Comments on: Central bank reserve managers still are running away from risk …

By: Brad Setser: Follow the Money » Blog Archive » Central banks aren’t always a stabilizing presence in the market

Mon, 05 Jan 2009 18:02:53 +0000

[...] spreads widened significantly when central banks pulled back (the expansion in the supply of debt with an implicit if not [...]

By: Brad Setser: Follow the Money » Blog Archive » China’s fiscal stimulus doesn’t necessarily mean that it will stop buying Treasuries

Wed, 12 Nov 2008 06:48:04 +0000

[...] of course do not know for sure who is adding to their Treasury holdings at the New York Fed. But the pattern of past purchases suggests that Asian central banks tend to make more use of the [...]

By: USA and China, the two poles? « India Stock Market and Global Economy

USA and China, the two poles? « India Stock Market and Global Economy — Mon, 10 Nov 2008 05:04:13 +0000

[...] quote is taken from the excellent post Central bank reserve managers still are running away from risk and echoes my post Central banks pushing on a [...]

By: adiemuso

adiemuso — Mon, 10 Nov 2008 02:28:33 +0000

pwswartz,
thks for the links.

Brad:it is a myth that the us has to fear a chinese fiscal stimulus because it will reduce demand for treasuries.

how will the chinese fund this 4 trillion yuan fiscal stimulus and yet keeping the CNY relatively unchanged? will the Chinese wants to run a deficit in its books up till 2010?

it does look like a myth now, but i think even with the CHinese looking to rollover all their current UST holdings and not selling anything, i doubt they can increase their demand for USTs to match the likely increase in supply by the US Govt.

By: pwswartz

pwswartz — Sun, 09 Nov 2008 20:05:42 +0000

Douglas – the agency custodial holdings data comes from the H.4.1 report, comes out every Thursday at 4:30; on the Fed Governors’ data site.

Brad – I’m attempting to get a clean answer (more detailed explanation) on this but I believe the swap lines are not printed money; the best example can be seen between the weeks ended of Sept 24th and Oct 1st (so the Sept 25th and Oct 2nd, H.4.1 releases). What you see in the two ‘Factor Affecting Reserve Balances…’ is that the balance sheet increased week-ended over week-ended by roughly 200 billion of which – on the asset side – ~140 billion of that was increases in the ‘Other Federal Reserve Assets’ which includes the Swap Lines, while – on the liability side – all the funding for the ~200 billion dollar increase came from the ‘Supplementary financing account’; so it looks to me like the swap are sterilized and that they are simply facilitating the intermediation (only sovereign credit risk and no currency risk). I think it does create a challenge of how it all get unwound but deal with the burning building now and figure out that problem later.

By: BigApple

BigApple — Sun, 09 Nov 2008 18:40:31 +0000

Howard & Brad,

Howard – you suggested the possibility of China funding its growth through debt like Japan in the 90’s. Japan had a matured JGB market for a long time, but China does not have such a luxury. I wonder if there are other ways for them to fund their growth since FDI is clearly drying up.

Brad – regarding the myth of Chinese will stop buying UST (or even sell). I agree with your comment but my question is: isnt there a turning point where the money need to generate domestic growth will be larger than the trade surplus (i do not have the data at hand to see the present level and the expected rate of changes)? Especially, if China is moving from a growth mix which is heavy on export to a more domestic oriented mix (as you suggest US to invest heavy to export to China). The expect trade surplus will slow and maybe the dollar required to invest domestically will overtake?

By: Howard Richman

Howard Richman — Sat, 08 Nov 2008 21:11:30 +0000

LB wrote, “howard, you are assuming that the stimulus will be applied at stimulating consumption”

Actually I’m not. I assume that the package will be oriented toward improving the U.S. infrastructure (since that is what Rep. Pelosi told her committee chairman to work on). But I also realize that the workers who will be paid to improve the US infrastructure will spend their money mostly on consumption.

Howard Richman
http://www.tradeandtaxes.blogspot.com

By: credulous_prole

credulous_prole — Sat, 08 Nov 2008 15:25:10 +0000

China’s stimulus package is on the order $800B apparently.

Such an enormous stimulus, though, will not be nearly as effective unless China ALSO helps refinance US consumption: doing the two together would inject massive credit into the system and resolve the bulk of money-market dislocations, provided the G20 have their act together and coordinate.

It could be that the SSE index will have a record climb this winter! lol

By: LB

LB — Sat, 08 Nov 2008 15:07:09 +0000

howard, you are assuming that the stimulus will be applied at stimulating consumption vs. beginning to turn the rudder towards production. that has yet to be divulged.
if you’re confident with mr. buffett’s import certificate program, then you should go on to change.gov and ask them to consider it. considering who initiated it, they might just listen.
helpful hint: consider tipping towards being more constructive than critical in your suggestions.
(btw, if the goal with IC’s is to insulate the US from a global recession it helped to create, then you & mr. B may want to rethink the hypothesis and consider the currency of karma.)

By: Howard Richman

Howard Richman — Sat, 08 Nov 2008 11:31:41 +0000

Dennis Redmond,

Obama’s stimulus package is clearly repeating Bush failed policy of passing stimulus packages paid for by borrowing from abroad! Obama’s package will be the third to fail in the following series: (1) February’s $150 billion stmulus package, (2) October’s $850 billion Wall Street bailout.

For some reason, neither Bush’s nor Obama’s economic advisors are bothering to read Richard Duncan’s 2003 book (The Dollar Crisis: Causes, Consequences and Cures), published by Wiley Singapore, even though it is on most University bookshelves.

Duncan is a good economist, though he is a bit too anti-monetarist for my taste. He noticed that the import-oriented nations (like the United States) were being expected to buy increasing amounts of goods, without increasing income. He correctly predicted that the crisis would soon come when they could no longer keep piling on increasing debt. And he correctly predicted that the excess of savings over investment in the world economy as a whole would cause the current worldwide depression.

You don’t solve a global depression that is caused by trade imbalances by increasing those trade imbalances! That strategy just applies a bandaid which masks the symptoms.

Howard Richman
http://www.tradeandtaxes.blogspot.com