I think Levi is one of those "analysts' who figured all was well in the runup to the subprime scandal. After all, he was making loads of dough.
Here's a good article from AFP stating China is questioning the wisdom of buying US Bonds. Last week China suggested a new reserve currency for the world. These calls will not go away.
AFP: China has to keep buying US Treasuries: analysts (external - login to view)
China has to keep buying US Treasuries: analysts
1 hour ago
BEIJING (AFP) — China has little choice but to keep buying US Treasuries despite concerns about the safety of its American assets, amid reports it has lost billions of dollars in forex reserves, analysts said.
China had 1.95 trillion dollars in foreign exchange reserves at the end of December, and a large proportion -- analysts estimate at least 70 percent -- has been invested in US-denominated assets.
China's Premier Wen Jiabao has voiced concern over his nation's investments in the recession-hit United States -- a view echoed by the central bank chief, who has called for ditching the dollar as the international reserve currency.
But despite these worries, Sherman Chan, an economist at research firm Moody's Economy.com, said China was unlikely to shun US Treasuries, at least as long as the global financial crisis raged on.
"It is in China's interest to support the struggling US economy," she said.
"The health of the world?s largest economy is crucial to the global environment and has direct implications for international trade."
China announced an unprecedented four-trillion-yuan (585-billion-dollar) stimulus package in November, as its own trade-dependent economy came under strain from falling exports.
But Chan argued this was only a short-term measure, and that a US recovery was the only cure for the tumble in exports and manufacturing.
"Knowing that the US government needs foreign funding to implement its stimulus measures, which play an important role in reviving growth momentum stateside, the Chinese have an incentive to get behind the plan."
China's concern comes as the US Federal Reserve decided earlier this month to buy up to 300 billion dollars in long-term US Treasury bonds in an effort to revive the ailing economy, a move which has sparked concern that returns on future bond purchases will be lower.
Adding to this, media reports have pointed to billions in forex reserve losses in China due to a drop in the value of non-dollar assets and to risky investments abroad.
According to a report in the China Business News, China's forex reserves fell by about 30 billion dollars in January, but the report cannot yet be confirmed as China only publishes monthly figures on a quarterly basis.
Personal estimates made by He Zhicheng, a senior economist at the Agricultural Bank of China, suggest China lost at least 80 billion dollars in forex reserves from August last year to February.
Part of this loss, he says, was on risky ventures on overseas stock markets that plunged in value last year and due to currency fluctuations.
Stephen Green, an economist at Standard Chartered, said that management of reserves was about preserving value.
"You can take a bit of money and play with it, try and play the markets and push your returns, but fundamentally, forex reserves are to be preserved rather than to be traded," he said.
And US Treasuries, analysts said, still provided an investment safe haven.
Still, China has been seeking to diversify its reserves from the US dollar for some time, as have other nations.
According to Wang Tao, an economist with UBS Securities, China has few other options.
"You can buy euro assets, but the euro is also very volatile," she said.
Andy Xie, an independent Shanghai-based economist, said China needed to pick different dollar assets.
"China should move towards stocks, to buy into the S&P 500 index (500 largest listed companies in the US), rather than US Treasuries," he said.
Zhou Xiaochuan, China's central bank governor, meanwhile suggested the world should move to an entirely different standard run by the International Monetary Fund, which would not be easily influenced by individual country policies.
China's move to reduce its reliance on US dollars will happen, according to Ken Peng, an economist at Citigroup, but he believes that is for the future.
"It will take a long time to unwind, and for now, China will continue to buy Treasuries," he said.
Copyright © 2009 AFP. All rights reserved.
So why does China "have to" keep buying US bonds? Not a very "free" market here. Nothing, no one, no business, no country is too big to fail.