Friday, February 5, 2010

The Most Overlooked Bubble of ALL: China's Humongous $ Reserves

William Pesek, Bloomberg
Real estate, stocks, credit. China sure has its share of bubbles. Oddly, little attention is paid to the biggest one of all.
China’s currency reserves grew by more than the gross domestic product of Norway in 2009. Its $2.4 trillion of reserves is a bubble all its own, one growing before our eyes with nary a peep out of those searching for the next big one.
The reserve bubble is actually an Asia-wide phenomenon. And we should stop viewing this monetary arms race as a source of strength. Here are three reasons why it’s fast becoming a bigger liability than policy makers say publicly.
One, it’s a massive and growing pyramid scheme. The issue has reached new levels of absurdity with traders buzzing about crisis-plagued Greece seeking a Chinese bailout. After all, if economies were for sale, China could use the $453 billion of reserves it amassed last year to buy Greece and Vietnam and have enough left over for Mongolia.
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