Elaine Supkis has some good news for banks

...and some frightening news about the relationship between China and the US.

(Elaine's blog has become the first blog I check every day.)

Elaine Meinel Supkis in Money Matters:

Last month, Vohs wrote:

The yield difference between 10-year treasury notes and 30-year conventional mortgages is closing in on the 22 year high reached in March. This means that conventional mortgages have not been this profitable since 1986. Naturally, this reflects the distressed state of the housing market, but it also reflects the reward that can be reaped by well financed and prudent lenders. I still believe that the greatest returns for the remainder of this year can be found in the banking sector. Every excess dollar that does not go into consumption and therefore go to Asian economies, will stay in the country and will be used to pay off debt. The great unwind will benefit the banks.

The destruction of the Derivatives Beast and its feeders and enablers will definitely benefit NORMAL banks. Traditional banks run the less-profitable, old-fashioned way will be back and stronger than ever. They do have to fear everyone pulling all money out of all banks. I see people online shrieking that we all should pull our money out of all banks. This will definitely destroy the system. But we must not panic. For the people involved in this mess are very specific and easy to arrest. They are sitting in the offices of all the top investment banks listed at the MarkIt site. Some of them took their golden parachutes and jumped out of the magical flying piggy bank. But we know where their palaces are and they, too, can be arrested. If offshore, we can use our navy and air force to run them to ground.

Here is an anonymous but very astute take on all this from China:

How China could wreck the US economy

The recent bailout package being approved in the US Congress needs to be viewed in the context of the spurt in the accumulation of forex reserves of China by about $500 billion in the last six months to about $2 trillion in aggregate.

This gargantuan build-up of forex reserves by China has strangely received very little attention of economists, policy analysts, currency traders and, of course, geo-strategists around the world.

Why is China engaged in this exercise? What could be its implications on the on going global financial crisis? Could China trip the bailout package announced by the US last week? Crucially what are the implications for the existing global order?

What is intriguing in the Chinese forex reserve build-up is that both trade surplus and foreign direct investment account only for a part of this gargantuan pile. After adjusting for all known sources of reserve accretion, experts conclude that approximately an excess of $200 billion could have flown into China as 'hot money' -- read inexplicable flow of funds -- in this period.

The Economist -- in one of its issue in recent months -- quotes Michael Pettis, an economist working in China, who explains how and why hot money flows into China. According to Pettis, hot money comes into China when companies overstate FDI and over-invoice exports.
*snip*
What is worrying the Americans is that China accounts for about one-fourth of the global forex surpluses and are the counterparts of the US current account deficit. Put simply, while China accumulates forex reserves, the US accumulates a corresponding debt. And the Americans are aware that it is the Chinese are the biggest accumulators of the US treasury bonds.

What is indeed intriguing is that a country -- the US -- that prides on being 'independent' of other countries, especially in security affairs, is now caught in a quagmire as it has to be constantly in the good books of the Chinese government if it wants to avoid a sudden shock.

Countries that hold large US dollar denominated forex reserves have a powerful tool in their arsenal -- they could wreck American financial markets at a mere click of a mouse by selling their dollar holdings. Imagine China with a holding nearly $2 trillion worth of treasury bonds seceding to sell the same overnight.
*snip*
All this is not pure economics as it is made out to be. Rather, it was and remains a well-planned economic, political and military strategy of the Chinese

Sounds like this guy knows me! Heh. And yes, this is a very well-planned strategy of the Chinese communist leadership! They hatched it long ago and I witnessed the egg laying. I warned the State Department, I tried to get this talked about on TV since 1986 and I am totally locked out of the system because the guys who are busy destroying our nation for the Chinese don't want to hear this. They want to believe they are NOT traitors but great patriots who just happen to be lining their own pockets.

Which was part of the Chinese plan. Alas, I must have talked too bitterly about how easy it is to bribe US negotiators, politicians and officials! Well, we walked into this trap, ourselves. We can't blame the Chinese for taking advantage of our own moral failings. Time for us to grow up and behave.

After we kill the Derivatives Beast and arrest all the bankers who created this monster.