China Promises Not To Use "Nuclear" Option And Buy Gold, Dump US Assets
China's State Administration of Foreign Exchange (SAFE ) is once again making waves, by reminding the world about its trillions in dollar-denominated holdings, and that these could be dumped in a heartbeat. Of course, in tried and true Chinese fashion, it is notifying the world it has no intention of using the "nuclear option" which of course is merely a reminder that the nuclear option not only exists but is certainly at the forefront of any "diplomatic" negotiations with the US. As Reuters reports, "In a series of questions and answers posted on its website, http://www.safe.gov.cn, SAFE asked rhetorically whether China would use its $2.45 trillion stockpile of reserves, the world's largest, as a "nuclear weapon." Apparently, the primary focus of the Q&A was to allay fears that China may be stockpiling gold in the open market: "SAFE was lukewarm about gold as an investment. "It cannot become a main channel for investing our foreign exchange reserves," the agency said, noting the size of the gold market was limited and prices were volatile. Buying more gold would also not help much in diversifying China's reserves." Of course, with all this occurring in light of recent disclosure that the BIS has been involved in gold swaps to provide liquidity to unknown banks, immediately obviates this statement, since, as we have pointed out previously, the Chinese 7 and 30 Day repo markets are still sufficiently strained, and gold would certainly come in useful to allay fears that domestic banks have something beyond massively underwater residential loans on their balance sheets to fund trillions in liabilities. All the Chinese statement really is, is a warning to the US to avoid following the advice of such permaspenders as Krugman, and now Goldman, and to launch into another round of monetary devaluation via QE. We are skeptical that once Bernanke puts the presses into turbo mode once again, that China will theatricize the same kind of wholesome support for US-based assets.
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http://www.zerohedge.com/article/china- ... -us-assets
