China has lost its nuclear option

Discussion in 'China' started by Armand2REP, Sep 5, 2010.

  1. Armand2REP

    Armand2REP CHINI EXPERT Veteran Member

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    Thank You Treasury Bubble, China Can't Nuke The Bond Market Anymore
    Vincent Fernando, CFA | Sep. 3, 2010, 12:51 PM | 1,848 | comment 13

    Anchorman FerrellRemember when economic observers warned that China's massive accumulation of U.S. government bonds meant that it could threaten to cause an American debt crisis?

    This was known as China's 'nuclear option', given that it would also cause economic damage to China itself, but it was a concern since China's massive debt holdings were seen as a stranglehold on the U.S. financial system which China could exert at any moment it pleased.

    Well the nuclear option has been disarmed... by the flight of Americans out of stocks and into bonds:

    Charles Hugh Smith:

    But a funny thing happened to the "nuclear option" story": American investors have absorbed almost $4 trillion in U.S. Treasuries, making domestic owners the largest holders of Treasuries. China's holdings, as vast as they are, are now a modest percentage of domestic owners--as little as 25%.

    This domestic move out of equities and into Treasuries is a sea change with broad consequences. Hundreds of billions of dollars has been pulled out of U.S. equities and dumped into low-yield Treasuries. For context, recall that domestic U.S. assets (real estate, bonds, equities, and other marketable capital) is around $52 trillion.

    So thank the economic crisis, and the ensuing panic out of stocks. Americans overwhelmingly own their government's debt again:

    So owning $4 trillion in Treasuries--more than all non-U.S. owners combined, including China, Japan and the Gulf Oil states--does not require that great a percentage of U.S. capital. Even if U.S. owners absorbed another $4 trillion, that would make Treasuries less than 20% of total capital.

    ...

    The net result of this structural change is the Chinese "nuclear option" has been reduced to a firecracker.

    It's worth emphasizing the $52 trillion of U.S. assets mentioned above, since it brings up a further point...

    Many like to berate the U.S. for being bankrupt, and it's true that the government's finances are messy. Yet American private wealth remains enormous by global standards, even if most Americans don't realize it, since wealth inequality is to vast in the U.S..

    Even after the crisis, there is an enormous amount of wealth within America, relative to the world. China gets a lot of airtime about its giant trillion dollar pile of U.S. bonds... and it is huge... but it's still peanuts relative to American wealth.

    Some economies in the world are more heavily dependent on the government, and their economies are heavily comprised of government entities, but not America's and this is why many observers get the country wrong.

    In fact, the U.S. government is a much smaller part of the American economy than the private sector, thus you can't judge the state of America by the state of its government alone.


    Read more: Thank You Treasury Bubble, China Can't Nuke The Bond Market Anymore
     
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  3. Daredevil

    Daredevil On Vacation! Administrator

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    If you ask me, China never had that nuclear option to begin with, it was a giant bluff. It would have never dumped the bonds causing enormous damage to itself. Now the bluff has been called off. Time for China to sulk.
     
  4. hit&run

    hit&run Elite Member Elite Member

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    China was exposed when Pakistani detonated (read screwed) their direct from inventory sub kiloton yield nukes.
     
  5. tony4562

    tony4562 Tihar Jail Banned

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    China and US are friends (far more people and goods trade places between these tow countries than they do between US and a certain big nation in south asia) and import trade partners to each other. So i don't believe the nuke option was really there for China in today's inter-twined world economy. On top of that China is one of the p5, and thus maintaining world peace and prosperity is in China's core interest.
     
  6. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    This is why USA''s military focus is on China?? Encircling and containing.
     
  7. tony4562

    tony4562 Tihar Jail Banned

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    It's the top-brass generals, right-wing neo-conservatives, KKK, aryan nation fanatics, etc, who wanted a confrontation with China, don't confuse them with the majority of Americans. See america is even withdrawing troops from Iraq.
     
  8. amoy

    amoy Senior Member Senior Member

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    tony, u sound like a boy scout or a green peace activist
     
  9. LETHALFORCE

    LETHALFORCE Moderator Moderator

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    These guys control the US military?
     

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