Under water…
The under-water map of the US mortgages by states.
The Fed is set to surpass China…
The Fed is set to replace China as the largest holder of the US treasuries.
(source: Bloomberg)
Chinese government does not have much choice here. It can’t ditch dollar – that’s the only international reserve currency today, probably the safest one in time of crisis; It can’t buy gold, not much. Otherwise, it will push up gold price dramatically. It can’t buy high-growth currencies, like Aussie dollar or Brazilian real, either: the appreciation of these currencies will make China’s imports of natural resources more expensive.
Chinese central bank is left with roughly three choices:
1) buy assets denominated in Euro and Yen – Germans and Japanese then won’t be happy because now every country seems to have adopted a “beggar-thy -neighbor” policy, trying to increase exports through currency devaluation.
2) buy hard assets, such as oil, gas and mines – that’s what China had been doing. But this is likely to stir a lot of nationalism – Nobody likes such government-led big purchase of its own natural resources, especially this government is led by a Communist Party.
3) equity investment in or partnership with good-solid companies. Companies like Warren Buffet’s Berkshire Hathaway, Goldman Sachs, JP Morgan, Coca-cola, HP, etc…these solid blue chip companies with diversified international portfolio.
In the long term, China should work on designing an alternative international monetary system – a system not based on any paper currency of a single country.