This was comments on last nights New York Times article on the PBC
http://www.nytimes.com/2008/09/05/business/worldbusiness/05yuan.html
This is speculation, but I suspect that the article missed the point of the PBC/FM discussions, which likely were “so what do we do if the either Fannie or Freddie default?” Looking at the PBC’s balance sheet a GSE default is the only obvious way that I can think of in which they would need a capital infusion since the liabilities that the PBC has are mostly non-interest bearing.
http://blogs.cfr.org/setser/2008/09/05/interesting/
And behold today….
http://www.nytimes.com/2008/09/06/business/06fannie.html
I have this suspicion that the US was involved in those meetings between the People’s Bank of China and the Ministry of Finance. What this means is that the US Federal Government has now become the biggest sovereign wealth fund, and has now become involved in the banking system to a degree that the far exceeds anything the Chinese government has done.
Every generation the old economic order dies to be replaced by a new one. It’s going to be very interesting to see what comes out.
