Good move, usa! See how badly the chinese take it if you default on Treasuries.

There are very little signs that any country is restructuring because it would involve the mass liquidation of their capacity, and depression level unemployment. They would prefer some other country liquidate – this perspective led to competitive devaluations during the Great Depression.

China’s yuan swap measures seem defensive given the very real possibility of a dollar devaluation.

weakness fueled doubts about a quick economic recovery and Britain’s reduced rating outlook

signaled more fallout from the credit crisis. S&P 500 futures fell 10 points and were below

fair value, a formula that evaluates pricing by taking into account interest rates,

dividends and time to expiration on the contract. Dow Jones industrial average futures shed

90 points, and Nasdaq 100 futures dipped 15 points.

Keep buying the dips? Or dow 5000?

but the us didn’t protect reserve primary (which china had invested in) from the fall out of LEH, and i would be quite surprised if SAFE didn’t hold some LEH and AIG bonds (LEH bonds weren’t made whole, obviously). The total amounts involved were small, but china in the crisis discovered that it is fundamentally loss adverse and the us gov didn’t protect it from all credit losses.

and then there is a rumor (unconfirmed) that china (via SAFE) may have had some of the agencies preferred stock (or something in the capital structure between debt and equity) and was surprised when that wasn’t protected. just a rumor tho.

as far as i know SAFE has never tried to explain in public why it shifted into agencies or why it shifted out … nor has it said anything in public about its little foray into equities. so i guess I am a bit less impressed by china’s public policy statements than you are!

“Unlike most people, I find the Chinese explanations for their actions, especially on their website, to make sense and appear forward looking, especially when you set them up against most other governments in this crisis.”

and

FollowTheMoney,

“The RMB/Yuan will eventually appreciate. Our standard of living will decline, a transfer of wealth from west to east….AAA downgrade in my opinion is around the corner. We’re only in the middle of the largest financial crisis, a scenario far worse than the great depression of the 1930’s unraveling….It’s going to be epic, it’s going to be historic, and it’s going to be spoken about for generations to come.”

Very, very well said, by both of you.

S&P and MOODYS are behind, just like downgrades on the financial sector and the insurance sector.

The stage for currency crisis has been set. China is simply trying to hedge itself for the “FALL”out…

I would not be surprised to see China add alot more GOLD to it’s reserves in the coming weeks. In 5 years time, China is goin to have the world’s most attractive global reserve. A country backed by commodities, hard workers and gigantic surplus with immense trade relationships.

The RMB/Yuan will eventually appreciate. Our standard of living will decline, a transfer of wealth from west to east.

But look in the mirror, did we have to invade Iraq? Did we have to build McMansions? Did we have to all drive giant SUV’s? And then when the house of cards was on fire, shouldn’t we just have let it burn instead of adding more cards in hopes the wood knock out the blaze?

AAA downgrade in my opinion is around the corner. We’re only in the middle of the largest financial crisis, a scenario far worse than the great depression of the 1930′s unraveling.

It’s going to be epic, it’s going to be historic, and it’s going to be spoken about for generations to come.

Whether this is a price trough or not is the big question. Commodities historically decrease in cost over time as technology, etc., lower their price of production. One can find charts of copper prices declining, adjusted for inflation, fairly consistently over the last 40 years or even the last 100 years. I would argue that we are still at prices above long term norms and norms 10 years from now should be even lower.

If this is a price trough, China wins. If this is a return to the norm and commodity prices still have a way to fall now and in the long term, China loses.

… we d be right back at the good old default swapping

I’m still waiting for a good explanation of this. Even on the bonds of large financial institutions, it seems to me that the US didn’t like the idea of giving a big haircut to China.

Unlike most people, I find the Chinese explanations for their actions, especially on their website, to make sense and appear forward looking, especially when you set them up against most other governments in this crisis.