China set to report record trade DEFICIT (not surplus) for March [View All]

[Statistical]

Say goodbye to China's "export economy" paradigm. In a stunning development for trade hawks, and pretty much anyone who follows the biggest liquidity bubble in history, China Daily has announced China is about to announce a record trade deficit (yes, not surplus, deficit) for March. This makes the whole CNY undervaluation debate pretty much moot, as even China now moves into the ranks of net importers. From China's official daily newspaper: "The country will probably see a "record trade deficit" in March thanks to surging imports" and "will "fight back" if Washington labels China a currency manipulator." Perhaps this finally explains where all the excess liquidity has gone: with China now not exporting to the US consumer, it has instead refocused on its own "middle" class. This means that Chinese administrators are much more focused on maintaining a stable economy, and will be much more concerned about economic overheating, which goes in line with the recent indications of material liquidity tightening out of Beijing. Market News reports that the actual deficit will come in at $8 billion for March, the first deficit since April 2004, when the gap was $2.26 billion.

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The scariest implication: China is quickly running out of dollars which it can then recycle into US Treasuries. This is surely the biggest nightmare scenario for Tim Geithner. While this explains the decline in indirect bidding, it also may go to refute the whole premise of China being behind the direct UK-based bidders is flawed. And if so, is it merely just the Federal Reserve doing all the buying in a covert fashion (via BlackRock or otherwise) as some of the more conspiratorially-minded market followers have speculated?

Here is the most recent prophetic insight from Edwards, as of March 2, pertaining to this critical shift:

Clearly to the extent that the rise in China?'s official reserves depended on the size of its trade deficit, there will be reduced purchases of US Treasuries. But China has, in part, merely been swapping official dollar purchases of US Treasuries with surging imports of dollar-denominated commodities on the trade account.

http://www.zerohedge.com/article/stunner-china-set-announce-record-trade-deficit-march

So China rising import demand (emergence of consumer middle class) would be great news except for the fact that we are running record budget deficits. Someone needs to buy up that excess debt. Debt like anything else is subject to supply and demand and the "price" of debt is interest rates. If debt issuance remains at record highs and demand for debt falls we could see interest on national debt spike.