Thread: China Diversifying Out of U.S. Dollar Holdings

China Diversifying Out of U.S. Dollar Holdings

Stock-Markets / Investing 2010
Jul 14, 2010 - 08:02 AM

By: Tony_Sagami

Every month, the world buys BILLIONS of dollars worth of toys, shoes, electronics, clothes, and consumer goods from China.

Every month, China enjoys a trade surplus that brings in BILLIONS of new dollars into its coffers.

And every month, China has to decide what to do with those BILLIONS of new dollars.

For years, China has used those BILLIONS to buy U.S. government bonds and is now sitting on $900 billion worth of our debt and is the U.S.’s largest creditor. Japan, by the way, is the second largest owner of U.S. government bonds.

China is re-thinking that wisdom. In the month of May (most recent data), China purchased a record $8.3 billion worth of Japanese government bonds.

To put that number in perspective, China previously bought $6.1 billion worth of Japanese bonds in the first four months of 2010. In just one month, China QUADRUPPLED its allocation to Japanese bonds.

And it is a complete turnaround from the $900 million of Japanese bonds that it SOLD in 2009.

There are several important implications to this move that could help you both avoid some investment pain, as well as make you some serious money.

MONKEY SEE, MONKEY DO #1: Damned (Japan) by Faint Praise. $8.3 billion is a gigantic amount of money, but don’t take China’s purchase as a signal to buy Japanese bonds. The vast majority of that $8.3 billion went into short-term bonds, which tells me that China was looking for a temporary parking spot instead of making a commitment to the Japanese bond market. If China was positive on the long-term outlook for the Japanese bond market, it would be buying 10- or 20- or 30-year bonds instead of 90-day notes.

James Bond had a way with the ladies and the Japanese treasury department is telling men that buying Japanese bonds will improve their love life!

The Japanese government has launched a national advertising campaign to promote ownership of Japanese government bonds or JGBs. According to the ads, women prefer men who invest in government debt because they are sensible investors. The ad shows five women who say they would choose husbands who are “serious about moneyâ€

I found out that we are fighting for Oil with China. Not toys....we need to get out of this war, and get our people home and on the border before they totally take over the US.

India China Russia...Diversifying Out of Dollars




We've all heard that China and Russia are diversifying out of Dollars, and that they have argued that the dollar should not be the world's reserve currency.

But given that India has been run by American allies protecting the U.S. and the "Washington consensus", it was not clear if India would join suit.

Recent statements appear to indicate that India's support of the Dollar is weakening. As Bloomberg writes:


Suresh Tendulkar, an economic adviser to Indian Prime Minister Manmohan Singh, said he is urging the government to diversify its $264.6 billion foreign-exchange reserves and hold fewer dollars.“

The major part of Indian reserves is in dollars -- that is something that’s a problem for us,â€