China Worried about US Debt - The making of a Powerhouse

Richard Fisher, head of the Federal Reserve Bank in Dallas, Texas – one of the US’s largest states – told a British Newspaper yesterday that the Chinese are incredibly concerned over the US governments handling of the financial crisis, specifically, the printing of money by way of the Federal Reserve buying US government bonds, treasury bills and notes. For those of you that don’t know this, when a government wants to increase its cash position, it “lends: itself money by buying up its own debt. I know most of wish we could do that, but if this were the case we would be bankrupt with houses stripped and cars repossessed and the rights to our firstborn taken as well.

This is yet another example of China showing they are worried. Did they come out and tell Ben Bernanke or Tim Geithner, the US Fed Chairman and Treasury Secretary? No. Did they send a letter to Vice President Biden or talk with Secretary of State Clinton? No, and Clinton was just there. Did they address the congressional delegation who came to visit them this week – a delegation that included the speaker of the US House of representatives Nancy Pelosi, AKA the third most powerful person in the US? No. What they did do was take a round about way to let people know they are unhappy with the status of their investment and the way in which the CEO is handling the company. By Company I mean, The US and by CEO I mean Obama.

The Chinese are in a difficult spot, and I have written along these lines before in my Online Forex Blog, you see if they cause a widespread panic in the markets by making such a fuss over this, the value of their investments go down even further. Widespread panic regarding a rating decrease last week showed what it could do, the Dollar fell hard. What would happen if the Chinese leadership addressed the US leadership on this issue directly – it would take away the air of hearsay that exists now through these drips and drabs of media reports.

The Chinese are able to get their message out this way, but not in a way that would cause so much of a stir. Who reads these little interviews aside fro ma few of us boring people with nothing more to do? Wen Jiao Bing calling Obama on the phone to say “yo, what ARE you doing?” will get front page attention on every major newspaper. This way the Chinese get to have their cake without it collapsing on them. The US gets the message. And, I am sure, the US does not care.

Culturally the US and Chinese mindset are worlds apart. The Chinese are savers and conservative by nature fiscally (they also are superstitious), the Americans are care free, “it’ll all work out” type of thinkers – there is no long term.. Hell, the Chinese emperors buried thousands of ceramic soldiers and preserved aspects of their legacy. In May of 2009 they are thinking of 2030, whereas the Americans in May of 2009 are thinking of June.

In the end the Chinese will emerge stronger – this is certain. It happened the same way for the US in 1914 when it was purchasing all the gold it could. China is now doing the same. And where the US became a global leader in the 40’s because of it, China will dominate later on in this Century. Hold on to your Yuan’s, they might be worth something some day.

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My Forex Online Views: Perspective is Everything

So – We saw yesterday that things are not as rosy in Euro land as people thought, I even wrote about it too, but it gets a bit worse. As it happens the German Economy shrank by again the first quarter of 2009 by 3.8% (6.7% for the year) which is the largest decline since the two Germany’s, East and West, were unified in 1990. What this says is that things are still getting worse. To top off that bad news, a German Finance official made a comment about the stability of German banks. He was quoted as saying “the toxic assets will blow up like a grenade” although later he denied saying that --- one listen to the audio that was played on the radio (BBC, of course) confirms that he did not say that. What he did say was “…the bad assets that the banks have on hand are liable to explode like a grenade if it is not addressed in a more aggressive manner.” Sounds the same to me.

In the US, the stock market rallied after consumer confidence numbers rose reflecting that American consumers are optimistic about the future of their shopping. Who wouldn’t be? Have you seen the sales that are going on in the few stores left in America’s big, huge iconic malls? Traders get so excited over the smallest of things. They pumped up the stocks because of consumer confidence but neglected the more alarming data of housing and unemployment. Yesterday also saw the release of housing data which suggests that the price drop in America’s real estate market has not neared a bottom yet – and the forecast from the real estate community is that it won’t any time soon.

Fact is, with the Federal money given out during the stimulus phase, or as I like to call it, hand-out at the expense of taxpayer phase, builders are incentivized to just build. The numbers released yesterday showed that there is a big discrepancy between demand and available units being built. The market is being supplied with 600,000 plus new units – but the demand barely covers 300,000 of them. This alone does not take into consideration what is already on the market, or what is being foreclosed on. This was a housing start data and it showed that the stimulus is only stimulating the builders while the overflow would serve to further lower prices in the communities they are being built in.

Take San Diego County for example; in Oceanside, one of the wealthier, more exclusive areas, there is a house that was built three years ago – beautiful house – 4000 square feet inside – a mini-mansion by many standards which was sold for 1.75 Million Dollars in 2006. The bank took possession of the house and it is now on the market for 600,000 Dollars – almost 1/3rd of the original price.

So, when a consumer sees those prices they get excited and feel optimistic – “I can own that once unreachable house for so much less” – and they tell the pollster who calls them about how they feel and they say, “I feel great, I feel like things are picking up” – but talk to the banks about their toxic assets like the 1.7 million dollar house they are still trying to unload for 600,000 and the picture is completely different.

Those of you reading my Forex Online blogs know better – and if the rest of the trading community could see it – well, perhaps you won’t see these wild swings over nothing.

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