China Might Dump FOREX Reserves

Elaine Meinel Supkis

China is now threatening to yank on our leash because we are giving them problems. I expected this to happen about now. The US is ignoring this, of course, hoping to keep the fluid red ink money flowing via Japan but I expect the Chinese to use their FOREX reserves to snag the yen. And more hedge funds are dying and it seems all the lending companies did the same exact thing: lent money to risky deadbeats who pay higher interest. Gah. Hope none of them sue me for writing about this mess.

Via Tom and Jill, two of my readers, is this Telegraph article from Britain:

The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion (£658bn) of foreign reserves as a political weapon to counter pressure from the US Congress. Shifts in Chinese policy are often announced through key think tanks and academies.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

Two years ago, I placed a little bet with other people at a real estate blog I no longer bother visiting. It was 'When will everything crash?' I said, 'When the Chinese decide it is time.' Everyone thought I was very stupid. At several other sites run by economics professors and others, they all mocked me when I talked about Japan's currency manipulations while they focused only on the yuan. And all thought I was very stupid to talk about Russia as a rising power and rising economy.

Tonight, we see something brewing that has been brewing a very long time. When China's FOREX funds reached $1 trillion, I said, 'The noose is around our necks.' Nearly all the media and the army of professors told me I was stupid. 'The noose is around CHINA'S neck,' they told me. But stupid Elaine said, 'They can crash our currency.' They said, using the news and talking to all their audiences that were open-mouthed with admiration for their sagacity, 'The Chinese NEED us and they can't HURT us or they will be hurt worse.' I said, 'Hog wash. China still gets around mostly without private autos. The US is totally dependent upon foreign energy. The dollar dies, we can't buy any! We have NO ALTERNATIVE ways of getting around. The Chinese still are close to work, we are not!'

Well, I am usually right because I grew up close to the center of power. My father was an advisor to several Presidents as well as rather a few kings (not the Queen of England, heh). Many leaders used to fear communism. Now they fear something else: religious revolution sweeping the streets and ending up as blood baths in palaces. China is a communist dictatorship. Something I keep emphisizing. Not to label them but to remind people about reality. The communist party of China has a goal: to drive the US out of Asia. There is no ifs, ands or buts about this. It is their long range plan. And building the FOREX reserves was not to 'protect the yuan' like so many Americans foolishly thought.

IT WAS A WEAPON. And who explained how FOREX funds work? HAHA.

Let us review facts: some of the Chinese leadership began interacting with me when the tried to learn about capitalism. And this was during the years when the US currency had collapsed and then was repeatedly propped up by our anxious allies who were worried Russia would sweep across Europe. So what did they do?

How about hoarding dollars so they didn't circulate so fast? The Chinese marveled at this and I explained that FOREX reserves are actually political tools. The greater the fund, the more control over a currency it has via the simple tool of holding or spending. And since one could buy a currency in one denomination and then switch it to another, one can crash an economy like the snap of the fingers! Since then, I was proven right as one country after another, over the years, collapsed into terrible troubles simply because someone speaking English or Japanese decided to suddenly pull out their wallet and start spending their FOREX reserves in whatever currency they were crashing.

I personally, suspect Japan crashed Asia because they needed to crash the yen and couldn't do it unilaterally or the US would get mad. The threat the Chinese made in an oblique way is just that: a threat. But not to be ignored! The reason is Russia: China and Russia's US$ FOREX reserves are about $1,600,000,000,000. That is, over one and a half trillion. Unlike the fake money that is pure fantasy such as the rise and fall of stock markets, this is real money. A stock market can lose $4 trillion and this hurts but not fatally. This is because it was 'created' by the action of being turned into stocks. You buy a stock at $50 and it doubles to $100, it is only an extra $50 if you then sell it. Since 90% of the stocks are not sold at any given time, if the price plunges from $100 to $75, one has 'lost' $25 but not in reality. It is just, one gains only half as much new money if they sold at this point.

The money in China's vault isn't imaginary. It isn't going to appear here in the US, either. It will be TRANSFERED. To where? Ah, that is the riddle. We don't know. Will China use it to take over control of the yen? I would do this. And if I will, they probably will, too. They know that Japan is their nearest rival and it also endangers them so they must exert control over Japan and this would be a nifty way. But this will also screw us in several ways. One is, the Japanese weak yen will vanish and with it, the carry trade. And if Japan begins to dance with China to avoid a disaster, this means they will cease to be our political puppet. China can't take over Taiwan without first getting control of Japan one way or another. So they will probably cease trying to please the US and begin the long-anticipated program of reeling in Japan. I will note that China has now begun to get their claws into various FOREX trading entities and systems. So the day this begins is probably already here, quietly and efficiently.

From Bloomberg:

Bear Stearns Cos. sold $2.25 billion of notes at yields that approach those normally demanded of high- yield, high-risk companies, paying the price for the failure of two hedge funds and the collapse of the subprime mortgage market.

Bear Stearns sold the five-year medium-term notes at a premium, or spread, of 2.45 percentage points more than the comparable U.S. Treasury, according to people familiar with the sale, who declined to be named because the terms are private. The bonds are rated A+ by Standard & Poor's and A1 by Moody's Investors Service, the fifth-highest investment grade.

I suppose Bear Stearn could hire those British hitmen lawyers to stop me but I will say it: they should sell their company to China and move to some god-forsaken pirate cove run by the Crown. They can sip their beverages and pass out and fade from history. Bear Stearns mishandled their mess from day one. This was because they were not looking after their investors but themselves. They wanted dearly to get out of this with their bonuses and goodies intact, screw the investors. And the growing collapse is obvious; normally, A+ means only a few points higher than T bones but in this case, 245 points is huge. Give the dog a very big bone indeed!

Bear Stearns's bonds were trading as if they were rated Baa3, the lowest investment-grade rating, Moody's data show.

The firm's $1.25 billion in 5.35 percent notes due 2012 rose 0.03 cents on the dollar to 95.66 cents, according to Trace, the bond-price reporting system of the NASD. The yield fell to 6.48 percent from 6.49 percent.

Anything under $100 is trouble. And I see no way out of this. Maybe they can ask the Chinese to loan them money. But the Chinese are tired of giving us loans. Now we must sell off important things. They sharply told us just three months ago, we refuse to trade honestly with them, we embargo many things they want. Now they will play hardball. And Bear Stearns will be lured into selling their services to China...to be their representatives. To lobby for China. Look at Goldman Sachs. Cerebrus.

From Bloomberg:

MGIC Investment Corp., the largest U.S. mortgage insurer, said it may scrap plans to buy rival Radian Group Inc. as the subprime home loan market deteriorates.

MGIC is reassessing the deal, valued today at $2.7 billion, because a joint venture co-owned with Radian may be worthless, the Milwaukee-based company said in a statement. Radian has told MGIC it's obligated to go through with the transaction, said MGIC, which expects to complete a review by next week.

MGIC is losing its luster. Too much wand waving and not enough illusions. I thought we should look into the now worthless venture both these entities were playing with.

From the Radian Group LLC Homepage:

WE SATISFY OUR CLIENT NEEDS BY MERGING INFORMATION TECHNOLOGY SOLUTIONS WITH INDUSTRY BEST PRACTICES, EDUCATION and EXPERTISE

More information via Hoovers:

It's not Chilean and it can't be pan-roasted or crusted with almonds, but C-Bass is on the menu of many a lender, investor, and servicing client. Credit-Based Asset Servicing and Securitization (C-BASS) purchases and securitizes credit-sensitive and nonperforming single-family residential mortgages, which are then serviced by its Litton Loan Servicing subsidiary. C-BASS invests in whole loans, subordinated securities, and properties that have been or are on the verge of being foreclosed upon. It also develops loan-default management technology. In 2007 C-BASS bought Fieldstone Investment Corporation, a deal that expanded its servicing portfolio and its mortgage origination capabilities.

Looks like this fish is out of the frying pan and into the fire. So, they 'securitize' nonperforming (ie: the people can't pay their mortgages) houses? Why, with the default rate rising to the moon, a record this last month with over 50,000, why they should be doing booming business! So what is wrong with this picture? Don't they want this tsunami of abandoned properties?

From their home page:

Key financials for Credit-Based Asset Servicing and Securitization, LLC

Transfer your account from another broker to Scottrade & get up to $100 back! Apply now!

Company Type: Joint Venture of Radian Group and MGIC Investment
Fiscal Year-End: December
Sales (mil.) $614.4
Employees 1,200

So how did this fund, the C-BASS LLC go under? Perhaps this is because there is no money to buy this rising ocean of distressed properties? Did they buy up lots of turkeys and then discover they were all bones and no meat? Namely, they usually turn over properties for a tidy profit but in this case, there are no buyers? As a buyer of distressed properties, I assure everyone, we don't buy when things are going down, we buy when they crash totally. Then we get nice deals! Timing is everything. And smart people know this housing mess is far from done, it has barely begun. And reselling these things to people is nigh impossible right now.

Now we turn attention back to the other party in this dead deal, the Radian Group:

Managing Risk to Find Profit
Feb 1, 2007
S.A. Ibrahim
CEO

"Banking in general, and mortgage banking in particular, tend to be risk-averse businesses. At least that's what we are often told. I wonder how true that is." Click here to read CEO S.A. Ibrahim's column which appeared in the February 2007 issue of Mortgage Banking magazine, as he explores how to manage risk to find profit.

Wow, six months later and he can't manage anything anymore. I like the 'risk-adverse' stuff. The Federal Reserve dropped rates to 1% and everyone went nuts. No one was even slightly 'risk -adverse'! Least of all, Greenspan. These clowns managed risk by walking off the edge of a cliff. They managed risk by lying. they managed risk by being willfully stupid and chasing after the bad credit risk willow-o-whisp because if you lend to lousy buyers, you can charge astronomical interest rates! Whoo hoo. So caution was thrown out the window and now the house is collapsing.

From another Radian Group page:

Security for Investors, Strong Market Acceptance for Issuers.

Radian has established a unique market position in asset-backed structured finance and mortgage-backed structured finance. The credit enhancement provided by Radian helps investors to broaden the asset classes in their portfolios, benefiting from yields that are typically higher than those provided by securities insured by the AAA insurers. For issuers, the high-investment-grade rating conferred by a Radian guaranty helps new issues trade strongly and enjoy increased market acceptance. Radian's financial strength, prudent underwriting and risk management practices and claims-paying resources provide layers of protection for investors and issuers alike.

What the hell is so 'prudent' here? They use all sorts of clever words to describe 'loaning money to people with lousy credit and a history of bankruptcy'! The 'broaden asset classes' is code for 'lending money to any yokel who fills out our forms online.' And since these deadbeats must pay high interest, this is the 'high-investment-grade' securities. As I explained this morning, 'security' used to mean 'fool'.

Speaking about fools, I used to love Home Depot but it is a sorry business shopping there these days thanks to Mr. Nardelli. He destroyed that organization and like a pirate, looted it and left. Now he is going to go to Detroit at the behest of the Top Hell Hound, Cerberus, itself.

From CNN:

For weeks, Chrysler watchers have been wondering what, exactly, Cerberus would be bringing to its new acquisition. What did the sharp pencil guys in New York know about the auto business that Chrysler's own seasoned American executives - not to mention the Germans at Daimler (Charts) - didn't?

Now the answer is becoming clear. And it isn't encouraging.

Today's earnings are encouraging - but the automaker can't cost-cut its way to long-term profitability, says Fortune's Alex Taylor.

How do you view the choice of Robert Nardelli as Chrysler's new CEO?

He's an effective leader who will help Chrysler turn around

Cerberus' appointment of Bob Nardelli, formerly of General Electric (Charts, Fortune 500) and Home Depot (Charts, Fortune 500), as CEO seems wrong-headed on a number of fronts.

How can this be wrong-headed? This pup has three heads! So they put them together and came up with this nifty scheme. Mr. Nardelli will destroy Chrysler and then they can sell off all the parts to...a certain dragon in China! I see no other ending to this sorry tale. Universally, all the pundits hissed with horror at this stunning choice. We all know he will simply slash and burn until there is enough vacancy he can sell everything off at a Chinese auction. But then, our auto industry has been in trouble nearly as long as the French and British auto companies. I wrote in the past how Britain has been desperately thrashing around, trying to get Japan and China to buy up their auto industries so they can concentrate on being the Financial Capital of the world via a host of very tiny islands that are tax havens for fraudulent hedge funds that break up everything they touch.

From Bloomberg:

Australia's central bank raised its benchmark interest rate a quarter percentage point to the highest in almost 11 years. The increase may dent Prime Minister John Howard's campaign to win a fifth term in office this year.

Governor Glenn Stevens raised the overnight cash rate target to 6.5 percent today in Sydney, the first move since November, to curb an inflation rate running faster than he forecast and cool the biggest surge in lending since 1989.

6.5% will attract a lot of money that would have flowed into hedge funds. But the higher and higher rates with no risk (well, sort of no risk) are hammering the standard ways of luring people into plonking their cash down somewhere. Every day, rates rise everywhere outside of Tokyo. And this is the real competition the money making pirates are facing.

From Bloomberg:

IKB Deutsche Industriebank AG said Volker Doberanzke resigned as chief financial officer, eight days after the German bank replaced its chief executive officer over losses on U.S. subprime loans.

Dieter Gluder will assume the CFO position, the Dusseldorf- based bank said in a statement yesterday. The company will seek regulatory approval to delay reporting its quarterly results until Sept. 28 instead of Aug. 14 as planned.

IKB is being bailed out by Germany's state-owned KfW Group and banking associations to cover as much as 3.5 billion euros ($4.81 billion) of potential losses. Late payments on U.S. subprime mortgages to borrowers with poor credit histories are at the highest since 2002, driving down the value of bonds backed by home loans and roiling the credit markets.

Ten days after saying it wouldn't be affected by the U.S. subprime meltdown, IKB replaced its chief executive officer on July 30 with KfW management board member Guenther Braeunig and said it will miss a full-year profit target. Last week, Winfried Reinke, managing director of IKB Credit Asset Management GmbH, was relieved of his duties.

Oh, oh. This is spreading. And the Germans are very allergic to bad bank situations. They will stomp down on anything that might imperil their system. This means they will tighten credit like mad. And I see all over the place, businesses that boasted about great growth and great deals just last year are all becoming very shy about issuing reports and the fear of prosecution battles with the desire to lie and paper over these losses.

From the Big Picture:

The following comes from a major U.S. mortgage writer. It is typical of what has been going on in the mortgage business over the past few days:

As you are probably aware, the mortgage industry is going through a major disruption. In response to these market conditions and to enable ******* to continue to serve our customers; we have made changes to our loan eligibility, appraisal rates and repricing of loans in the pipeline.

Rate exceptions by AE's will no longer be allowed
Only full doc loans allowed

The list goes on and on and I am amazed. They were lending to people who had listed their homes that year? Gads. And repeat loans on empty lots? I remember when NO ONE could get a dime for empty land! I have bought empty land! And no one every gave a loan for that! You could get a building loan...IF you were very very good. But an empty lot? I am aghast. And appraisals have to be at least less than 90 days old? Wow. I remember the good old days when you had to have one done the same WEEK as the application! And 90 days is terrible if the market is collapsing. That is 3 months and with prices dropping 2% a month, this can be pretty bad.

I have seen bad markets. And they simply cease giving loans at all. If interest rates are rising rapidly, they won't give loans, or if prices are falling, they won't give loans and this leads to a collapse in the market. This is the 'over-reaction' which is classic with all housing crashes. I have seen these up close and personal, more than once!

From Bloomberg:

Borrowing by U.S. households rose more than forecast in June, as consumers turned to credit cards and non-mortgage loans in order to maintain spending.

Consumer credit increased $13.2 billion during the month to $2.46 trillion after a $15.9 billion May gain that was larger than previously reported, the Federal Reserve said today in Washington. Credit increased at a 6.5 percent annual rate after rising at a 7.9 percent pace.

No more Home ATM so we pull out the card and charge it. And debt continues to mushroom. And the bankers are angry, the Chinese bankers, that is.

Culture of Life News Main Page

Comments

[Don Parker]

For the moment, China would be committing economic suicide by dumping the dollar en masse. These are not stupid people so, for the 'goose that lays the golden egg' it is better to make her dependent rather than provoke to wrath.

Poultry stops laying when upset.

[PJSV]

Please comment this on another post, will you ?

http://blogs.telegraph.co.uk/business/ambrosevanspritchard/july07/willtheusdollarcollapse.htm

[PJSV]

http://blogs.telegraph.co.uk/business/ambrosevanspritchard/july07/willtheusdollarcollapse.htm

[PJSV]

http://blogs.telegraph.co.uk/
business/
ambrosevanspritchard/
july07/
willtheusdollarcollapse.htm

[blues]

I keep saying this over and over like a broken record: These monetary shenanigans are not the bottom line at all -- means and skills of production are the bottom line. If China can obtain enough food and fuel, it can live without us easily. We're not so lucky. We have squandered our industrial base, and our workers are now mostly doctors, lawyers, social workers, and an endless army of druggies and prisoners who require their "services". Our survival depends upon an endless quay of heavily loaded barges from places like China, Japan, etc. They are carrying the goods we need to us, and we're sending precious little over to them. THEY CAN LIVE WITHOUT US -- WE CANNOT LIVE WITHOUT THEM.

[DeVaul]

Blues is right. China does not need us. It needs us to leave them ALONE!

We cannot even make pencils anymore. They are brought over from China! How economical is that? It makes no sense.

We are just like ancient Rome. They made nothing. They eagerly awaited the shipments of food from Egypt and silk from China and spices from wherever and so on. If the grain ships did not arrive on time or not at all, riots ensued.

We still have the ability to produce food here, but I doubt we will ever return to being a manufacturing giant again. Although many would disagree with me, I view this as something good. I prefer craftsmanship over robotics, and we have the chance to fill that niche in the future.

Let other nations pollute themselves to hell. We can choose a different path.

[Elaine Meinel Supkis]

The US is the golden goose. But if we feed ourselves to the Japanese fox, there is no point in the Dragon keeping us alive, is there?

[Carlos]

It is just a matter of time before this comes to reality, it's not if, but when. China has just let the proverbial cat out of the bag, saying what everyone else has been theorizing, and I suspect that the smaller players will decide to get ahead of the game and dump their dollars before China does. It is not a level playing field, not everyone can afford to go through a debacle like this the way China could; her people are still poor and are used to being without. What China has done is set up the game to prompt other countries to get the ball rolling (dumping of dollars) which is the strategy for their end game.

[Elaine Meinel Supkis]

Everyone has a trade surplus with us. This is the key to everything. The minute we start a trade war in ernest, it will go badly for us since we effectively de-industrialized ourselves. We make NO fasteners like screws, for example! they all come from China now.

[Don Parker]

Honestly people, do you really have that little faith in the American spirit? When the chips are down, we stick together like glue. (Witness any number of recent calamities as evidence). It may take a little sacrifice but I would bet the life of my dog that we could win an economic war on an individual by individual level. By the way here is a link to "screws that ARE 'made' in the USA". ( http://www.usstuff.com/fastener.htm ).

[Elaine Meinel Supkis]

I don't see them in our major stores and I buy tons of screws all the time. If I need special materials or types of screws, I can pay a much higher price and get them from say, Douglass industries.

But the mainstay is now Chinese. And I am FOR tariffs and barriers to PROTECT our screw industry!

[DeVaul]

We all saw the "American spirit" and "glue" on display in New Orleans after the dikes broke.

No need to remind us of that nightmare.

What will happen when several major American cities run short of food and water?

[Derek]

China is to the U.S. as Wal-Mart is to a small town. Ran all the other businesses out, and now if it left you'd have to drive 50 miles to get everything, and it'll cost a lot more.

[Elaine Meinel Supkis]

Correct, Derek and I love your analogy.

[Al Goettemoeller]

Does anyone have any links on how all of this is affecting Canaa and the Canaian investors? i.e. websites?
email to
internation_al@hotmail.cm

[Al Goettemoeller]

Does anyone have any links on how all of this is affecting Canada and the Canadian investors? i.e. websites?
email to
internation_al@hotmail.cm

[forex forum]

i hope china does not do this.

forex forum discussion

[raivo pommer-]

Raivo Pommer
raimo1@hot.ee

EU HILF

EU-Nothilfe für Osteuropa - Köhler tief besorgt

Die Europäische Union hat weitere 100 Milliarden Euro im Kampf gegen die Wirtschafts- und Finanzkrise zugesagt. Die Staats- und Regierungschefs einigten sich am Freitag in Brüssel auf zusätzliche 75 Milliarden Euro für den Interna tionalen Währungsfonds (IWF) sowie weitere 25 Milliarden Euro für Notkredite in Osteuropa. Beim Weltfinanzgipfel in zwei Wochen will sich die EU für eine stärkere Regulierung der Märkte einsetzen. Bundespräsident Horst Köhler ist nach einem Bericht der Online-Ausgabe der "Bild"-Zeitung tief besorgt über den Zustand mehrerer Staaten in Mittel- und Osteuropa. Er hat Bundeskanzlerin Angela Merkel (CDU) vor den Folgen gewarnt.

[Richard Gyan]

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richardgyan@earthling.net

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===================================
Product..................Gold Dust (AU)
Quality..................22+ Carat
Quantity.................530KG
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Payment................. CASH.

Contact Mr. Richard Gyan for more details/FCO

Thanks
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[Jack]

This is scary! I've been wondering about this kind of scenario for a long time. I know most of the "in the know people" say it wouldn't be in China's best interests, but everytime I hear someone say we need to get tought with China - how do you negotiator with your banker who holds your loan? You certainly don't have much leverage.

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