Worrying: Is US dollars worthless?

[neddy]

For once, smart people are asking, how much is the US dollars worth.
People around are world are converting their cash to Gold.

Also refer to my related posts
The decline of USA: Is Obama up to the challenge?
http://www.sammyboy.com/showthread.php?t=14013

China/USA: Is China breaking away from USD
http://www.sammyboy.com/showthread.php?t=14434
Perth Mint rations gold as rush erupts over financial crisis
Nick Gardner

January 10, 2009 12:00pm
PERTH Mint, Australia's biggest wholesaler of gold coins and bars, has rationed its sales with the global financial crisis sparking a new gold rush.

Worried investors are seeking a safe home for their money and ploughing billions of dollars into the precious metal in a bid to preserve their wealth.

Demand has now reached such unprecedented levels that the Perth Mint has been forced to ration its sales.

Perth Mint's bullion sales rose 194 per cent in the December quarter compared with the corresponding period in 2007, while silver bullion sales were up 140 per cent.

The mint has suspended sales of all gold bars and all bullion coins - except its 1oz "Kangaroo" gold bullion coin.

On Monday, after a three-month suspension, it will expand its range of bullion coins for sale but the restrictions remain in place for minted gold bullion bars so the mint can sell some gold to as many customers as possible.

"We are working three shifts a day, six days a week, and still can't keep up with demand," Perth Mint CEO Ed Harbuz said. "I've never known anything like this in the precious metals market.

"We would be working Sundays too but we are having difficulty getting enough staff."

Non-minted gold in the form of cast bars produced by Perth Mint's local refinery can still be bought, although customers who want the bigger bars often have to wait several weeks.

One customer recently bought $500,000 worth of bullion and wanted it delivered so he could hold it personally.

"For very big orders we normally keep the gold in our depository for security reasons," Mr Harbuz said.

"Orders of $10 million or more are not unusual. Often the orders are much larger if we are dealing with pension funds or institutional investors

 

[neddy]

Jan 9, 2009
Panic could herald dollar rout
By John Browne

One of the few things more troubling for an economy than government intervention is government intervention driven by panic. Time and again, history has shown that when governments rush to engineer solutions to pressing problems, unintended difficulties arise.

In the current crisis, there is growing evidence that Washington is in a state of increasing panic. Despite its massive cash injections, market manipulations and "rescue" plans, the recession is clearly deepening and spreading. With little to show thus far, politicians don't know if they should redouble past efforts, break ground on new initiatives, or both. However, all agree, unfortunately, that the consequences of doing too little far outweigh the consequences of doing too much.

Although there are many parallels between the current crisis and the crash of 1929, one key difference is the global profile of the US dollar. In 1929, the dollar was on the rise, and would soon eclipse the British pound sterling as the world's reserve currency. Furthermore, the American economy was fundamentally so strong that in 1934 America was the only major nation able to maintain a currency tied to gold.

Ever since, the US dollar's privileged "reserve" status has been a principal factor in America's continued prosperity. The dollar's unassailable position has enabled successive American governments to disguise the vast depletion of America's wealth and to successfully increase US Treasury debt to where the published debt now accounts for some 100% of GDP. The total of US government debt, including IOUs and unfunded programs, now stands at a staggering $50 trillion, or five times GDP! If the dollar were just another currency, this never would have been possible.

In today's crisis however, the dollar is likely making its last star turn as the leading man in the global financial drama. Other stronger, less-burdened currencies are waiting in the wings for the old gent to take his final bows.

The dollar's demise is being catalyzed by the neglect of the Federal government. Instead of enacting policies that would restructure the US economy and restore productive, non-inflationary wealth creation, Congress is simply financing the old crumbling edifice.

Faced with the growing realization that America is not doing the work necessary to right its economic ship, it will not be long before America's primary creditors begin to seriously question the nation's ability to service, let alone repay, its debts.
There is now the prospect (inconceivable until recently), that America could lose its prestigious triple-A credit rating. In today's risk-adverse market, this could cost the Treasury 1% in interest on long bonds. Each additional percentage point of interest would cost America some $10 billion a year on each trillion dollars of new debt, or some $300 billion over the life of a 30-year bond.

Many of the foreign governments who hold huge amounts of US dollar Treasury debt, such as China and Japan, have announced plans to spend money on their own ailing economies. Should these foreign central banks divert to domestic initiatives some of the funds used to buy US Treasuries, serious upward pressure on US interest rates will result. Should they actually sell parts or all of their holdings they will likely put serious downward pressure on the US dollar. Last week, a Chinese official claimed the US dollar should be phased out as the world's reserve currency.
In the short term, as dollar carry-trades continue to be unwound and questions of political will and falling interest rates haunt the euro and some other currencies, the US dollar may be the recipient of some upward appreciation. But with the American government appearing increasingly to be in panic mode, a run on the US dollar could develop rapidly into cascading devaluation. Even if no such panic run materializes, the long-term outlook for the US dollar is one of high risk and low return. This beckons major upward pressure on precious metals.
John Browne is senior market strategist, Euro Pacific Capital. Euro Pacific Capital commentary and market news is available at http://www.europac.net/">. It has a free on-line investment newsletter.

(Copyright 2009 Euro Pacific Capital.)

 

[neddy]

Redbull313 is deflecting the pain in his own backyard

United States - Jobs in crisis
In 2008 America lost 2.6m jobs, only slightly better than the 2.75m shed in 1945, at thr end of World War II.
Dec 10, 2009
By Chris Isidore, CNN

New York - There is no longer any doubt about the biggest problem facing the economy: the job market.

Economists believe the recession is likely to get worse until the spiralling job losses and unemployment rate start to improve.

Record low mortgage rates won't lead to higher home values and increased home sales as long as 500,000 people a month are losing their jobs. (Statistics)

A crisis of jobs
Twelve months of losses have cost the economy 2.6m jobs this year. This compares with: -
1949 1,510,000
2001 1,760,000
1982 2,130,000
2008 2,590,000
1945 2,750,000 (end World War 2)
-
Rising unemployment will probably make banks even less willing to lend and also lead to increased defaults on a large range of existing loans.

And with more consumers losing, or worried about losing, their jobs, that should lead to a further pullback in spending.

In turn, that will make it tougher for companies to increase their profits, which could lead to even more stock market losses.

If all that weren't bad enough, economists worry that that this will put more pressure on employers to lay off even more workers - prompting the proverbial vicious circle that can make it so hard to get out of a bad economic downturn.

"That's behind the difficulty in seeing a sustainable recovery ahead," said Lakshman Achuthan, managing director of Economic Cycle Research Institute.

With that in mind, there's a very good chance that there could be more months ahead where the economy sheds more than 500,000 jobs.

"When you have an economy in a free-fall, you have to expect job losses of this magnitude," said Rich Yamarone, director of economic research at Argus Research. "The really bad news is that there's no reason to expect this trend to reverse."

Even the people who have jobs are suffering. According to a recent survey by the Society for Human Resource Management, more companies are reporting that they are cutting pay of their employees in response to the difficult environment.

In addition, the average work week has been falling steadily during the past four months.

A record 8 million workers that want full-time employment have only been able to get part-time jobs, according to the government's December labor report.

That's up 37% from the total of so-called underemployed workers in August.

Pay hikes will be at best modest this year for many employees lucky enough to get increases. A survey by consultant Hewitt Associates found raises will be less than 3% for the first time in the study's 32-year history.

State and local governments are also making tough choices because of the recession, with many reporting big cutbacks in services and suggesting new taxes that could further hurt cash-strapped consumers.

Currently, 43 states have an estimated combined budget deficit of about $100b.

With many states required by law to balance their budgets, those governments are looking at everything from reduced garbage collection and shortened school years to new taxes on everything from soda to music downloads.

And it could get worse before it gets better for states and local governments. Some retail experts expect a record number of stores to close this year, with thousands of closings beyond those already announced.

Vacant storefronts and dead malls can further depress a community's property values and tax collections.

That's why some think that the only way out of the recession is to firmly address the issue of rising unemployment.

Tig Gilliam, chief executive of Adecco Group North America, a unit of the world's largest employment firm, said many of his clients tell him they're preparing to make additional job cuts.

Gilliam added that it's not the credit crunch that is causing them to cut back, but the reduced sales due to weak consumer demand, which has largely been driven by job losses and job worries.

"It's not a housing problem. It's not a financial services problem. It's spread across the landscape," Gilliam said. "And it's a lack of confidence of the 92.8% of people who are employed."

http://money.cnn.com/2009/01/09/news/economy/pain_ahead/index.htm

 

[simontay78]

Jan 9, 2009
Panic could herald dollar rout

Although there are many parallels between the current crisis and the crash of 1929, one key difference is the global profile of the US dollar. In 1929, the dollar was on the rise, and would soon eclipse the British pound sterling as the world's reserve currency. Furthermore, the American economy was fundamentally so strong that in 1934 America was the only major nation able to maintain a currency tied to gold.

According to http://en.wikipedia.org/wiki/Nixon_Shock#The_end_of_the_Bretton_Woods_system The USD no longer pegged with gold.

In 1971 Nixon unilaterally canceled the Bretton Woods system and stopped the direct convertibility of the United States dollar to gold. The second shock was the 1972 Nixon visit to China that brought a surprising new twist to Cold War diplomacy.

 

[simontay78]

There is an value in most people's mind that Gold is worth at least something...little do they know that GOLD is being replaced by many alternative metals as key component in the following.

1. Jewelery
2. Electrical Circuits
3. Toilet Bowl
4. Mirror
5. Gold Teeth
6. Gold Coins
7. Gold Bars (many fakes)
8. Decorations

I don't see gold much these days compared to the the 1980's in the streets, much are replaced by Silver or other alloys.

Some think it's even better since it's rare...and should worth more.

Think in times of crisis what do you value most.

Scenario Total black out for few years due to cut in natural gas supply & water supply from our friendly neighbors in price dispute.

You are left with the last can of Chili Pork Cubes from China & one cup full of rice and 4 very hungry family members.

Would you sell your last food in return for a gold bar/chain/stone that you cannot even verify if it's real only to see a dirty Gold Certificate of Authenticity by a bankrupted Jewelery shop.

If in an nuclear war, all things metal will be highly contaminated by radiation.

In the next rumor is AMERO (go google it)...their fear of USD collapsing is probably based on AMERO coming to be the next currency.

 

[neddy]

According to http://en.wikipedia.org/wiki/Nixon_Shock#The_end_of_the_Bretton_Woods_system The USD no longer pegged with gold.

The trouble with the US begins when it started to print fiat money in the 70s (it only cost a few cents to print a dollar)

Because USA have the world's reserve currency and it prints money at will. It becomes other countries' problem if the USD becomes problematic.

http://www.thehindubusinessline.com/2004/03/01/stories/2004030100010900.htm

"The persistence of the "dollar" problem recalls an interesting statement by a US Secretary of the Treasury, Mr John Connolly. He told his fellow Ministers in 1971 that "the greenback was the US's currency; it was the world's problem".

The dollar and its problem have haunted the global economy since World War II"

 

[neddy]

RedBull313 ... don't divert. I am here

Tell me what you think, US dollar, Aussie dollar or Singapore dollar

 

[neddy]

NEW YORK, Jan 12 (Reuters) - Jim Rogers, a prominent international investor, on Monday predicted that many creditor nations could start shunning U.S. assets, particularly Treasuries, as the economic crisis lingers on.

"If I were the Chinese, I wouldn't buy another single U.S. government bond," said Rogers, who was speaking by teleconference in an interview with Reuters. "I can't imagine anybody is going to give the U.S. government money for 30 years at 2.5 percent or even 4 percent or 4.5 percent. It's mind boggling to me."

China in 2008 became the largest holder of U.S. Treasuries, surpassing Japan.

Prices of long-term U.S. Treasury bonds appear dangerously overstretched after a soaring rally, which began soon after the Lehman Brothers bankruptcy.

The yield on the benchmark 10-year Treasury note, which was trading over 5 percent in June 2007, hit a five-decade low of around 2 percent in mid-December. Currently, the yield on the 10-year note is around 2.43 percent.

"All the big creditors are going to be slowly cutting back ...more and more diversification against and away from the U.S. dollar -- and away from long-term bonds," Rogers added. (Reporting by Dan Burns and Jennifer Ablan; Editing by Theodore d'Afflisio)

 

[neddy]

The calls to remove US dollars as a reserve currency is ever increasing.
The news from Nov 2008 is still valid even now.


Rogers Says Dollar to Be `Devalued,' Buys Commodities (Update2)
By Ron Harui and Mike Schneider

Nov. 25 (Bloomberg) -- The U.S. dollar will be ``devalued'' as policy makers seek to weaken it, undermining the greenback's role as an international reserve currency, said Jim Rogers, chairman of Rogers Holdings in Singapore.

``They think that if you drive down the value of your money, it makes you more competitive, now that has never worked in history in the long term,'' said Rogers. The ICE's Dollar Index has gained 19 percent since Rogers said in an interview on April 27 he expected a dollar rally ``about now.''

The dollar advanced against 15 of the 16 most-traded currencies since the end of June, losing out only to the yen, as a global financial crisis drove investors to the perceived safety of Treasuries. U.S. politicians want to reverse those gains to revive growth, Rogers said.

The dollar is ``going to lose its status as the world's reserve currency,'' Rogers said yesterday in a televised interview with Bloomberg News. ``It will be devalued and it will go down a lot. These guys in Washington, they want to debase the currency.''

Rogers said that he is buying the Japanese yen. All of the 16 most-active currencies have weakened against the yen since June, led by a 39 percent drop in the Australian dollar.

The ICE's Dollar Index, which tracks the greenback against the currencies of six major trading partners, traded at 86.147 as of 7:30 a.m. in London from 86.081 late in New York yesterday. It reached 88.463 on Nov. 21, the highest level since April 2006.

Plan to Exit Dollars

Rogers predicts the U.S. currency's rally ``will probably go into next year'' and said he plans to cut the remainder of his dollar holdings during this period.

``If I were doing it today, and what I have done today, is buy the yen,'' Rogers said. ``But, it is also an artificial move that's going on. It's a difficult problem to find out what is a sound currency.''

Democratic lawmakers including Senator Charles Schumer of New York said this weekend they plan to put an economic stimulus package as large as $700 billion before President-elect Barack Obama on his first day in office. Obama has called for a sizeable enough plan to jolt the economy, saying the U.S. faces the loss of ``millions of jobs'' unless immediate steps are taken to stimulate growth and rescue the nation's automakers.

Buying Commodities

Rogers also is buying commodities, saying their ``fundamentals have not been impaired and, in fact, are improved.'' He correctly forecast in April 2006 that the oil price would reach $100 a barrel and gold $1,000 an ounce.

``In mid-October, I started buying commodities, I started buying China and I started buying Taiwan,'' he said. ``I bought them all, but I've been focusing more on agriculture. I mean sugar is 80 percent below its all-time high. It's astonishing how low some of these prices are.''

The Rogers International Commodity Index Total Return has plummeted 52 percent from a record in July, including an 11 percent slide this month. The index has risen 124 percent over the past seven years.

Sugar surged the most in two weeks yesterday amid speculation that higher crude-oil prices will boost demand for alternative fuels, including ethanol made from cane.

Raw-sugar futures for March delivery rose 0.44 cent, or 3.9 percent, to 11.72 cents a pound on ICE Futures U.S. in New York yesterday. The gain was the biggest for a most-active contract since Nov. 4. Sugar has declined in each of the past three weeks.

To contact the reporters on this story: Ron Harui in Singapore at [email protected]ike Schneider in New York at [email protected]

Last Updated: November 25, 2008 02:59 EST

 

[neddy]

http://www.singsupplies.com/showthread.php?t=12038

 

[imperialarms]

a lot of speculation but even if the usd loses preeminence, that will take place over many many years, and furthermore you certainly do not want the aussie dollar in place of that.

best to buy RMB, aiyah i already tell pple to go china liao. always look to west for fuck

 

[neddy]

a lot of speculation but even if the usd loses preeminence, that will take place over many many years, and furthermore you certainly do not want the aussie dollar in place of that.

best to buy RMB, aiyah i already tell pple to go china liao. always look to west for fuck

AUD is a 'commodity' currency, too volatile. You need a stable currency.


Jim Rogers Says Worried About Dollar, Favors China (Update1)
By Chua Kong Ho and Nipa Piboontanasawat

Jan. 19 (Bloomberg) -- Jim Rogers, chairman of Singapore- based Rogers Holdings, said investors should be “worried” about the U.S. dollar, and recommended selling government bonds and buying raw materials, China stocks and the yen.

“If I were you, I would be worried about the U.S. dollar,” said Rogers, 66, in a speech at the Asia Financial Forum in Hong Kong today. “The Americans are printing U.S. dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the U.S. dollar.”

The Dollar Index on ICE Futures, which tracks the greenback versus six major U.S. trading partners, fell 11 percent since Nov. 21, when it reached 88.46, the highest in 19 months. The Japanese yen climbed 12 percent against the dollar over the past three months as investors reduced holdings of higher-yielding assets.

Holding government bonds is a “big mistake” and is going to “end badly,” he said. Investors should favor agriculture, power generation and China shares if they want to make money, said Rogers, who correctly predicted the start of the commodities rally in 1999 and has written books including ‘A Bull in China: Investing Profitably in the World’s Greatest Market.’

The Reuters/Jefferies CRB Index, which tracks 19 commodities, has declined 3.7 percent this month after dropping 36 percent in 2008, its worst annual performance on record.

China Slowdown

The Hang Seng China Enterprises Index, which tracks 43 stocks of Chinese companies traded in Hong Kong, has declined 8.2 percent this year.

China, the world’s third-largest economy, may have expanded at the slowest pace in seven years in the fourth quarter, with gross domestic product rising 6.8 percent from a year earlier, according to the median estimate of economists surveyed by Bloomberg News before a government report due this week.

China’s government unveiled a 4 trillion yuan ($585 billion) stimulus package in November, which included spending on roads and bridges.

Rogers said in a Dec. 17 Bloomberg Television interview that he planned to sell the dollar. In a Dec. 31 interview, Rogers said he had been buying Chinese agricultural stocks to benefit from state efforts to bolster economic growth.

Stephen Roach, chairman of Morgan Stanley Asia Ltd., recommended investors buy “anything to do with the Asian consumer, infrastructure, alternative energy and technology.” He made the comments at the same forum.

To contact the reporter responsible for this story: Chua Kong Ho in Shanghai at [email protected]; Nipa Piboontanasawat in Hong Kong at [email protected]

Last Updated: January 19, 2009 04:28 EST

 

[Naka_Timo]

Dont tink it will become worthless, there still be some use

 

[neddy]

Dont tink it will become worthless, there still be some use

Wallpaper?

Americans are adding US$1 trillion to its debt every 15 months, China used to purchase US govt bonds happily, but now, China is using the money domestically to stimulate its slowing economy. So, who is going to fund the Americans' debt? Scary

Every country is not exporting so much to USA these days, so they do not need to purchase the reserve currency. even NOL ships are mothballed at port.

What is more is that the conditions for the USD as a reserve currency is long gone. If there is another country's currency with the right conditions to take over, the USD would have turned into wallpaper. But there is talk of returning to the Gold standard.

 

[neddy]

Fed Refuses to Disclose Recipients of $2 Trillion
Who’s the fed lending money to? Bloomberg wants to know.

December 15, 2008
In an article on Bloomberg.com we explore one of the key definitions of the current administrations mantras. Don’t let the public in on any secrets. Bloomberg asked the Fed to “disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.”

However it seems that the Fed has other ideas, and is refusing the request. The Fed says they regarding any information it holds as trade secrets.

The banks and institutions which are borrowing the money don’t want the information to come out as it is in there interest to keep potently bad information from making its way to the market in the form of short selling.

But it’s the US Taxpayers money, and we all have a right to know where it’s going. Does the health of the banking sector and individual Banks mean more then that of the US citizen. Well in the short-term it seems it might. If they can hold out another 45 days it will become someone else’s problem, and they can simply walk-away.

Breakdown: Request
· Nov 7th, Bloomberg filled a suit under the Freedom of Information Act.
· Dec 7th, Federal Reserve refuses the request for information
· Fed saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information (bullshit!!)
· Fed confirmed that a records search found 231 pages of documents pertaining to the requests


“The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn’t seek money damages.”

The Fed does not want us to know what they are holding; otherwise we would know what the potential losses are.

Breakdown: Current TARP
· Fed lending exceeded $2 trillion for the first time Nov. 6
· Lending rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14

Breakdown: Congress
· Congress is demanding more transparency from the Fed and Treasury on bailout
· Dec. 10 hearings, Rep. David Scott (Georgia D) said Americans had “been bamboozled”

Breakdown: Past Request Details
· May 21 Bloomberg asks Fed to provide data on collateral posted from April 4 to May 20.
· June 19 Fed says it needs until July 3 to search documents and determine whether it would make them public.
· Bloomberg didn’t receive a formal response that would let it file an appeal within the legal time limit.
· Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

“In response to Bloomberg’s request, the Fed said the U.S. is facing an unprecedented crisis in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

 

[redbull313]

Fed Refuses to Disclose Recipients of $2 Trillion
Who’s the fed lending money to? Bloomberg wants to know.

December 15, 2008
In an article on Bloomberg.com we explore one of the key definitions of the current administrations mantras. Don’t let the public in on any secrets. Bloomberg asked the Fed to “disclose the recipients of more than $2 trillion of emergency loans from U.S. taxpayers and the assets the central bank is accepting as collateral.”

However it seems that the Fed has other ideas, and is refusing the request. The Fed says they regarding any information it holds as trade secrets.

The banks and institutions which are borrowing the money don’t want the information to come out as it is in there interest to keep potently bad information from making its way to the market in the form of short selling.

But it’s the US Taxpayers money, and we all have a right to know where it’s going. Does the health of the banking sector and individual Banks mean more then that of the US citizen. Well in the short-term it seems it might. If they can hold out another 45 days it will become someone else’s problem, and they can simply walk-away.

Breakdown: Request
· Nov 7th, Bloomberg filled a suit under the Freedom of Information Act.
· Dec 7th, Federal Reserve refuses the request for information
· Fed saying it’s allowed to withhold internal memos as well as information about trade secrets and commercial information (bullshit!!)
· Fed confirmed that a records search found 231 pages of documents pertaining to the requests


“The Freedom of Information Act obliges federal agencies to make government documents available to the press and public. The Bloomberg lawsuit, filed in New York, doesn’t seek money damages.”

The Fed does not want us to know what they are holding; otherwise we would know what the potential losses are.

Breakdown: Current TARP
· Fed lending exceeded $2 trillion for the first time Nov. 6
· Lending rose by 138 percent, or $1.23 trillion, in the 12 weeks since Sept. 14

Breakdown: Congress
· Congress is demanding more transparency from the Fed and Treasury on bailout
· Dec. 10 hearings, Rep. David Scott (Georgia D) said Americans had “been bamboozled”

Breakdown: Past Request Details
· May 21 Bloomberg asks Fed to provide data on collateral posted from April 4 to May 20.
· June 19 Fed says it needs until July 3 to search documents and determine whether it would make them public.
· Bloomberg didn’t receive a formal response that would let it file an appeal within the legal time limit.
· Oct. 25, Bloomberg filed another request, expanding the range of when the collateral was posted. It filed suit Nov. 7.

“In response to Bloomberg’s request, the Fed said the U.S. is facing an unprecedented crisis in which “loss in confidence in and between financial institutions can occur with lightning speed and devastating effects.”

Wont do you any good Joshie Boy. Australia needs America. So does China.
And oh boy are you really upset, I see.

Jealous, Huh?

 

[neddy]

Wont do you any good Joshie Boy. Australia needs America. So does China.
And oh boy are you really upset, I see.

Jealous, Huh?

China is saving America - not the other way round

U.S. debt is losing its appeal in China
By Keith Bradsher

Thursday, January 8, 2009
HONG KONG: China has bought more than $1 trillion in American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home - a shift that could pose some challenges to the U.S. government in the near future but eventually may even produce salutary effects on the world economy.

At first glance, the declining Chinese appetite for U.S. debt - apparent in a series of hints from Chinese policy makers over the past two weeks, with official statistics due for release in the next few days - comes at an inopportune time. On Tuesday, the U.S. president-elect, Barack Obama, said Americans should get used to the prospect of "trillion-dollar deficits for years to come" as he seeks to finance an $800 billion economic stimulus package.

Normally, China would be the most avid taker of the debt required to pay for those deficits, mainly short-term Treasury securities. In the past five years, China has spent as much as one-seventh of its entire economic output on the purchase of foreign debt - largely U.S. Treasury bonds and American mortgage-backed securities.

But now, Beijing is seeking to pay for its own $600 billion economic stimulus - just as tax revenue falls sharply as the Chinese economy slows. Regulators have ordered banks to lend more money to small and midsize enterprises, many of which are struggling with slower exports, and Chinese bankers say they are being instructed to lend more to local governments to allow them to build new roads and other projects as part of the stimulus program.

"All the key drivers of China's Treasury purchases are disappearing," said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland. "There's a waning appetite for dollars and a waning appetite for Treasuries. And that complicates the outlook for interest rates."

Fitch Ratings, the credit rating agency, forecasts that China's foreign reserves will increase by $177 billion this year - a large number, but down sharply from an estimated $415 billion last year.

In the United States, China's voracious demand for American bonds has helped keep interest rates low for borrowers ranging from the government to home buyers. Reduced Chinese enthusiasm for buying those bonds takes away some of this dampening effect.

But with U.S. interest rates still at very low levels after recent cuts to stimulate the economy, it is quite cheap for the U.S. Treasury to raise capital now. And there seem to be no shortage of buyers for Treasury bonds and other debt instruments: Prices for U.S. debt have soared as yields have declined.

The long-term effects of this shift in capital flows - with China keeping more of its money home and the U.S. economy becoming less dependent on one lender - are unclear, but the phenomenon is something economists have said is long overdue.

What is clear is that the effect of the global downturn on China's finances has been drastic. As recently as 2007, tax revenue soared 32 percent, as factories across China ran flat out. But by November, government revenue had actually dropped 3 percent from a year earlier. That prompted Finance Minister Xie Xuren to warn Monday that 2009 would be "a difficult fiscal year."

A senior central bank official mentioned last month that China's $1.9 trillion in foreign exchange reserves had actually begun to shrink. The reserves - mainly bonds issued by the U.S. Treasury and by Fannie Mae and Freddie Mac, the mortgage finance companies - had been rising quickly ever since the Asian financial crisis in 1998.

The strength of the dollar against the euro in the fourth quarter of last year contributed to slower growth in China's foreign reserves, said Fan Gang, an academic adviser to China's central bank, at a conference in Beijing on Tuesday. The central bank keeps track of the total value of its reserves in dollars and a weaker euro means that euro-denominated assets in those reserves are worth less in dollars, decreasing the total value of the reserves.

But the pace of China's accumulation of reserves began slowing in the third quarter along with the slowing of the Chinese economy, and appears to reflect much broader shifts.

China manages its reserves with considerable secrecy, but economists believe about 70 percent is in dollar-denominated assets and most of the rest in euros. The country has bankrolled its huge reserves by effectively requiring its entire banking sector, which is state-controlled, to hand nearly one-fifth of its deposits over to the central bank. The central bank, in turn, has used the money to buy foreign bonds.

Now the central bank is rapidly reducing this requirement and pushing banks to lend more money instead.

At the same time, three new trends mean that fewer dollars are pouring into China - and as fewer dollars flow into China, the government has fewer dollars to buy American bonds and help finance the U.S. trade and budget deficits.

The first, little-noticed trend is that the monthly pace of foreign direct investment in China has fallen by more than a third since the summer. Multinational companies are hoarding their cash and cutting back on the construction of factories.

The second trend is that the combination of a housing bust and a two-thirds fall in the mainland Chinese stock markets over the past year has resulted in moves by many overseas investors - and even some Chinese - to get money quietly out of the country. They are doing so despite China's fairly stringent currency controls, prompting the director of the State Administration of Foreign Exchange, Hu Xiaolian, to warn in a statement Tuesday of "abnormal" capital flows across China's borders; she provided no statistics.

China's most porous border in terms of money flows is with Hong Kong, a semi-autonomous Chinese territory that has its own internationally convertible currency. So much Chinese money has poured into Hong Kong and been converted into Hong Kong dollars that the territory has had to issue billions of dollars' worth of extra currency in the past two months to meet the demand, shattering its previous records for such issuance.

A third trend that may further slow the flow of dollars into China is the reduction of its huge trade surpluses.

China's trade surplus set another record in November, at $40.1 billion. But because prices of Chinese imports like oil are starting to recover while demand remains weak for Chinese exports like consumer electronics, most economists expect China to run trade surpluses closer to $30 billion a month.

That would give China a sizable sum to invest abroad. But it would be considerably less than $50 billion a month that it poured into international financial markets - mainly U.S. bond markets - during the first half of 2008.

"The pace of foreign currency flows into China has to slow," and therefore the pace of China's reinvestment of that currency in foreign bonds will also slow, said Dariusz Kowalczyk, the chief investment officer at SJS Markets, a Hong Kong securities firm.

For a combination of financial and political reasons, the decline in China's purchases of dollar-denominated assets may be less steep than the overall decline in its purchases of foreign assets.

The overall pace of foreign reserve accumulation in China seems to have slowed so much that even if all the remaining purchases were U.S. Treasuries, the Chinese government's overall purchases of dollar-denominated assets will have fallen, economists said.

But China's leadership is likely to avoid any complete halt to purchases of Treasuries for fear of looking like it is torpedoing the chances for a U.S. economic recovery at a vulnerable time, said Paul Tang, the chief economist at the Bank of East Asia here.

"This is a political decision," he said. "This is not purely an investment decision."

 

[Satan]

Redbullshit aka shockshit: AIYO. Neddy, Neddy, Give me chance lah. Don't 'tekan' me until so terok can of not? Wait my PAP masters might think I'm doing a bad job and then sack me how? Now economy also no good. Then I have to go back to my old job of selling backside again. Now my backside also so rotten nobody wants.