On 8/9/07, Doug Henwood <[EMAIL PROTECTED]> wrote: > On Aug 9, 2007, at 5:17 PM, raghu wrote: > > If the Chinese really liquidate > > To whom would they sell? > > Doug
Doug, You know a lot more than this, but I assume that if the Chinese central bank ever needs to sell treasuries openly, it'd use the Wall St investment banks to find it a buyer. If they try to sell a lot, the yields on the treasuries should spike up. What happens next becomes unpredictable: one possibility is investors dump equities and corporate bonds for the higher yielding Treasuries. Another more extreme possibility is investors lose confidence in all dollar denominated assets and the exchange rate collapses. The Federal reserve will most certainly intervene if this looks likely, and will start printing money to buy up the excess treasuries. That of course starts its own dangerous chain reaction.. Incidentally if I am reading this article correctly, something like this on a smaller scale seems to have happened today: http://www.thestreet.com/s/liquidity-crisis-goes-global/markets/marketfeatures/10373354.html --------------------------snip Two days after taking a tougher-than-expected stance on monetary policy, the Federal Reserve responded to a surge of demand for money, and via an automatic response, injected $12 billion of reserves into the banking system Thursday morning. Meanwhile, the European Central Bank -- which has been in an overt tightening mode for several months -- has allocated nearly 95 billion euros, or about $130 billion, at a fixed rate of 4% in a "fine-tuning operation" aimed to assure orderly condition in the euro money markets. -raghu.
