Monday, July 5, 2010

Inflating the bubble some more?

The rumor is that China is going to restructure its sovereign wealth fund, China Investment Corporation (CIC) to remove its bank holdings from its portfolio. About half of the CIC's 200 billion USD is in China's banks and if Beijing were to replace that with cash it would be in a position to buy into US markets in a big way. They are supposedly eying US stocks, bonds and real-estate. The CIC is currently restricted by the US Federal Reserve because of its status as a bank holding company.

If this rumor coming from the bankers in China is true it would pump up the US bubble economy considerably (it would do nothing for the real economy). But that is only if the extra cash coming in can overcome the selling stampede that is currently ongoing in the US markets. The markets would be in free fall except that the big Wall Street banks have unlimited Fed money to throw around to keep things moving their way.

It's not clear what is really going on with the CIC as it is also in the center of a bureaucratic turf war between the People's Bank of China and China's Finance Ministry over who controls the banks in China. It seems odd that China would want to invest in the US having lost half their money the last time they tried it. On the other hand if they are only doing it to settle a feud then they might do something uncharacteristically stupid. I wouldn't want to be one of people who pushes for this after it blows up on them.


Unknown said...

I remember when Japan was in the same position as China , they were buying up all the Commercial Real Estate in the US, and then it crashed and they lost at least 50%. So I say sell em the whole thing and watch them try to sell it off when the end we all know is coming hits. One way to take care of the balance of trade problem.

prairie2 said...

Japan and China are not as much alike as it would appear on the surface. Japan was taking advantage of the Vietnam War debt load created by LBJ and put on steroids by Nixon to buy into the US market. Reagan took that to an even more absurd level. The Europeans have been buying up the US even more but don't attract the attention the "yellow peril" does. China has been taking our money and buying up the rest of the world instead.