China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

[Solve et Coagula]

China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings

Submitted by Tyler Durden on 04/24/2011 11:05 -0400

Hyperinflation Monetary Policy

All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE" again?

Continue to read:
http://www.zerohedge.com/article/china-p...d-holdings

[rsol]

nice cheap nvidia cards yum...

[lenstwo2]

From the article:
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"China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.

The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high."

Once the push for broad Chinese currency acceptance is in play, the CNY and the USD will be unpegged, promptly followed by China dumping the bulk of its USD exposure, and also sending the world a message that US debt is no longer a viable investment opportunity.

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I have a limited understanding of this topic, but I think this 'reduction' in USD holdings by China will have to be somewhat gradual. Otherwise, the devaluation of the currency will tend to be worth less and less, making the remaining holdings less valuable. Am I right in thinking that if China redeems 2/3 of its holding in cash all at once, it will create a shock to the system and sink the dollar almost immediately?

It will then force the FED to purchase more and more of the debt, creating the spinning cycle downwards.

I want to understand better how this process works in real time, so please correct my assumptions if I'm off-base.

[rsol]

who does it redeem it too?

dont ever consider the stock market to be complicated. its not. you dont have to be clever just ruthless.

there will be plenty of buyers out there as the USD is still the trade currency of the world. however what it does mean is there will be plenty more dollars in circulation bringing its price down to all. To keep a reserve and then dish it out in one go would be near impossible. no one has 1.3tril "spare" to make such a purchase. and with what? pounds? gold? diamonds?

But remember they are not "selling" the dollars tho. just buying things with dollars. such purchases can have an effect but 1.3till dropped into the world ecomomy would have an initial impact but would readjust "in real time". all they have to find is people willing to take dollars for thier goods...perhaps americans....

what it will mean is america can import better. staff will find they need to pay more for food and fuels. however as america is a financial basket case in denial for oooh 10 years at least now... who knows.

The real drop is in confidence in the dollar. if that were to get shaky enough for oil countries to risk enemy status with america and go for the euro, you could really be in trouble guys. just remember wealth is in the country regardless of the currency.

its simple but complicated by many people having ideas at the same time. as people try to take advantage of a situation to profit more than the late birds. Many of these selfish acts tend to bolster the currency as they try to sell it for more than its worth.

Just remember one thing. just because its for sale at a price that does not mean anyone is buying. its all relative from yesterday. even if trilions is "dumped" onto the stock market it still requires many people to buy it up day after day. its just impossible to do such big moves in the market with all these greedy hands running around.

Hope that makes it a touch clearer. if not, welcome to finance!

its bad news for anyone with savings and great news with anyone selling looking for a buck, swings and roundabouts.