Cektor real estate, shares, loans. Undoubtedly, China has its share of the bubbles. It is strange that so little attention is paid to the largest of them.
China's foreign exchange reserves rose by more than the GDP of Norway in 2009. $ 2.4 trillion of reserves - is a bubble in itself, it is growing before our eyes while we look into and try to find another similar large.
Bubble of reserves - is a universally-Asian phenomenon. And we should stop to consider this monetary race as a source of strength. There are three reasons why this situation requires more responsibility than the politicians say publicly.
First: a mass growing pyramid. This question has reached new levels of absurdity, when traders began to "buzz" that the product of the crisis Greece requested assistance from China. In the end, if the economy put up for sale, China could use its $ 453 billion accumulated in the past year, the reserves to buy Greece and Vietnam together, and still will be enough to Mongolia.
Countries such as the United States was necessary to ensure that such as Bill Gross (Bill Gross) in the rest of the world to buy their debt. Now they are making the location of Governments. Gross, who manages the largest investment fund in the Pacific Investment Management Co., Is still very important for officials in Washington. Although now he is not as important as the continued patronage of heads of state assets in such places as Beijing.
Next step
One can only wonder what the guys from the IMF now think. Their aid packages are usually provided with random demands, such as "bring its economy in order." China in winning over resources and geopolitical position. We have already seen how China is deprived of the giants of Wall Street, including Morgan Stanley, on life support. The next natural step will be the whole country.
Chinese huge arsenal of reserves increases its global influence. The problem is that China is in a trap of their own making. Since he and other Asian countries are buying more U.S. debt, it is becoming harder to unload them without causing huge losses of capital. Therefore, they continue to buy new ones.
"This is a titanic huge currency trading" - says David Simmonds (David Simmonds), London-based analyst at Royal Bank of Scotland Group Plc. "It is the largest in history, and these reserves have nowhere to go."
China seeks to diversify its debt obligations in other U.S. assets and raw materials. The question facing governments is how markets are so deep enough to absorb the wealth of China? Gold? Oil? European debts? The following diagram Madoff?
Bad end
Solve the problem in China alone - it's like trying to park Airbus A-380 super-jumbo in a Volkswagen. Like all pyramids, there is no easy end, and all could end badly. If the dollar collapses, his panic selling by central banks, trying to limit losses, shaking the global markets would be even greater than the credit crunch in the United States.
Second: the reserves - it is dead money. Reasonableness in the accumulation of currency came after the chaos of 1997. Speculators know that the authorities in Thailand have very small reserves, and they were right. Their attacks on the Thai baht set the stage for the Asian crisis. Governments have spent the 2000's, not to repeat the mistake.
In the hands of Asian economies has focused too much needed other things. In July 2007, at 10-th anniversary of the devaluation in Thailand, Asian Development Bank President Haruhiko Kuroda (Haruhiko Kuroda) said that the rapid accumulation of reserves is a serious problem for the region. Too bad nobody was listening.
Huge sums
These huge sums of money could be used to improve infrastructure, education, health care and reduce carbon emissions. Never before have we seen such rationality in the management of such huge resources.
Third: the reserves added risk of overheating. When politicians buy dollars, they need to sell the domestic currency, improve its availability and increase the money supply. Then they sell the bonds to mop-up excess money in the economy. This inexact science, which often leads to an acceleration of inflation. The strategy was developed in order to be expensive.
Odds are growing rapidly. Asian risks are skewed in favor of a solid inflation. Emphasis is now being given to central banks, in time to see whether they will pull liquidity from the economy by higher interest rates. More attention should be to how to back up management to cope with disagreements on the way to this goal.
Central banks face a difficult task. They should get rid of excess liquidity without devastating consequences for their economies and work in conflict with politicians. Asia is only now understand how some of its tactics of protecting the economy reinforce the problem.
Asia kept their currencies to support exports within a decade. It is foolish to ignore the side effects of strategy on the regional economy.
Think about how Dubai has shocked the world economy, or just imagine what kind of information will cause a panic that Chinese growth could fall below 8%. These frustrations pale before what turbulence can cause bursting of the Asian bubble.
China's foreign exchange reserves rose by more than the GDP of Norway in 2009. $ 2.4 trillion of reserves - is a bubble in itself, it is growing before our eyes while we look into and try to find another similar large.
Bubble of reserves - is a universally-Asian phenomenon. And we should stop to consider this monetary race as a source of strength. There are three reasons why this situation requires more responsibility than the politicians say publicly.
First: a mass growing pyramid. This question has reached new levels of absurdity, when traders began to "buzz" that the product of the crisis Greece requested assistance from China. In the end, if the economy put up for sale, China could use its $ 453 billion accumulated in the past year, the reserves to buy Greece and Vietnam together, and still will be enough to Mongolia.
Countries such as the United States was necessary to ensure that such as Bill Gross (Bill Gross) in the rest of the world to buy their debt. Now they are making the location of Governments. Gross, who manages the largest investment fund in the Pacific Investment Management Co., Is still very important for officials in Washington. Although now he is not as important as the continued patronage of heads of state assets in such places as Beijing.
Next step
One can only wonder what the guys from the IMF now think. Their aid packages are usually provided with random demands, such as "bring its economy in order." China in winning over resources and geopolitical position. We have already seen how China is deprived of the giants of Wall Street, including Morgan Stanley, on life support. The next natural step will be the whole country.
Chinese huge arsenal of reserves increases its global influence. The problem is that China is in a trap of their own making. Since he and other Asian countries are buying more U.S. debt, it is becoming harder to unload them without causing huge losses of capital. Therefore, they continue to buy new ones.
"This is a titanic huge currency trading" - says David Simmonds (David Simmonds), London-based analyst at Royal Bank of Scotland Group Plc. "It is the largest in history, and these reserves have nowhere to go."
China seeks to diversify its debt obligations in other U.S. assets and raw materials. The question facing governments is how markets are so deep enough to absorb the wealth of China? Gold? Oil? European debts? The following diagram Madoff?
Bad end
Solve the problem in China alone - it's like trying to park Airbus A-380 super-jumbo in a Volkswagen. Like all pyramids, there is no easy end, and all could end badly. If the dollar collapses, his panic selling by central banks, trying to limit losses, shaking the global markets would be even greater than the credit crunch in the United States.
Second: the reserves - it is dead money. Reasonableness in the accumulation of currency came after the chaos of 1997. Speculators know that the authorities in Thailand have very small reserves, and they were right. Their attacks on the Thai baht set the stage for the Asian crisis. Governments have spent the 2000's, not to repeat the mistake.
In the hands of Asian economies has focused too much needed other things. In July 2007, at 10-th anniversary of the devaluation in Thailand, Asian Development Bank President Haruhiko Kuroda (Haruhiko Kuroda) said that the rapid accumulation of reserves is a serious problem for the region. Too bad nobody was listening.
Huge sums
These huge sums of money could be used to improve infrastructure, education, health care and reduce carbon emissions. Never before have we seen such rationality in the management of such huge resources.
Third: the reserves added risk of overheating. When politicians buy dollars, they need to sell the domestic currency, improve its availability and increase the money supply. Then they sell the bonds to mop-up excess money in the economy. This inexact science, which often leads to an acceleration of inflation. The strategy was developed in order to be expensive.
Odds are growing rapidly. Asian risks are skewed in favor of a solid inflation. Emphasis is now being given to central banks, in time to see whether they will pull liquidity from the economy by higher interest rates. More attention should be to how to back up management to cope with disagreements on the way to this goal.
Central banks face a difficult task. They should get rid of excess liquidity without devastating consequences for their economies and work in conflict with politicians. Asia is only now understand how some of its tactics of protecting the economy reinforce the problem.
Asia kept their currencies to support exports within a decade. It is foolish to ignore the side effects of strategy on the regional economy.
Think about how Dubai has shocked the world economy, or just imagine what kind of information will cause a panic that Chinese growth could fall below 8%. These frustrations pale before what turbulence can cause bursting of the Asian bubble.
Bloomberg
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