Professor Elam

Wed Feb 10 2010

SAFE is not a reference to car recalls but an acronym for State Administration of Foreign Exchange, the oversight group for yes Communist China. Recall that no less than Jim Rogers pronounced the Communist Chinese as the world's best capitalists. SAFE oversees the $3 Trillion dollars of Chinese investments as well as their derivative and hedge practices. Now, you are a Chinese 'Communist' official, who would you hire to run such an operation. Hmm, how about the rock star from PIMCO, Pacific Investment Management, the Bill Gross Newport Beach opeartion, the world's biggest bond managers?  Yep that's exactly what they did. 

Another article this morning suggests that the Chinese military wants China to sell some of its US dollar assets as punishment for our continuing to arm Taiwan. This is of course the problem with letting someone else become your creditor. At what point does the creditor call the tune?  This is surely an opening salvo in another front of Sino US relations, gee do you suppose this Administration is paying attention?

Note this article authored by our newest link, Ambrose Evans Pritchard of the UK Telegraph.

How does this relate to intermed accounting, glad you asked. The US continues to print money and borrow abroad. So far this has done little to nothing to improve our economy but it has recorded record deficits. Now the Chinese are attempting to put the brakes on what the US can do vis a vis refusing to hold our debt. They won't dump enough to depress the price of what they already hold but an interesting strategy, just to see if the US reacts. Remember in A = L  + OE, A can go down but L rarely does.