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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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To: SeaViewer who wrote (19351)10/3/2004 11:17:49 PM
From: Rarebird  Read Replies (1) of 110194
 
<The Chinese is in the driver seat. They want US and Japanese technologies. Once they got what they want, they will pull the plug.>

China is the last man standing in terms of having its cental bank absorb the accelerating inflow of US Dollars and lending them right back to the USA. But for the past six weeks, China has started doing a lot of different things with its hoard of US Dollars and US Treasury debt paper. China is now buying up larger resource companies right around the world - in Canada, Australia and in South America and Africa.

Historically, what China is now doing appears to be a near parallel with the technique that was used in West Germany as wave after wave of US Dollars rolled in during the 1960s and 1970s. Initially, the Germans bought US Treasury paper. But later, to the increasing irritation of American officials who were spending their time in West Germany complaining about the German trade surplus with the US, they set up a system where any German business which wanted to make investments in new plant in other parts of the world could change their D- Marks (at a very small discount) for the US Dollars which kept arriving, and use these US Dollars as the means of payment for their new foreign investments.

In that manner, the West Germans re-exported US Dollars as fast as they arrived, in the process avoiding "funding" the US Treasury or piling up ever bigger hoards of US Dollars in the basement of the Bundesbank. It did wonders to the D-Mark's reputation worldwide. If the Chinese have discovered this old West German monetary technique, then they are starting a process in which, as fast as US Dollars arrive in China, they go right out again as China makes global investments and unloads its US Dollars.

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