#OT# GM bankruptcy closer?

------------- Frankly, If I were in the Japanese position, I would be buying oil from Iran that won't take US$ payments, only Euros and Yen, and would be talking to other countries about Yen denomonated oil purchases or even countertrade.

You may be right, but for a view from another major player [PRChina]

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China is right to have doubts about who will buy all America's debt Chinese doubts about the value of US Treasury bonds highlight a crucial question: who will buy the estimated $2.7 trillion (£1.9 trillion) to $4.2 trillion of debt expected to be issued over the next two years?

By Martin Hutchinson Last Updated: 12:14PM GMT 13 Feb 2009

With annual foreign purchases accounting for less than a tenth of the low end of that range, and domestic investors unable to bridge the gap, the Chinese are right to worry.

Yu Yongding, former adviser to the People?s Bank of China, recently demanded guarantees for the value of China?s $682bn of Treasury securities. Then Luo Ping, director of the China Banking Regulatory Commission, said that China had misgivings about the US economy, but despite this it would continue to buy Treasuries. The two statements appear designed to raise the issue non-confrontationally before new chief US diplomat Hillary Clinton?s visit to Beijing on February 20.

China worries about the dollar?s value against other currencies, particularly the yuan. With US interest rates so low, the dollar?s value may slide. However, President Barack Obama has repeatedly said he wants a strong dollar, and indeed its trade-weighted value rose 13.9pc between April and December 2008.

The other area of concern for China is the value of its Treasuries. Given the US borrowing requirement and its lax monetary policy, Treasury bond yields could well rise sharply, causing a corresponding price decline. If China?s holdings match Treasuries? average 48-month duration, then a 5pc rise in yields, from 1.72pc on the 5-year note to 6.72pc, would lose China 17.5pc of its holdings? value, or $119bn.

Foreign buyers have absorbed a little over $200bn of Treasuries annually, a useful contribution to financing the $459bn 2008 deficit, but only a modest help towards the $1.35 trillion minimum average deficit forecast for 2009 and 2010.

Unless that changes substantially, there will be $1trillion annually to be raised by the Treasury from domestic sources, more than double the previous record from domestic and foreign sources together, plus whatever is needed to bail out the banks.

Even if the US savings rate were to rise from zero to its long-term average of 8pc of disposable personal income, that would create only an additional $830bn of savings -- not enough to fund the domestic share of the deficit. Interest rates would probably have to rise substantially to pull in more foreign investors.

Yu is right to worry.

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Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Reply to
F. George McDuffee
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China is dead George. Civil war is their future.

JC

Reply to
John R. Carroll

========== As of today Japan ain't loooking too whoopie either

---------- Japan economy shrinks at fastest pace in 35 years

By TOMOKO A. HOSAKA, Associated Press Writer Tomoko A. Hosaka, Associated Press Writer ? 51 mins ago

TOKYO ? Japan's economy contracted in the fourth quarter at the fastest pace in 35 years as a collapse in global demand battered the world's second-largest economy.

Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7 percent in the October-December period, the government said Monday.

That's the steepest drop for Japan since the oil shock of 1974. It far outpaces declines of 3.8 percent in the U.S. and 1.2 percent in the euro zone.

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Unka' George [George McDuffee]

------------------------------------------- He that will not apply new remedies, must expect new evils: for Time is the greatest innovator: and if Time, of course, alter things to the worse, and wisdom and counsel shall not alter them to the better, what shall be the end?

Francis Bacon (1561-1626), English philosopher, essayist, statesman. Essays, "Of Innovations" (1597-1625).

Reply to
F. George McDuffee

But they have cash.

Leading indicators have Japan at -10 percent George. They are flat lining.

JC

Reply to
John R. Carroll

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