The China Repo rate took a large surge overnight – for those worried about China having problems, this is tangible evidence.
This is the 7 day repo rate – very loosely it is similar to a payday loan or a pawn shop. One firm owns securities (like bonds) and needs cash – they don’t want to sell the bond (or are not allowed to). So they “sell” the instrument to another firm for a week – with the promise to repurchase it back at the end of a week.
The instrument isn’t normally actually sold – but if the borrower fails and cannot repurchase the instrument back, the lender has the technical ownership. The cash lender’s only credit risk is if the underlying instrument lost value
Keep one eye on China….
This might also be a hint that people expect China to “unpeg” their currency from the US Dollar
If they unpeg, what can we expect to happen in terms of oil, gold, and the US dollar?
Now there is a question :) The only thing that’s probably certain is the Chinese economy will slam on the brakes, since Chinese exports will become more expensive, and Chinese people will be able to buy imports cheaper.
In the big scheme of things, the “big pile” of dollars the Chinese Central Bank has been hoarding is only something like $700 billion. A lot of money, but not compared to the U.S. $13 trillion in outstanding debt.
At some point, Dubai World is going to come back with a vengeance.
The FASB is also suggesting the idea that banks should show loans on their books at their actual value (Gasp!)….. The FDIC is fighting that, but it could bring on another banking crisis if it goes forward…
Lots of balls in the air
I’m trying to figure out what will precede the collapse of the US dollar. I’m sure China’s unpegging is a good start. I assume that if China’s economy collapses, oil demand will decrease and OPEC will need to raise the price of crude.
Is it naive to see this as a series of falling dominoes, like Glenn Beck does?
My marker on this has been – the day OPEC announces that crude purchases must be paid for in Euros (and prices will be quoted in Euros), we’re in a deep world of hurt.