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Non-Tech : Lumacom Chronicles - a study of mania and madness
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To: TobagoJack who wrote (103)1/6/2004 8:26:17 AM
From: russwinter  Read Replies (1) of 113
 
Somewhat complicated. I guess the main question I would have is the form these injected bank reserves take.

<Since the reserve backing remains on PBOC's books it will continue to earn a blended yield of global government and agency bond returns. What China has done is to pre-commit a little more than 10 percent of the US$403bn of foreign reserves it had on hand at the end of 2003, and the interest earnings thereof, to help fund potential future losses in the banking system. To the extent that such losses eventually occur, clearly the ex post return on holding these US$45bn of reserves will be lower>

Do they just transfer a bunch of US treasuries and agencies directly to the banks, or is this cash or very short dates treasuries? Sort of sounds like a bookkeeping entry, a juggling of pay Peter accounts? In otherwords (and importantly) what's the impact on the Chinese recycling operation to the US? I think we are all keying on the stress points in the massive Asian Old Maid Card (*) US financing operation. Could US securities be liquidated en masse to cover Chinese banking needs? If so that could be a real vicious cycle.

(*) I use the term Old Maid Cards (OMC) to refer to US debt bought by foreigners. I have the patent on it <g>, but feel free to use it.
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