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Foreign Demand For Us Financial Assets Plummets

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Foreign demand for US financial assets down in May

By MARTIN CRUTSINGER

The Associated Press

Thursday, July 16, 2009; 9:56 AM

WASHINGTON -- Foreign demand for long-term U.S. financial assets plummeted in May as Japan and Russia trimmed their holdings of Treasury securities.

The Treasury Department said Thursday that foreigners actually sold $19.8 billion more long-term U.S. securities than they purchased in May. That compared with net purchases of $11.5 billion in April.

China, the largest foreign holder of U.S. Treasury securities, bucked that trend. Its holdings rose to $801.5 billion, an increase of 5 percent from $763.5 billion in April.

China's holdings are a direct result of the huge trade deficits the U.S. runs with the emerging Asian power. The Chinese take the dollars Americans pay for Chinese products and invest them in Treasury securities.

American manufacturers argue that gives China unfair trade advantages by keeping the dollar overvalued against the Chinese currency, which makes U.S. goods more expensive for Chinese consumers and Chinese products cheaper here.

Both the Bush and Obama administrations have argued that China should allow its currency to rise faster in value against the dollar but the yuan has stopped appreciating against the dollar in recent months.

Japan, the second largest foreign owner of Treasury securities, trimmed its holdings 1.3 percent to $677.2 billion in May, from $685.9 billion in April.

Russia cut holdings even more sharply, reducing them 9.1 percent to $124.5 billion in May from April.

Oil exporting countries, another large holder of Treasury securities, boosted their holdings by 1.8 percent to $192.9 billion.

Treasury Secretary Timothy Geithner traveled to Saudi Arabia and the United Arab Emirates this week to assure those governments that the administration is committed to getting its soaring budget deficits under control once the current recession and financial crisis have been contained. Geithner delivered a similar message to the Chinese in a trip to Beijing a month ago.

http://www.washingtonpost.com/wp-dyn/conte...9071601457.html

Edited by MOP

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Funnily enough if they don't buy, it causes the $ to fall and their existing $ holdings fall in value.

Classic Catch 22.

The game can't go on forever, at some point the US's creditors have got to extract themselves, painful though it may be, it will be less painful than hanging on to the bitter end. It's a matter of timing and hopefully that time will come sooner than later and won't cause WW3.

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The game can't go on forever, at some point the US's creditors have got to extract themselves, painful though it may be, it will be less painful than hanging on to the bitter end. It's a matter of timing and hopefully that time will come sooner than later and won't cause WW3.

I'm not too sure, I think this game could go on for a very long time, too many vested interests for it not to.

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Yes, the Japanese kept their deflationary period going for a decade while avoiding a collapse.

That was an exception, one single country that could export it's inflation via the carry trade.

How is the whole planet going to pull off the same trick?

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That was an exception, one single country that could export it's inflation via the carry trade.

How is the whole planet going to pull off the same trick?

Aliens.

There's the whole universe to trade with, I'm sure our bankers have talents which the rest of the galaxy would be willing to have.

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That was an exception, one single country that could export it's inflation via the carry trade.

How is the whole planet going to pull off the same trick?

Well, I think it was an assumption that the QE was exported, as people were expecting inflation, but perhaps current events are showing us that debt deflation can outpace controlled inflation.

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Well, I think it was an assumption that the QE was exported, as people were expecting inflation, but perhaps current events are showing us that debt deflation can outpace controlled inflation.

The blackhole is huge and it's sucking up all the QE cash.

The problem is if we can print why work?

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central banks print money to buy each others debt

i know they will be found out eventually but they may keep it going for a few more months

As they operate in secret I think they can keep this going for a lot longer than a few months.

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I'm not too sure, I think this game could go on for a very long time, too many vested interests for it not to.

When it happens is unclear, but it can't go on forever. The Treasuries of course earn interest for the Chinese (pifflingly small buy it is positive...) and the US has to borrow more each time to borrow and pay off the interest. Eventually their income through taxation wouldn't even cover the interest. The US simply has to pay down its debt or default (much like, er, everyone else).

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IMO everyone knows the dollar is worth far less than a dollar, say 10 cents, so everyone should be dumping dollars.

They're not doing that, which suggests to me that there's a scheme afoot agreed between governments. The scheme could only be, to get all the foreign governments out of US dollars in an orderly fashion, for as near 100 cents as possible.

The question is: at whose expense? The answer could only be: at ordinary people's expense.

So this month Russia sells a bit, next month China sells a bit. The aim is to stop ordinary people all dumping dollars, and keep them asleep until the governments are out, at which point it can drop to 10 cents.

That's going to take quite some cunning.

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IMO everyone knows the dollar is worth far less than a dollar, say 10 cents, so everyone should be dumping dollars.

They're not doing that, which suggests to me that there's a scheme afoot agreed between governments. The scheme could only be, to get all the foreign governments out of US dollars in an orderly fashion, for as near 100 cents as possible.

The question is: at whose expense? The answer could only be: at ordinary people's expense.

So this month Russia sells a bit, next month China sells a bit. The aim is to stop ordinary people all dumping dollars, and keep them asleep until the governments are out, at which point it can drop to 10 cents.

That's going to take quite some cunning.

as cunning as a fox what used to be Professor of Cunning at Oxford University but has moved on, and is now working for the UN at the High Commission of International Cunning Planning?

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