Reply #39: China's `Arms Race' Puts Pimco's Gross to Shame [View All]

[54anickel]

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pesek&sid=aY4.4ZVZ1B54

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About $250 billion of China's reserves are in U.S. Treasuries. China's purchases ``put Pimco's Bill Gross to shame and contribute to low yields'' in the world's biggest economy, said Nouriel Roubini, a former U.S. Treasury official who's now chairman of New York-based Roubini Global Economics LLC.

The press tends to hyperventilate over Gross's frequent comments about U.S. debt yields. The reason: He manages Newport Beach, California-based Pacific Investment Management Co.'s $90.6 billion Total Return Fund. Investors might be wise to pay more attention to where the really big money is: in Beijing.

Asia's currency-reserve arms race reflects two things. First, a desire to keep currencies from rising so that exports aren't hurt. Second, a determination to avoid a replay of 1997, when the region lacked ample reserves to fight speculators attacking currencies.

A Bubble?

As 2006 unfolds, a question must be asked: Does Asia have a currency-reserve bubble?

On the one hand, you'd think there would be better uses for the trillions of dollars on which Asian central banks are sitting. On the other, monetary authorities may be reaching the point of no return in their ability to reverse course.

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