jg, I’m sorry I’m having such a hard time explaining this to you.
The money that came here is invested AND SPENT. It is not sitting in a vault in China. THe money is spent on buying Treasuries, ABS, MBS, equities, and so on. So the money has been spent, and the effect was to drive up asset prices and push down yields on government bonds. The money was used to buy overpriced homes, fund your neighbor’s Visa purchases, IBM’s corporate bonds, derivatives, and so on.
Where do you think all that money came from to create this housing bubble? Who is lending subprime borrowers 500K on stated income? It’s the FCB money!!! THere is no such thing as money on ice. This money has created the credit bubble!
Furthermore, foreign central banks (FCBs) that wish to keep their currency from appreciating against the dollar, are printing their own currency in equal amounts to what is coming into the country from their exports, so there is a double whammy of liquidity. First we send them dollars which they have to print to convert, and then they send those dollars back and create asset bubbles.
So the question is, as I said before, what will happen when those dollars are removed from Treasuries, equities, collateralized mortgage obligations, mortgage backed securities, asset backed securities, government and corporate bonds, and divested into euros, yen, gold, etc?
Nothing is “on ice”. Money always has an effect, and the effect is to inflate assets and create more liquidity.
The effect of that money is already here: the long end of the yield curve is low, despite Fed attempts to raise interest rates. They cannot control the end of the yield curve because of the large sums of dollars sent here by FCBs.
You should read the Flow of FUnd reports. I think the MBS market is bigger even than the Treasury market, or right behind it. THe Chinese and Saudis have been using the money that you claim is “on ice” to buy all those exotic loans!
