We all know that China has ordered managers of its vast currency reserves to withdraw from risky dollar assets and retreat to core debt guaranteed by the US government, a clear sign that Beijing is battening down the hatches for fresh trouble on global markets. For some reason I am into these political cartoons and such – they really are the best way to say in picture what we fear in reality.
Party leaders over there said that dollar reserves should be limited to US Treasuries or agency mortgage debt such as Freddie Mac that enjoys Washington’s implicit backing. Remember this key point once again, when the world’s biggest investor turns risk-averse, that is something you take notice of. We think this could become the new theme for the US very soon. We have all this debt to sell but nobody to sell it to.
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