The Epic American Credit and Bond Bubble Laboratory Message Board

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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: GST who wrote (48306)	12/28/2005 8:11:52 PM
From: bond_bubble	Read Replies (1) of 110194

Just another possibility for you to think on China: Currently China holds lot of Agency bonds (I dont know why they would go for agency instead of treasury which has only few basis point less of yield). What happens if the GSE goes bankrupt (US govt allows it to happen) and default (which is what happens in a deflation)? China would have no more savings and it would have lost ALL of its savings because it wanted to protect its currency from appreciating - or in other words, China spent all the savings in creating jobs that were only transient until US defaulted!! Would Yuan appreciate in this scenario? Why? Maybe US govt still holds the trump card!!!

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