Psst! China? Want some FreddieMacs and FannieBonds?

**Silverbird** · 09-05-2008, 02:13 PM

[Don't expect China to buy more U.S. bonds, the Central bank has enough to paper all their walls at the moment.]

Main Bank of China Is in Need of Capital
By KEITH BRADSHER
New York Times
Published: September 4, 2008

HONG KONG — China’s central bank is in a bind.
It has been on a buying binge in the United States over the last seven years, snapping up roughly $1 trillion worth of Treasury bonds and mortgage-backed debt issued by Fannie Mae and Freddie Mac.

Those investments have been declining sharply in value when converted from dollars into the strong yuan, casting a spotlight on the central bank’s tiny capital base. The bank’s capital, just $3.2 billion, has not grown during the buying spree, despite private warnings from the International Monetary Fund.

Now the central bank needs an infusion of capital. Central banks can, of course, print more money, but that would stoke inflation. Instead, the People’s Bank of China has begun discussions with the finance ministry on ways to shore up its capital, said three people familiar with the discussions who insisted on anonymity because the subject is delicate in China.....

.......Bankers estimate that $1 trillion of China’s total foreign exchange reserves of $1.8 trillion are in American securities....
http://www.nytimes.com/2008/09/05/bu...VHW1J7WtUlyVbQ

**Steadygain** · 09-05-2008, 06:15 PM

Very impressive article.

First checked out Keith - who has good credentials. So he should know what he's talking about. However he sees Fannie as the long standing LOSER and is not factoring in it's present state of transformation.

MAIN POINTS:
China owns the U.S.A. - that's long been known. Here he paints it as China has been out buying up...for the past 7 years WHICH IS TOTAL GARBAGE; The truth is the U.S. has been desperately borrowing money to stay afloat and these are in essense IOUs. So it is much more the U.S. asking China for money - not them buying Fannie - and the only reason why they did that is because Real Estate is Guaranteed - unlike companies that can fold.

CHINA - refuses to play the U.S game of simply printing more money. So they are looking for ways to shore up Capital - THAT IS A VERY SMART MOVE.

Easiest solution - stop loaning the U.S. more money. Pray that doesn't happen. If it does then the G Fund disappears and all other Funds (including F) will sink to the bottom.

But in my rosey world..la la la la .. there is still enough strength Globally to turn this all around. Fannie will have to be restructed to China's advantage - and will cease to be America's biggest loser. So the article loses credibility when you factor in the changing status of Fannie. But it most certainly HIGHLIGHTS the true weakness the US Economy is undergoing.

**Silverbird** · 09-05-2008, 07:19 PM

Wryly amusing part is at the end, that some of the China banking officials think the U.S. lured them into buying the securities, knowing that they would fall. They do us far too much credit. It's always a U.S. plot. Of course if we're so smart, how come we aren't rich?