this?

[TenthAmendmentChampion]

I think you got a hat-tip at Gateway Pundit:

http://gatewaypundit.rightnetwork.com/2011/04/china-proposes-to-cut-two-thirds-of-usd-holdings/

[bIlluminati]

Think of a game of musical chairs. The music has just stopped, and the players are scrambling to find a seat. Many won’t.

Deflation is possible - look at home prices in the US and many other countries. But I think we will see currency deflation in AUS and CDN dollar, plus yuan and rouble, but gold/oil/food spikes in euros and USD. Yen and pound are currencies likely to hit trouble, as their debt is higher than eurodebt or US Treasury debt. Try to see what the smart bankers are doing. Pimco is dumping Treasuries, but TLT has been up ever since that was announced. Of course, Pimco can get even better prices, but so can the Chinese and Japanese, and why wouldn’t they?

[bIlluminati]

This government would sooner hit 1

5 percent inflation than default. I'm not worried about 15 percent inflation per year. I'm worried about 15 percent inflation per day.

[WhistlingPastTheGraveyard]

Silver is absolutely insane tonight. A top of $49.75, now back down to $48.71.

What a wild show: http://www.kitco.com/market/

[BenKenobi]

I’m betting on deflation. Birthrates all support it.