Comments on Maison Fleury: China caught up in a Dollar trap

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2009-06-02T10:30:27.850-07:00

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Jean-Luc, Ultimately you want to compare the siz...

2009-05-27T03:57:18.096-07:00

Jean-Luc,

Ultimately you want to compare the size of the claims on your economy in terms of the size of your economy because we are in a context where GDP alone cannot support payments and we hit capital.

Economic production is at 15T. Economic growth is 3% so the economy is weighing a 15/0.03=$450T. That is how I get to "economic mass".

Then your number of total US govt debt claims of 11 or 6. So to repay these, fully in capital, means 11 of 500. If they redeem everything in capital it would represent 2% of our economy.

It is a price but not a HUGE one.

Why use that number and not a comparison of total debt floating or GDP coverage of debt?
That is kind of the point. When you overrun your GDP, you can't repay your debts out of your cashflow earning but you have to do it with capital. How much capital is there in the USof A? monetary value estimate ? I couldn't get wolfram alpha to spit that out, but it is roughly estimated above and I used the rough number of $500T.

So the chinese are going to overrun on their total debt claims, a fraction of it. So we have a fraction of 2T, let's say 1T. And maybe they are going to run that balance for a few years. Let's say 10. We are looking at a total claim of 10T over 10 years that cannot be satisfied by GDP alone.

So we sell mass, capital, stocks, corporate bonds. If our economic mass is at 500T, 10T is 2%. So we will sell 2% of USof A to get out of this? do it!

Analysis on the numbers you provide that China holds 1/11 or 1/6 of US government debt, means they are a large shareholder between 9% and 16%. Can they move the market for treasuries? I don't think so, but I don't know.

Why do you compare to 500T and not 14T or 11T (the...

2009-05-26T18:24:23.216-07:00

Why do you compare to 500T and not 14T or 11T (the current total debt?)

I think they own close to 1T now. Out of the 11T (or 6 depending on the definition) that's lot?

China may be in a dollar trap but this will not la...

2009-05-25T13:18:42.208-07:00

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Yeah for sure, on both counts. They can do what t...

2009-05-25T06:46:08.108-07:00

Yeah for sure, on both counts. They can do what they want with their USD, which means shifting out of T-bills into markets? or taking US companies private under Chinese state control?

I agree that predicting anything is hard and predicting anything at a nation level by putting FOREX in the picture becomes a black art of random nature.

The main point for me is that the numbers are so small with 2T/yr max on a 500T beast that it doesn't even matter, it's tiny, and the fear-mongering is just that.

ooohwaaaaa the chinese bogeyman is cometh. Fear! Repent! Fear!

If China has USD, surely they can use them as they...

2009-05-25T06:09:11.677-07:00

If China has USD, surely they can use them as they see fit. If you're going to be concerned about it, you should be concerned about what foreign enterprises they buy. Are they going to buy MSFT? Not likely. Would they buy GM? That almost seems more likely...or maybe that's wishful thinking on my part.

I don't think the history of nations buying other nations assets is particularly good. As a kid, I remember the fear mongering about Japan Inc. buying America. Didn't they buy Rockefeller Plaza for something like $1.3B and then end up selling it back at about $400M? That and I believe they bought a lot of golf courses. Wonder how those investments are working out?

My point is that China has the right to buy whatever it wants. Though public opposition prevented CNOOC buying an oil refinery a couple years ago, I believe.

I can't be too concerned though, when they shifted out of Treasuries before, they bought Fannie Mae and Freddie Mac - agencies that are famous for their past not their future value.

Predicting future value in your own country is difficult enough, doing it in a foreign country is more than doubly difficult, don't you think?