Bending the Third Rail
Because We Should, We Can, We Do
Sunday, November 12, 2006
If China Sneezes ....
.... we get a cold:
FRANKFURT (Reuters) - China will diversify its $1 trillion foreign exchange reserves, the largest in the world, across different currencies and investment instruments, including in emerging markets, Chinese central bank governor Zhou Xiaochuan said on Friday.

His remarks sent the dollar tumbling for a second day and fueled a growing debate about how China should best use its fast-growing reserves, which are about 70 percent in U.S. debt securities, bankers estimate.

"(Diversification) includes currencies, investment instruments, including emerging markets," Zhou told Reuters on Friday on the sidelines of a monetary conference here.

Asked about selling U.S. dollars, he said: "We do not have any new preparations for selling any currencies." He said gold sales were not under consideration.

Changes in China's massive stockpile of money are being closely watched because it could ripple through financial markets worldwide, risking a steep dollar fall if U.S. debt floods onto the market, which could push up U.S. interest rates and slow global growth.
They say they're going to diversify very slowly. Remember, all that excess money sloshing around in the world and purchasing our debt, and artificially keeping interest rates relatively low is Chinese. If it goes away, we're going to have to raise rates to keep our bonds interesting. Let's hope they go slow, otherwise get ready for some pretty interesting interst rates down the road. Either way, the U.S. had better get it's debt situation under control ...
Written at 10:04 AM by Greyhair.
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