Is China Really Liquidating Treasuries?
Guest post by Azizonomics.
The news that China has become the first sovereign to establish a direct sales relationship with the U.S. Treasury (therefore cutting out the middleman and bypassing Wall Street ) raises a few interesting questions.
From Reuters:
China can now bypass Wall Street when buying U.S. government debt and go straight to the U.S. Treasury, in what is the Treasury’s first-ever direct relationship with a foreign government, according to documents viewed by Reuters.
The relationship means the People’s Bank of China buys U.S. debt using a different method than any other central bank in the world.
The other central banks, including the Bank of Japan, which has a large appetite for Treasuries, place orders for U.S. debt with major Wall Street banks designated by the government as primary dealers. Those dealers then bid on their behalf at Treasury auctions.
China, which holds $1.17 trillion in U.S. Treasuries, still buys some Treasuries through primary dealers, but since June 2011, that route hasn’t been necessary.
The documents viewed by Reuters show the U.S. Treasury Department has given the People’s Bank of China a direct computer link to its auction system, which the Chinese first used to buy two-year notes in late June 2011.
The biggest Chinese outflows in U.S. Treasuries occurred in the months following the establishment of this relationship:
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Spain-There is no future, and therefore no present either?
Yes, the Spanish Economy is imploding. This summer will be the last summer of “hope” before reality hits for “REAL”. Austerity, recession, unemployment are all ingredients severely affecting the Spaniards. From El Pais.
Con la que está cayendo…” This expression – which literally means “With this downpour,” but metaphorically is used as “With things as bad as they are” – keeps cropping up in conversation, as Spaniards spend their days with one eye on the stock market and the other on the risk premium – “which seems like a member of the family right now,” according to the sociologist Daniel Kaplún, an expert on public opinion.
It’s been like this for many months, and nobody knows when it will end. The economic and financial crisis has brought with it a cloud of social pessimism; a mantle of gloom; a lack of expectations that is cutting deep into the average citizen’s state of mind. There truly seems to be no way out.
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Is China in Recession?
Next up is China. By Trim Tab’s Biderman.
The next big financial crisis we are likely to face will not come from Europe, which everyone already knows is in recession, but rather from China. China is in big trouble and most investors do not even think that is possible. Everyone still believes that China, even with a slower growth rate, will be the engine that pulls the globe out of economic distress.
What we have discovered recently is that not only is the quality of China’s economic numbers are even worse than the US, but real time numbers indicate to us that China is probably already in a recession. Our buddy Dennis Gartman pointed me towards a May 14 Financial Times item that quoted Li Keqiang, China’s premier in waiting, as saying back in 2007 that China’s official GDP figures are man-made and therefore unreliable. The FT added that Mr Li focuses on three sets of data, electricity consumption, rail cargo and bank loans. Guess what? Electricity consumption now is barely growing after years of double digit gains. Rail cargos volumes are also now barely ahead and new bank loans are actually dropping.
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News That Matters
Ft.com
Germany refused to share the debt burden of stressed eurozone peers on Tuesday, ignoring two of the most influential international economic bodies which offered support for proposals championed by Paris, Rome and Brussels ahead of a summit. Angela Merkel, Germany’s chancellor, has argued that any co-mingling of eurozone debt would remove incentives for southern economies to adopt structural reforms. The calls from the International Monetary Fund and the Organisation for Economic Co-operation and Development came on the eve of Wednesday’s EU summit.
Asian shares retreated as hopes of fresh measures to tackle Europe’s debt crisis faded ahead of a meeting of European leaders while weak trade figures weighed on Japanese exporters. The MSCI Asia Pacific index slid 1.2 per cent with Japan’s Nikkei 225 Stock Average 1.2 per cent lower, Australia’s S&P/ASX 200 index down 1 per cent and South Korea’s Kospi Composite index off 1.3 per cent. Hong Kong’s Hang Seng index fell 1.5 per cent while China’s Shanghai Composite index slipped 0.2 per cent. http://www.ft.com/intl/cms/s/0/b71e7fe0-a2ee-11e1-826a-00144feabdc0.html#axzz1vfG4GISL
Western powers are prepared to offer Iran an “oil carrot” that would allow it to continue supplying crude to Asian customers in exchange for guarantees it is not building an atomic bomb. As the five permanent member of the United Nations Security Council, Germany and the European Union prepare for talks with Iranian officials in Baghdad on Wednesday, diplomats and oil executives said Washington and Brussels were likely to hold out the prospect of a possible suspension of an EU insurance ban on ships carrying Iranian oil. They added that the US and EU are not prepared to lift other sanctions – including an EU import ban on Iranian oil – and also cautioned that a deal is unlikely to be agreed at the meeting. http://www.ft.com/intl/cms/s/0/149b7962-a433-11e1-84b1-00144feabdc0.html#axzz1vfG4GISL
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