Posted by WARREN MOSLER on January 27th, 2010
I went to high school with Chris Powell where he was a good friend of mine, then lost touch.
We’ve had a few emails discussing GATA. Seems their beef is that the Fed is conspiring to keep the price of gold down, which wrongly hurts the GATA supporters.
Didn’t make a lot of sense to me, but whatever.
Regarding China and the euro-
Note China already owns some Greek bonds, highlighted below?
I was discussing this a while back when China was ‘diversifying reserves’ in that one of the problems with the buying the euro is you have to take national govt credit risk, as there is nothing equivalent to the ‘federal’ securities of the other nations of the world with non convertible currencies where the issuer of the currency is your counter party.
Also, when the likes of China stops buying, say, the $US or the yen, it’s not a credit event for the US like it is when they stop buying the euro, where the national govt’s solvency is a function of their ability to sell their securities.
So the lack of euro buying by sovereigns who were willing to take national govt credit risk puts the entire eurozone at risk of a liquidity crisis beginning with its ‘weakest link.’ Hence the Greek ‘road trips’ to China, which do make sense, in contrast to the Obama/Clinton/Geithner road trips to China which reinforce the notion that they don’t understand the monetary system.
I’ve also passed along the idea that if Greek bonds were to have default provisions that allowed them to be used to pay Greek taxes in the event of default it should lower their interest rates. Don’t know if that got anywhere- no way for me to check.
Athens Invites Beijing to Buy Bonds
By Kerin Hope and Jamil Anderlini
Greece is wooing China to buy up to E25 billion of government bonds, a move that underlines Beijing’s growing financial power, as Athens struggles to fund soaring public debt.
Goldman Sachs, the US investment bank, has been promoting a Greek bond sale to Beijing and the State Administration of Foreign Exchange (SAFE), which manages China’s $2,400 billion foreign exchange reserves, said people familiar with the issue.
Gary Cohn, Goldman Sachs chief operating officer, has made two trips to Athens — last November and this month — to meet George Papandreou, prime minister, and senior officials.
Beijing has not agreed to such a purchase. Meanwhile, Athens has rejected a suggestion that a Chinese bank should acquire a strategic stake in National Bank of Greece, the country’s flagship commercial lender, according to officials contacted by the Financial Times.
But a more modest deal of about E5 billion-E10 billion ($7 billion-$14 billion) appeared possible after Mr Cohn’s second trip to Athens, officials said on Tuesday.
George Papaconstantinou, finance minister, told the FT he would visit China on a road show next month, but “no target is set” for a debt placement.
China’s foreign exchange reserves grew $130 billion in the last quarter of 2009 alone. But people close to Safe said China already held a “significant amount” of Greek debt and was wary of adding to that.
A senior Greek finance ministry official said Athens would welcome Chinese buyers of its bonds. The official declined to specify an amount, though a figure of E20 billion-E25 billion was raised in talks with Goldman Sachs.
A E5 billion syndicated loan issue by Greece this week attracted bids worth more than E20 billion, but Greece continues to face pressure in financial markets.
Goldman Sachs mooted the sale of equity in NBG to Bank of China, the country’s third-largest commercial lender by assets, and made a similar proposal to China Investment Corp., China’s sovereign wealth fund, according to officials.
Chinese officials said CIC was not interested and that regulators would not let BoC make such a risky investment. Goldman Sachs and CIC declined to comment. A Bank of China spokesman said: “I haven’t heard anything about it.”