China Favors Euro Over Dollar as Bernanke Alters Path

[dipsydoodle]

Source: Bloomberg

China, whose $2.45 trillion in foreign-exchange reserves are the world’s largest, is turning bullish on Europe and Japan at the expense of the U.S.

The nation has been buying “quite a lot” of European bonds, said Yu Yongding, a former adviser to the People’s Bank of China who was part of a foreign-policy advisory committee that visited France, Spain and Germany from June 20 to July 2. Japan’s Ministry of Finance said Aug. 9 that China bought 1.73 trillion yen ($20.1 billion) more Japanese debt than it sold in the first half of 2010, the fastest pace of purchases in at least five years.

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China’s position may make it harder for the greenback to rebound after falling as much as 10 percent from this year’s peak in June as measured by the trade-weighted Dollar Index. The nation cut its holdings of U.S. government debt by $72.2 billion, or 7.7 percent, through May from last year’s record of $939.9 billion in July 2009, according to the Treasury Department, which releases new data today.

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Concern the U.S. economy is faltering was underscored by the Federal Reserve on Aug. 10. Chairman Ben S. Bernanke said the central bank will reinvest principal payments on its mortgage holdings into Treasury notes to prevent money from being drained out of the financial system, its first expansion of measures to spur growth in more than a year.

Read more: http://www.bloomberg.com/news/2010-08-15/china-favors-euros-over-dollars-as-bernanke-shifts-course-on-fed-stimulus.html

[BlueJazz]

1. I certainly don't blame them. I'm sure they also see the signs and are...

..well aware of the stupidity of the American Voter. (That the voters might put the Republicans back in office)

The Chinese are well aware that our economy tanks whenever the Repugs are in charge.

[nyy1998]

2. This is just a bunch of hot air by the Chinese

The EU(esp Great Britian, Spain, Portugal, Italy, and of course Greece) and Japan face larger deficit problems then the US does. And the Chinese want to switch over from the US dollar to the Euro and the Yen

[bhikkhu]

3. But the EU and Japan have realistic plans to mitigate debt

...and fairly solid economies, still involved heavily in manufacturing, which allow the management of debt.

Here is the US there's little manufacturing and little movement toward "future markets", and little political will to realistically even address the problem. Very few people understand here understand the situation or the causes and effects involved - or rather, they think they understand because someone with an agenda told them what to think about it.

[nyy1998]

5. By no means would I call Japan fairly solid, or the EU for that matter

Yes, the EU has created plans to help mitigate debt, but their timing is poor, and their structure is still problematic. For instance, Spain had a bigger housing bubble and 20% unemployment(50% for young ppl), Portugal isn't too far off. Japan has the worst govt debt and deficit out of any developed country in the world, and Great Britain is 2nd(that said, we're not far off from the British).

Besides, manufacturing does not allow the management of debt. I know how much ppl here want the manufacturing sector to return, but it's probably not realistic. The US is trying to progress into a service economy, but they are not taking the steps necessary for the country to actually make that progression. Instead of investing more into education(which you did mention yourself), which is an absolute must for a strong service economy, the US is more invested into the military then any other country. This enormous military spending handicaps the government from spending money on social programs which carry more bang for the buck in the short-term(unemployment benefits, infrastructure projects) and the long-term(education) then the military.

I did kinda sidetrack is, but my premise is that manufacturing won't save the US from large deficits and debts, education will do so.

P.S. Before someone attacks my or goes on an anti-Arne Duncan rant, I'm actually in the small minority that likes the Race to the Top program(although my one criticism is that I wish this program did more to address high school drop-out rates).

[bhikkhu]

6. Perhaps my schooling in economics is old-fashioned...

...but an economy that produces nothing, that manufactures nothing, and then has to import things from everywhere else to satisfy its needs, is exactly the jobless mess of an economy that we have now. Twenty years of talking about and planning to transform the US into a "service economy" has led us into this hole, and "service" is not and never has been a viable substitute for actually making things.

No argument on the importance of education, or on the massive waste of resources the military has become.

[nyy1998]

7. Eh, I guess we'll have to agree to disagree on the manufacturing/service economy

And to be fair, we are seeing car manufacturing in this country grow, as does several green products manufacturing. But other industries such as steel are probably gone forever, or atleast in the forseeable future. But do pay attention to China, they're attempting to make that same transistion from low-cost manufacturing hub to a "service economy" (Vietnam and the Philipines might take over as the low-cost manufacturing leaders in the world).

[Art_from_Ark]

4. Well, I guess this explains, in part at least, why the yen is now 85 per dollar

And to think that 40 years ago, it took 360 yen to buy one dollar