05/25/09 Paris, France “China stuck in dollar trap,” says the headline on the front page of the Financial Times.
The FT says China is buying more U.S. bonds than ever. It must…according to the news report…because it has too many. Unless it supports the dollar, it risks a big collapse in the value of its foreign exchange holdings (mostly in dollars).
China has its finger in the dike. But it may need a bigger finger. This morning it is trading at $1.40 per euro – a new low for the year. Measured against gold, it now takes 958 dollars to buy a single ounce of gold.
“We have a huge amount of money in the United States,” said Wen Jiabao, premier of the People’s Republic of China, back in March. “I request the U.S. to maintain its good credit, to honor its promise and to guarantee the safety of China’s assets.”
In response to this request, U.S. Secretary of the Treasury, Timothy Geithner, answered in the positive. Whether he had his fingers crossed behind his back, or not, we do not know. But for the moment, the United States is honoring its promises in the short run…but doing so in such a way that dooms the Chinese in the long run.
Now, the Fed is buying U.S. Treasury bonds. So are the Chinese. Supporting each other, they are also supporting prices of bonds – which happen to be the largest single source of financing for the U.S. government and the largest single liquid asset of the Chinese government. Despite the support of the biggest investors in the world, the price of bonds and the price…
…..read more HERE.
The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed and internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily.
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