The one thing the US really exports to China
John Cassidy is right. The leading US export to China is high-quality housing debt.
The toxic waste generally went elsewhere – thought there are now hints that China (perhaps the state banks) may have bought a few triple AAA rated CDOs composed of the tranches of subprime-mortgage backed securities. We just don’t quite know much of this ended in China — or where the rest went. Elsewhere in Asia? Europe? US hedge funds? US money market funds?
But we do know that China provided – through its purchase of Agency bonds and other mortgage-backed securities – an awful lot of credit to American households over the past two years.
Consider the period from the end of June 2005 to the end of June 2006.
During that period, the US sold – according to the BEA — $48b of goods to China.
That total was dwarfed by the $83.5b of Agencies and $22.5b of long-term corporate bonds that China bought. “Corporate” debt includes mortgage-backed securities that do not have an Agency guarantee – and China is widely thought to have been a big buyer of these securities. Combine Chinese Agency and corporate bond purchases together, and it is not all together out of the question that China bought $100b of US housing debt between mid-2005 and mid-2006. Most of this was the still-good stuff, not subprime.
We know, for example, that China bought as many — $51.5b — of MBS backed securities with an Agency guarantee (Agency MBS, a subcategory of Agencies) as it bought US goods.
Over that period China also bought $87b worth of Treasuries.
And that was back when China wasn’t really adding to its reserves all that fast.
It is almost certainly buying a lot more US debt — and US housing debt — now.
After adjusting for valuation changes and counting the reserves I think China shifted to its banks to manage, China likely added $250b to its reserves between mid-2005 and mid-2006.I suspect China added more like $390b to its reserves (making a similar set of adjustments) between mid-2006 and mid-2007.
That likely translates into even larger purchases of US debt.
It though is impossible to get an accurate read on just how much US debt China has purchased. There is a bit of data – from the TIC. But regular readers know that I think the TIC fails to record all Chinese purchase.
From mid-2005 to mid-2006, the TIC data suggested that China bought about $40b of Treasuries and $34b of Agencies. The Treasury's survey data doubled that – and then some. The survey data also – for what it is worth – adjusted China’s purchases of corporate bonds down a bit. Overall though, the survey data added about $90b to China’s total purchases, basically doubling the total ($194 v $104b for mid-05 to mid-06; the increase was proportionally larger for mid-04 to mid-05).
All this means that, well, we really don’t know just how much US debt China has bought over the past year. The US data shows $30b of Treasuries, $62b of Agencies, $36b of Corporate debt and $4b of equities – but that total increase is small ($131b) relative to the increase in China’s foreign assets (estimated at $390b …)
Consider the following – formerly top-secret – chart. It shows Chinese purchases of various US bonds (and the “foreign bonds” China bought from US residents) relative to China’s estimated reserve growth (counting reserves shifted to huijin and the state banks) and the purchases required to keep China’s dollar holdings at around 70%. All data is presented as a rolling four quarter sum.
A few things stand out.
1. China is buying more US debt – as one would expect, based on the increase in its reserves.
2. There is a huge gap between recorded inflows in the TIC data and Chinese reserve growth from mid-2003 on.
3. The survey data tends to reduce the gap, and generally shows Chinese purchases that are close to what one would expect if China was buying enough US dollar-denominated bonds to keep the dollar share of its portfolio around 70%.
4. China has increased its purchases of Agencies and corporate bonds significantly over the past few quarters.
Indeed, if you just look at the TIC flows – Chinese purchases of Agencies ($62b) topped Chinese purchases of US goods ($60b) over the last four quarters, and combined purchases of corporate bonds (likely private “MBS”) and Agencies topped exports by a substantial margin.
I used a bit of alchemy to transform the available data into an estimate of what the next survey likely will show – I assumed it will show that China bought a lot more US debt, and I assumed that the shift toward agencies and corporate bonds in the TIC data will be replicated in the survey data. The last assumption is a bit debatable — the last survey revised Chinese holdings of Treasuries and Agencies up, but actually lowered the estimates of China's holdings of corporate bonds. However, the anecdotal evidence — along with Keith Bradsher's reporting — indicates that China was a bit more adventurous over the past year.
If this estimate is right, China will have bought about as many Treasury bonds ($60b) as US goods. It will have bought twice as many Agencies ($124b) as US goods. And it will have bought more corporate bonds ($72b), a category that includes MBS, than US goods.
Sum up its estimated agencies and MBS purchases, and it could easily have bought three times more US housing debt than US goods …
Total Chinese purchases of US debt are likely four times larger than total Chinese purchases of US goods. Is there any real doubt about how China currently influences the US economy?
In some deep sense, this whole system is nuts.
China is a poor country. It is buying this debt on terms that almost guarantee enormous financial losses for Chinese taxpayers simply from the RMB's appreciation against the dollar.
Plus, Chinese demand for safe assets – and the resulting low-yields on those assets – also helped to induce a lot of the excesses that are now clogging up the arteries of the US financial system.
At the same time, if China stopped buying — especially now, when the private market is clogged up — US financial markets would really seize up.
The US is in a position where it has no realistic alternative to ongoing financing from China — at least in the short-run. In the long-run, though, I continue to believe that the scale of China's dependence of the US to provide financial assets that will retain their value and the United States dependence on credit from China is unhealthy for both parties.
“China is a poor country. It is buying this debt on terms that almost guarantee enormous financial losses for Chinese taxpayers simply from the RMB’s appreciation against the dollar.”
Precisely. You nailed it Brad!
… and who cares or should care for the Chinese tax payers?
“…China is preparing to unleash trillions of dollars of investment in global assets… Allowing unlimited renminbi to leave the country - a not unappealing prospect for the $2,200bn idling in deposits - is the boldest step yet in the march towards capital account liberalisation…” http://www.ft.com/cms/s/1/bdfe7cda-4fc3-11dc-a6b0-0000779fd2ac.html
a fable.
- what happened to the man who sold brooklyn bridge ?
- nothing.
- what happened to the man who bought brooklyn bridge, on a one hundred per cent mortgage, no down payment, no questions asked ?
- nothing.
- when the two met by accident a month later, what excuse did the man who sold brooklyn bridge make to the man who bought brooklyn bridge ?
- none whatsoever. he took him out to lunch.
- so who paid the bill ?
- the details of the restaurant bill are complex, opaque, and somewhat hard to quantify, but later that afternoon three hedge funds collapsed in taiwan.
Isn’t this comparative advantage. China provides goods, the US provides financial assets. Some of the US financial assets are not what they seemed. Some of the Chinese toys are not what they seemed.
In the past few weeks the yuan broke its trend an weakened against the USD (although not much). Any idea why? The dollar strengthened against eg. the euro during the financial turmoil. Maybe the Chinese felt that the yuan became too strong against the euro, that is why they made the yuan depreciate against the USD. Europe has become China’s prime target, and maybe the EUR/CNY rate is more important for them now than the USD/CNY.
yea, is there a TIC equivalent for euros? i’m guessing euro reserve accumulation is starting to ramp up; like they could be shooting for a 50% reserve composition…
China Pays Steep Price as Textile Exports Boom - China has recently faced harsh criticism over the safety of its exports. But environmental activists and the Chinese government are increasingly pointing to the flip side of the problem: the role multinational companies play in China’s growing pollution by demanding ever-lower prices for Chinese products.
Labor Shortages: Myth and Reality - With higher pay, there are plenty of U.S. workers to fill jobs, some economists say.
What you describe is a symbiotic relationship of two large governments and their central banks that are divorced from economic reality and unconcerned about the long term well-being of their peoples.
As long as the Chinese central bank absorbs U.S. dollars for payment, and as long as the U.S. Government allows a trillion dollar U.S.trade deficit and a $300 billion government deficit to continue, the world economy will chug along. The Chinese government instead of using the surplus to either invest in domestic wellbeing of its people or support higher imported good for its people, takes paper assets. The place is going to the dogs, the air is totally polluted, but the Chinese feel richer because they have paper.
On the U.S. side, the U.S. Govt can engage in military imperialism and an endless war, without costing its own citizens a dime. War on the credit card, Social security on the credit card, and tax cuts for its 300,000 millionaires, also on the credit card.
Interested in your view as to how China’s size and concentration of purchases of low risk assets has affected risk premia for other assets over recent years. What’s the ‘transmission’ mechanism from China’s low risk concentration to the size of risk premia for the rest of the market? Was this a big factor in the credit markets seizing up?
“In the past few weeks the yuan broke its trend an weakened against the USD (although not much). Any idea why? ”
==========
The chinese A share market has just passed 5000 mark.
China doesn’t want to attract any more hot money inflows.
In the head of the nail, Brad!
It was well-known that USA, some Boeings apart, was exporting mostly debt and war.
The Chinese were financing the US debt and exporting cheap goods to make happy the overspendy US citizens.
“In Europe, contrary to what the mainstream financial media advocates these days, the ECB is not pumping huge amounts of liquidities in the Eurozone. It is injecting huge amounts of liquidities into the international banking system through major European banks all of which are global financial players. Those “Euros” are mostly transformed in US Dollars and channeled to the US which is the core of the current global liquidity problem. By doing so, it helps the US Federal Reserve as it allows it to do less liquidity injections (preventing a stronger panic in Wall Street where the key troubles are located); and on short term it allows the ECB to get rid of an internal political pressure regarding a ‘too strong Euro’ as it technically generates a short term EURUSD decrease.
But the economic outlook for the 2nd semester in the USA is worsening…”
If good quality corporate bonds, are working like this:
http://www.reuters.com/article/reutersEdge/idUSN2159937620070821
I’m afraid the chinese will have some collapses in Taiwan and something more. It seems they will come back with a revenge…
There is no euro TIC. too bad. The Eurozone BoP data doesn’t provide much detail on the composition of flows either.
i would be stunned though if China has gone from buying 75% $ at the margin on $250b (06) (more like $350b if you count debt purchased by state banks) (with 75% at the margin needed to keep the $ share of china’s reserves in the 70-75% range, and with some of its purchases the $ denominated debt of emerging economies) to only buying 50% % at the margin on $500b in reserve growth in 07. in $ terms, China would go from buying $75-87.5b of euros to buying $250b of euros. that would be a huge swing. Combine that with Russia’s ramped up purchases of euros and well, you are talking huge inflows into europe (which, remember, doesn’t have a current account deficit)
bsetser writes:
Is there any real doubt about how China currently influences the US economy?
In some deep sense, this whole system is nuts.
China is a poor country. It is buying this debt on terms that almost guarantee enormous financial losses for Chinese taxpayers simply from the RMB’s appreciation against the dollar.
—–
Here is an exercise. Calculate the financial losses to China from its current policies. Now calculate the amount of influence that China gains over the US economy.
The system looks a lot less nutty once you run those numbers…..
If you are poor, the way you stop being poor is to have influence over rich people……
Guest: The Chinese government instead of using the surplus to either invest in domestic wellbeing of its people or support higher imported good for its people, takes paper assets. The place is going to the dogs, the air is totally polluted, but the Chinese feel richer because they have paper.
It’s not either or. The amount the China has to pay the US and still have enough left over for in order to get a decent health and education system and environment protection (roughly $100 billion/year). The big danger that China has always faced is that the US will undertake policies that run against Chinese interests (for example support for Taiwan independence or trying to destabilize the Chinese government in the way that it has tried to do with Cuba and Iran). Several hundred billion in low interest loans do a lot to prevent the US from massively increasing the Seventh Fleet.
How much is the total bill to China. I’m guessing $600 billion. That’s a bargain.
OK, Twofish. You are totally right.
But do you think that I mind (as an ordinary citizen) who is governing me?
I only mind how they are governing me?
I don’t mind to be governed by an citizen from any country, as far as his/her policy is fair and democratic.
The plutocrats have a long way to fight against them, but I want an equalitarian society, not a war in the 0,1% of the top.
The only good thing this crisis will bring is the defenestrations of some plutocrats from the system.
Less gives you an stone!
Maybe, your dream is to get the power now, and not wait 10-20 years to Chinese hegemony…
Don’t rush anyway, the road is getting hard…
re: “into europe (which, remember, doesn’t have a current account deficit)” - as they ask, in no uncertain terms, would you like to run one?
Envy?
Brad,
You often assert that China will lose money on its US investments. I would say that it depends on their investment horizon. China may well make a mark-to-market loss in the short term if the dollar depreciates, but I dare say that uncovered interest parity will roughly hold in the long run. Because the market demands a greater return following a depreciation, if China holds its US investments for the long term, rolling debt over at these higher yields will probably make up for the near-term depreciation. For example, despite the fact that sterling lost its status as the main reserve currency and depreciated after WWI, the return to sticking with sterling throughout this process has been greater than it would have been in US dollars.
hmmm…
“The leading US export to China is high-quality housing debt.
…
China (perhaps the state banks) may have bought a few triple AAA rated CDOs composed of the tranches of subprime-mortgage backed securities. We just don’t quite know much of this ended in China
…”
Perhaps the uncertainty is the biggest problem? Uncertainty will in the end lead to nothing but lack of trust which will work against U.S. interests.
And who knows, maybe the Chinese have been losing their trust for some time now:
“China, meanwhile, was a net seller of U.S. Treasuries for a third straight month. In June, China pared its U.S. Treasury holdings to $405.1 billion.”
http://money.cnn.com/2007/08/15/news/economy/bc.usa.economy.inflows.reut/index.htm
As to China being a “poor country”, it depends on what you mean. Check out these numbers on car sales in China during 2006:
BMW sold 36,357 vehicles
Ford sold 166,722 vehicles
Volkswagen sold 711,298 vehicles
General Motors sold 876,747 vehicles
Source:
http://www.drive.com.au/Editorial/ArticleDetail.aspx?ArticleID=22606&vf=1
Now that I don’t deserve any answer from Twofish (he’s probably in bed or busy in the computer),
A little interesting link, about Martin Wolf (even Rouibini wanted him in the top of IFM, after Rato’s noisy end).
Title: Financial crash: blaming the victims (and furriners)
http://www.dailykos.com/story/2007/8/22/64054/5388
Good night to you all. Time to bed.
Thanks, anyway, Brad, for your smart work. Fight in private with macro man (a great opost today, but I’m with Cassandra).
PS: Sorry my incompetence, I’m not an economist, but I’m learning a lot, and Thank You.
Sorry,
I forgot to say that my last link is a good de-construction work, to be aplied to any US media.
Poeple talking like Brad is a very rare animals now a days.
Kudos to this blog.
The west is focused on the money structures to preserve ancient blocks of capital. China is focused on physical wealth production through increased manufacturing capacity. After all, what we are dealing with in the west is simply fiat money in a betting scheme not any more complicated than sophomore calculus. China can reinvent that in a fortnight, should it serve their purposes. What do they care about colored paper and electrons organized in computers? They’ll still be making tractors, refining steel and building dams. When you have a 50 year plan, ROI figured on fiat capital barely enters into the equation. The increase of physical manufacturing capability is the means and the end. Their ancestors don’t trace their financial geneology back to Vienna and no royal families to preserve.
Last news here in the main late european news:
The BCE is hiking rates, whatever happens in financial worlds!
It seems that a true monetarist, Alex Weber, weights more than other CB chefs.
Let’s see the Fed…
Total Public Debt Outstanding:
08/21/2007 8,976,291,703,795.34
yet, the legal celing is $8.965 TRILLION.
How is one able to exceed?
Don’t depress yourself!
Listen to “Killing Me Softly” and “Fields of Barley” by Eva Cassidy before going to bed and you’ll be happy.
Sorry for being off-topic
Rebel
“uncovered interest parity will roughly hold in the long run. Because the market demands a greater return following a depreciation, if China holds its US investments for the long term, rolling debt over at these higher yields will probably make up for the near-term depreciation.”
I disagree. China will take a one off loss, as it bought the debt on terms that imply losses over the horizon of its investment. if china buys a ten year bond at 5%, it probably won’t get enough interest (given that it is borrowing in rmb and paying rmb interest to finance its $ purchases) to make up for the rmb’s appreciation/ $ depreciation.
When the debt matures, you have a point — china should only roll it over on terms that make financial sense (assuming it has allowed the rmb to appreciate to an equilibrium level by then), so from that point on, it shouldn’t take further losses.
but it won’t be able — in my view — to make up for the initial losses. sunk costs are sunk costs. and note that for china to be able to insist on a market return when debt rolls over (i.e for uncovered interest parity to roughly hold) it first has to let the rmb reach its market level! otherwise, it just will roll its debt over at another subsidized rate (i.e. a low rate that reflects not UIP but rather china’s desire to resist rmb appreciation at a large financial cost).
the last comment was from bsetser ..
Down under — China has been a big buyer of agencies over the same period (based on the TIC data), so its total holdings of US debt is going up. and China may also be behind some of the “UK” purchases of treasuries. the annual survey always revises the UK’s holdings down and China’s holdings up, as banks in the UK buy treasuries that they sell to the PBoC. So some caution is in order when interpretting the US data. i do think china has shifted over the past year toward agencies/ private MBS and away from treasuries, but i also think total chinese purchases of all us debt are still trending up, big time.
china is just priting tons of RMB so it can pretty soon replace the dollar as the world currency.
BY the way if RMB is adjusted 40 % up then CHina might be the first economy in the world.
Mr. Setser,
“but it won’t be able — in my view — to make up for the initial losses. sunk costs are sunk costs. and note that for china to be able to insist on a market return when debt rolls over (i.e for uncovered interest parity to roughly hold) it first has to let the rmb reach its market level! otherwise, it just will roll its debt over at another subsidized rate (i.e. a low rate that reflects not UIP but rather china’s desire to resist rmb appreciation at a large financial cost). ”
Please explain how your logic holds up under anything other than productivity of the chiunese worker remains linear. Technologies of production, particularly in energy, disgraces your theme here.
Brad,
You said: “….for china to be able to insist on a market return when debt rolls over (i.e for uncovered interest parity to roughly hold) it first has to let the rmb reach its market level! otherwise, it just will roll its debt over at another subsidized rate”
You can’t have your cake and eat it! If the dollar does not depreciate against the renminbi, then, on a mark to market basis, the Chinese intervention will have been profitable, because dollar interest rates are above those in China.
It seems to me that the question of the time horizon for China’s investment (which is not necessarily the same as the term of the debt it invests in) is vital. Equity stakes like Blackstone and Barclays would suggest that it is long. Perhaps China is working towards being a rentier nation.
“The leading US export to China is high-quality housing debt.”
Perhaps this should have been written as:
“The leading US export to China is housing debt rated as high-quality.”
Rated by the U.S. rating agencies, of course.
Here’s a piece from a recent article:
Bank of China Ltd., the nation’s second largest, said it has almost $9.7 billion of securities backed by U.S. subprime loans, the largest holding announced by any Asian bank.
…
The securities are rated “A” or higher, Bank of China said.
Source:
http://www.bloomberg.com/apps/news?pid=20601080&sid=aJJl4PDrAGpo&refer=asia
“…80 percent of the electronic waste in the United States that is brought to recyclers is… exported to Asia, and especially China where it is melted down in primitive, environmentally damaging conditions… Dr. Weidenhamer’s analytical work now implicates electronic waste as a source of the lead that comes back to harm our children in the form of toxic children’s jewelry made in China…” http://www.ban.org/ban_news/2007/070711_toxic_jewelry_imports.html
“…the underlying credit conditions in China remain weak, says Yi Xianrong…: “The quality of housing loans is much worse than the subprime loans in the US, because there is no real credit-check system in China. The bubble will burst sooner or later, and it is necessary for the bubble to burst as soon as possible.” …the country is “essentially all subprime; in terms of the technical quality of investments and the institutional structure around them…” http://www.ft.com/cms/s/0/ed04987c-5110-11dc-8e9d-0000779fd2ac.html
“…This crisis is all about the mispricing of risk and there lies the explanation for the exposure of the Landesbanks, which suffer from a fatal flaw… these regional lenders have one big advantage: a state guarantor. Sachsen’s Irish vehicle was securing very cheap funds with the benefit of the high credit rating of the Free State of Saxony. In other words, as Sachsen borrowed funds to lend in the U.S. mortgage market, German taxpayers were guaranteeing the creditworthiness of American home buyers… The explosion of liquidity in the global credit markets over the past five years created an illusion of cheap money here to stay, but in the German Landesbanks, they seem to have evolved the notion of free money.” http://www.globeinvestor.com/servlet/story/GAM.20070823.IBEUROPE23/GIStory/
Antal Fekete suggests that the Chinese have done very well out of their purchases of American debt. See the sub-section “Have the Chinese been tricked?” at this url:
http://www.kitco.com/ind/fekete/aug152007.html
Best wishes
China’s expected cost of currency depreciation -
Rebel Economist is closer to the answer. The key is that China can easily absorb a steady cost of 1 -2 per cent of reserves per year indefinitely. It’s very manageable in the context of its GDP (easily less than 1 per cent per year) and the fact that the cost is fully socialized through fiscal policy. The critical point is that expected depreciation is a relatively long term annuity whose present value cost is muted by the fact it is long term. This fits generally with the long term and gradualist nature of China’s policy. This makes the interest rate parity argument less important.
RE — yes, the int. rate differential is currently in the dollar’s favor, largely b/c china’s central bank has kept chinese int. rates very low (too low in my view). that creates positive carry, so to speak. but the PBoC funds itself short, so it finances a ten year treasury with one year or less money. the int. differential isn’t locked in. indeed, i think you can argue that once china lets the rmb appreciate to its equilibrium value, chinese int. rates should be a bit higher. but let’s assume that during the period of rmb undervaluation, rmb int. rates are kept under US rates.
the key question then is whether the positive carry offsets the size of the likely revaluation/ appreciation. by view is that they do not.
remember that the only way china is avoiding a large appreciation now is buying more dollars — so in my view, there is a large one-ff losses associated with the end of intervention. China so far has kept the realized losses small only by intervening heavily and adding to its ultimate losses.
“productivity growth linear” — my argument is not based on any such assumption. it is based on the fact that chinese productivity growth has exceed us productivity growth over the past few years, which suggests built up pressure for real appreciation. it is based on the realized performance of chinese exports, which suggests a built up need for real appreciation. it is based on the current account surplus, which suggests the same. and it is based on studies that show china’s nominal exchange rate is well below its ppp exchange rate, even taking into account the fact some difference is normal for relatively poor countries.
guest — thanks for the BoC/ subprime holdings link. interesting. tis consistent with the FT alphaville link. wonder how much the pboc holds. another $10b would seem large, but it would be less than 1% of their portfolio …
note that the BoC has the largest swap position with the PBoC (per Goldman) and by far the largest total holdings of foreign debt of any Chinese bank.
Brad — What is your opinion on Fekete’s argument (linked by Anonymous on 2007-08-23 06:58:07) that China has made and still makes a lot of money by buying US long-term bonds? Do they still buy longer term bonds?
“…Treasury officials recruited the IMF to be a currency cop as China and other countries meddle with exchange rates to gain a trade advantage. Instead, the international lending organization took aim at the dollar…” http://www.nakedcapitalism.com/2007/08/paulson-hoist-on-his-own-petard-yuan.html
I was hoping to be able to ignore Fekete.
the argument that china’s reserves stem from a successful 82 bet on long-term treasuries:
“So much of it is the wages of adroit gambling on the long side of the bond market for the past 25 years. In 1982 the Chinese were astute enough to realize that US 30-year treasurys yielding 16 percent per annum were a fantastic bargain. Not only did they lock in an income at 16% for 30 years, but they held out a promise for capital gains by doubling in value at least twice as interest rates fell from 16% to 8%, and then again from 8% to 4%.”
is clearly wrong. China may have bought a few long-term treasuries back then, but not many. the overwhelming majority of China’s reserves have been accumulated since the end of 2002 — and china bought in at the prevalent interest rates of the time. Its treasuries generally yield between 4 and 5%. sorry.
Brad — Thanks. I also thought that he was wrong.
Brad,
If the best US export is debt, what effect on national income? It appears that net income from international investments (US abroad and Foreigners’ holdings in the US) remains stubbornly positive. The latest revisions (June 2007) have wiped out the slight negative dip from 2006.
Is dark matter returning?
BEA Link (pgs 9-12, especially):
http://bea.gov/scb/pdf/2007/07%20July/0707_ita_annual.pdf
“…In what has been the best short sale theme since 2002… many hedge funds have greatly benefited from the collapse in sub-prime mortgages through their short exposure to mortgage lenders and sub-prime mortgage-backed securities and indices… in reality many hedge funds were expecting such an event and were able to profit from the decline…” http://www.hedgeweek.com/articles/detail.jsp?content_id=162039
“…’Given the recent market dislocation stemming from the sub-prime mortgage crisis, this month’s investor confidence readings may seem paradoxical… less so, however, once it is remembered that for every seller, there is a buyer… ‘It is interesting to note that North American investors were net sellers of equities in early July. Their allocation decisions in August have allowed them to reacquire assets at much more attractive prices…” http://www.hedgeweek.com/articles/detail.jsp?content_id=162040
“…Under Statement 157, this means fair value is measured using “unobservable inputs.” While companies can’t actually see the changes in the fair values of their assets and liabilities, they’re allowed to book them through earnings anyway, based on their own subjective assumptions…” http://www.bloomberg.com/apps/news?pid=20601039&sid=aY8m0nta94GA&refer=home
“…ICBC… said it holds $1.2 billion of securities linked to U.S. subprime mortgages… Expectations that profits from lending will keep rising have made China’s banks the world’s most expensive…” http://www.bloomberg.com/apps/news?pid=20601080&sid=aIckNz2sd9ok&refer=asia
Hi, Brad,
Menzie Chinn has a post about “How does China retain monetary autonomy” and a paper about capital controls in a paper by Ma and MaCauley for the BIS. Some comments would be appreciated.
And Cassandra has a beautiful post, some extract:
“That there has been a large transfer of wealth from savers and the equally-weighted American to military contractors, leveraged asset-buyers and their intermediaries is undeniable. Perhaps, in similar fairness we should create a look-back tax that assesses the gains (some or many ill-gotten) made from the asset inflation and money illusion and redistributes it the ordinary savers and pensioners? We can call it the Sowood Tax in sympathy with Mr Larson’s magnanimous gesture of returning previously-earned performance fees to investors following his Fund’s recent debacle. America is not for wont of wealth, but is for wont of more disperse distribution of it. When however the distribution is sooo skewed, taxing the average to save the average citizen seem reasonably daft, given the enormous tax holidays and munificent gifts adorned upon the upper-most percentiles. Perhaps the time has come for more meaningful sacrifices that begins to tackle what almost every objective observer sees as a way of life that depends upon unsustainable consumption, encouraged by absent levies upon the many externalities this life spawns. The bubble, is perhaps in the American Way itself. And everyone sees it, but Americans themselves.”
MM is getting alone?
Thanks!
ethanj –
i have been meaning to revisit the whole dark matter debate. yes, the bea revisions imply more dark matter. the surge in valuation of us equity investment abroad has also created more light matter.
and i continue to think that “tax arbitrage” explains a lot of dark matter — the whining articles in monday’s ft by foreign firms worried that they might lose a tax dodge only reinforced that sense.
and that sort of feeds into koteli’s comment …
http://arstechnica.com/journals/science.ars/2007/08/17/dark-matter-confuses-us-all
http://3quarksdaily.blogs.com/3quarksdaily/2007/08/sean-carroll-on.html
I love this blog, but …
“It was well-known that USA, some Boeings apart, was exporting mostly debt and war”
“and not wait 10-20 years to Chinese hegemony…”
“china is just priting tons of RMB so it can pretty soon replace the dollar as the world currency.”
“BY the way if RMB is adjusted 40 % up then CHina might be the first economy in the world.”
… some of the comments are getting crazier by the week. Chinese hegemony? Half the time any more I can’t tell if I’m reading objective (if conflicting) analysis and opinion, or doom-peddlers and “China’s Gonna Be #1″ porn fantasies.