tis true that the inability to convert $ into US equities (including 3com) could put a dent in foreign demand for US dollars. but after the US said no to the sale of unocal, China didn’t stop buying US $. it actually bought more in 07 than in 05, by a large margin.

that gives the us a bit of leverage. countries are buying the dollar b/c of their exchange rate regime, not b/c they like dollars or realistically expect to trade their $ for equities (in my view). if that view is right, they are stuck buying the assets the us wants to sell –

to change the equilibrium, countries now pegging to the dollar would need to move off the dollar — and that is something that they have resisted.

True that US housing is only 4.5% of GDP, but that does not include other economic activities associated with housing! From banking activities, to buying new furnitures etc from Wal-Mart or Staples etc.

Another note: 60% of America’s GDP is based on consumption. Part of that consumer consumption is based on credit. With the current affairs happening, would financial institutions only tigghten their consumer credit or loosen it?

With a negaive wealth happening due to housing price decline, would consumer spend more or less?

With tightened consumer credit going forward, would consumption(60% of the GDP) increae or decrease?

Please advise how the economy can be good going forward in the near term.

Can someone advise what will happen if people do not want to buy US treasury anymore, and that they want their money back. I mean if the system of non-backed greenback collapses, what is the scenario?

What would need to happen for foreign governments not to want to hold US dent anymore.

These days more and more people suggests the US cannot pay back its foreign debt, but is this comment true? Any Statistics?

Many Thanks.

wesbury is the anti-roubini, a complete cheerleader. so his frames are always tilted in one direction. so you might say are mine — fair enough.

but as barry bitholz argued, the idea that “subprime only is $100b, such tiny drop in the bucket compared to the us financial system/ us economy that it cannot have much of an impact” has been proved false. Back when I was at the treasury, we worried alot about the systemic impact of sov, defaults, and the EM $ denominated bond market was something like $300b. It tho was connected to a host of other markets.

Houget’s numbers are traded financial assets. that leaves out a lot of other forms of wealth — including bank deposits, home equity, etc.

Wesbury’s numbers seem to be total US financial assets, including the market value of US housing stock (tho it is presumably worth less now than it once was). The number still seems high to me as it implies assets of almost 700% of GDP ($100t/$14t), but i haven’t ever looked at the underlying data. but it (from the defintion provided) includes a lot of illiquid untraded assets — including estimates of the value of small businesses and the like.

When it comes to assessing the impact of various shifts on traded markets, i prefer looking at flows to stocks, b/c price is set at the margin. A $500b influx of sWF equity into the market can be argued to be too small v the 100t (or a more realistic $30t number for traded market cap of equities and bonds) of financial wealth to have a difference, or it can be considered so large relative to the $150-200b in current foreign demand that is almost certainly will have an impact.

that is a real debate. but not one for here –

I franly don’t get your point of view — sometimes you argue that X is so small relative to the big market that it cannot have an impact.

but when it comes to your interests — illicit flows, diapora flows, etc — you reject my attempt to offer scale variables that suggest these flows are small relative to financial and net trade flows. and i usually offer flow to flow comparisons.

tho sometimes i offer stock to stock comparisons. have you taken up my suggestion to try to calculate total us exposure to China as measured by the US data (survey data for financial exposure, BEA data reported in the survey of current business for FDI investment)? I would be interested in the results — it shouldn’t take more than a couple of hours. and then maybe you might want to sum the transfers reported in China’s BoP data and estimate how much likely came from the US (and compare that to the data on the geography of US outward private transfer payments, including reported transders to East Asia — try the BEA site, http://www.bea.gov, the BoP data, interactive tables, transfers and the like. or the boP data by area. it wouldn’t take that long. Private transfers are remittances, so they would be the flows you are talking about –

my sense is that reported transfers to east asia are small, as most transfers go to latam. but i haven’t looked at the data recently. It might be interesting as well.

once you have done that, then you might be able to make a case that this is clearly too small and it undercounts real flows — including some more hot money flows that aren’t showing up in the transfers line in the bop. but then you would need to be able to estimate the share of hot money flows coming from the mainland money that moved offshore from 90 to 01, relative to flows from the US. and flows from HK, sing and Taiwan relative to the US. I would be interested in the techniques that you develop to be able to do this …

as you know, i have spent a fair amount of time developing techniques to estimate the undercounting of official flows by comparing debtor and creditor data. maybe you could do something similar with hot money flows.

give me a bit of credit, i know how to basic balance of payments analysis.

and I’ll take Houget’s numbers over Wesbury’s. Frankly, if you like Wesbury’s analysis, this is the wrong site for you …

http://www.ftportfolios.com/Commentary/EconomicResearch/2008/1/28/Wesbury_WSJ:_The_Economy_Is_Fine_Really

re: diasporanomics – if you have absolutely no clue, how can you make assumptions

and do tell me where $100 t comes from — it is bigger than GEorge Houeget’s estimate of the size of global equities ($33t), gov bonds $21t and private sector bonds $24t — and that is a global total not just a US total. The US 1/2 that max. Houget is state street, so i suspect his data on that is good — and i just happened to have it handy.

That was unconnected with the Huawei situation and was going to happen anyhow. Also, Chinese investment law doesn’t take into consideration where the money came from, just where it goes. It’s not as if because of US governmental action, Beijing is going to be nicer to German companies.

Pretty much. The limit ranges from 5% to 25% depending on what the banking regulators think. There was one case in which a Chinese bank (Guangdong Development) was taken over by a US private equity firm, but that seems to be a one off experiment. The interesting thing about this was that the banking regulators at the time were really enthusiatic about the takeover since it gave them the ability to crack the whip against the other banks.

Guest: One way to discourage unwanted inflow and at the same time retaliate for US barriers to Chinese investment in companies here would be to put stringent limits on what US investors could do.

China really doesn’t have much in the way of country specific limits and the reason for that is that these don’t work well. Part of the problem is defining “US investor.” The money is coming in through a shell company in the British Virgin Islands or Hong Kong, and it’s difficult to tell who the ultimate owner of that money is.

Guest: Say they could purchase no more than 2.5% of a Chinese bank, and if they have more at present, force them to liquidate the excess. That would send an unmistakable message.

That the Chinese government are people that don’t keep their word. It’s one thing to set a limit before someone invests. It’s quite another thing to allow the investment and seize it later.

Besides, I really don’t see anything wrong with the US blocking the purchase of Huawei on national security grounds, and I don’t see any need or point in “retaliating.” The US just needs to figure out what the rules are, and Chinese companies can follow them. Next time, someone wants to buy a company, they’ll go for 9.9% rather than 16% to avoid a CFIUS review.