Daniel Davies writes: "5. So the aim will be to not precipitate any crash, but to gradually redenominate China's claims on the USA into real assets as far as possible and let the currency crisis happen when it will."
Does this theoretical strategy help explain the rise of Sovereign Funds? Jayson Funke Graduate School of Geography Clark University 950 Main Street Worcester, MA 01610 -----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Daniel Davies Sent: Thursday, August 09, 2007 8:00 PM To: [email protected] Subject: Re: [PEN-L] uncle sam's banker I always find these discussions a bit surreal. I think there's a fundamental mistake here in assuming that the Chinese state is remotely the same kind of economic actor as a normal investor or speculator. I'd analyse the situation thus: 1. To a very great extent, even if those T-Bills all went up in smoke tomorrow, they would have served their main purpose, which was the neutralisation of the domestic monetary consequences of a decade's export-driven growth. 2. The Chinese government surely did not accidentally happen into a position that can't be liquidated. This was a long time in the making. They did it aware of the consequences. 3. The inevitable consequence of China deciding to stop financing the US deficit will be a currency crisis (assuming that someone else can't be found to pick up the slack which I would not want to rule out of hand). The Chinese government will lose out in that event to the extent to which it is exposed to US assets with a fixed nominal dollar value. 4. On the other hand, given that the Chinese government has a *long* planning horizon, it will be insulated from the consequences of a dollar crisis to the extent which it holds productive assets or real estate in the US. 5. So the aim will be to not precipitate any crash, but to gradually redenominate China's claims on the USA into real assets as far as possible and let the currency crisis happen when it will. 6. Note also that a currency crisis hurts the USA in terms of its economy, its national prestige and its ability to compete with China for developing world resources partners. Taking a loss on treasury bills in order to gain a strategic advantage over a large adversary looks to me to be a more rational and cleaner way of achieving strategic objectives than making expensive and complicated pieces of machinery, transporting them to people who don't want them and then blowing them up (which is the economic description of war). So basically my position on this is to unask the question - while we're thinking about this whole issue in terms of China acting like you or I would if we had a trillion dollars, we're not thinking like China. The economics gets in the way of the politics (and grand strategy) here. best dd -----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] Behalf Of Doug Henwood Sent: 10 August 2007 00:01 To: [email protected] Subject: Re: uncle sam's banker On Aug 9, 2007, at 6:52 PM, raghu wrote: > 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. They'd probably have to, but it'd be the biggest secondary offering in human history, and impossible to keep secret. And once news got out, all hell would break loose. So it's really hard to imagine how they'd pull it off. And to imagine who'd Wall Street ever find to buy all that Treasury paper even if they could keep it secret. Doug
