China plays its Morgan card

Andyxie

Andy Xie. Economist
Courtesy of ICBI

Picked up this comment in the Washington Post:

Andy Xie, an independent economist who was formerly Morgan Stanley‘s
chief Asia economist, said the United States needs to accept that a
large amount of U.S. assets must be transferred to other countries’
ownership. "If the U.S. is not willing to accept that," Xie said, "they
will have to print money and the dollar will fall. And we will be
headed toward a global financial meltdown."

Quite startling, if you ask me, Andy has a point there.

A couple of days ago, on Tuesday, I read that both the presidents of Morgan Stanley Asia and China Investment Corp were flying to New York, to forward the CIC’s bidding of Morgan Stanley —or that China, through its $200 billion fund, was trying to get a stake into one of the crown jewls of US finance.

At that moment, I thought how expensive that trip was going to be for Wachovia in the final Morgan Stanley haggling price. But, that the chances of ever going through with the acquisition, were slight and dim, considering CNOOC’s failed acquisition attempt of UNOCAL, —there’s the US Congress and government wall of opposition to conquer.

But, Andy’s argument makes sense, at least to the Chinese, they would quelch further erosion to their USD loans, as well as get a foot with an insider’s view of the system through one the US financial’s crown jewls —great brinkmanship for Andy.

Now it’s not so clear that the Chinese counter party, the US, would be so willing. As it stands, if the USD further erodes, their debts will be repaid with monopoly money. But, with what face could they ask for joint central bank intervention after this Chinese proposal has been put on the table?

Rumor has it that it will take over $1 Trillion USDs to vanish toxic waste. Will or can the US pass this  offer to allow a Chinese partner to take some of this brunt? It never ceases to amaze me, to what extent the Chinese are willing to pay to acquire know-how and market share.

Interesting times. In essence, the Lehman repercussions taught the Fed that it was better to follow a script where they eat the toxic waste rather than to fool around waiting for an all out Armageddon to implode.

So, here we have one more stumble down the ladder to price equilibrium, in the east-west labor price arbitrage.