Eddy Elfenbein is a clever guy; he put together a model of gold prices that fits the data very well.  Tonight, I will share my own variation on the model, and try to give an intuitive explanation of why it works.

Ask yourself this: where does investor put his money if he wants to stay safe?  Most people are savers not investors, so ideally they would want to put their money on deposit and earn a real return with the ability to access their money at any time.  Then there is the alternative asset, gold.  Gold is a hedge against inflation, but it throws off no interest.  But at some level of real return, savers begin to conclude that they aren’t earning all that much, so they may as well hold gold.  Vice versa when real rates rise.

One more thing: gold doesn’t benefit from productivity increases, as stocks do.  Rapidly increasing productivity makes gold less attractive than stocks.

Eddy’s model boils down to this (in my implementation):

Percentage change in gold price = Multiplier * Percentage change in (Deflator Index / Real return Index)

where the Real Return index compounds three month T-bill yields less inflation via the 12-month CPI-U in arrears.

Here is how well the mode works, since 1970:

The first model attempts to minimize absolute dollar price differences between actual and model.  The second attempts to minimize the ratio between actual and model prices.  Both have R-squareds over 90%.

The deflator return is constant in percentage terms.  For the two models it is around 2.3%/yr, which is not far from productivity gains.

As for the multiplier, it is near six.  The multiplier is like a duration figure with bonds.  What this means is that the percentage change in real interest rates, three-month T-bills less CPI-U inflation, is projected to persist for six years.  Six years is a reasonable figure, because monetary policy changes slowly, but not glacially.

Now, at present levels of real interest rates, with T-bill yields near zero, and the CPI above 3%, it implies a gold price rising at 3% per month.  If inflation stays where it is and the Fed holds good on its promises, that means a gold price in the $3000s in mid-2013.

Do I believe this?  Partially.  I own lots of oil stocks, but nothing in metals at all.

Eddy’s model helps to clarify the value of gold.  It is a store of value, as its price anticipates the degradation and strengthening of the dollar, because changes in real rates will persist on average for six years.

PANEL 4: A PROGRAM FOR MONETARY FREEDOM

Moderator: Alan Reynolds
Senior Fellow, Cato Institute

Stimulus: money away from productive uses and toward the goverment and other unproductive bits of malinvestment like autos and homes.

James Grant

Editor, Grant’s Interest Rate Observer

The cumulative effect of history

Problem in banking not a shortage of capital, but a shortage of capitalism.  Must allow banks to fail.  In old days, unlimited liability made banks more cautious.

Deutsche Bank vs JP Morgan Chase

1. 15% capital-to-risk-weighted assets
2. Leverage — also identical
3. But DB 42x vs JPM 13x assets/equity
4. 60x vs 17x — tangible assets /tangible equity
5. JPM has less callable liabilities

1842 New Orleans — divide bank balance sheet in two; movement: self-liquidating loans and gold against deposits.  Deadweight: surplus — could invest anywhere.  Worked for a generation.

Clarity, simplicity and elegance

Kevin Dowd

Visiting Professor, Cass School of Business

Bailouts just another profit center for banks.

Liquidation would have been better than the bailouts — mentions Mellon

Low interest rates just create another bubble. DM: Hair of the dog

Confidence only comes from strong balance sheets.

Quotes Jackson regarding the Second Bank of the United States

Solution is to eliminate the Fed

Endgames: Monetize the debt, or watch interest rates rise.

Solutions? Gold standard, End Fed, personal liability for bankers.  Constitutional settlement because governments and money don’t mix.  Prohibit bailouts, and intergenerational transfer schemes.

Kurt Schuler
Senior Fellow, Center for Financial Stability

Competitive vs Monopoly issue of currency — why the shift?

Easy way for the Government to make money through seniorage.

Four places today where parallel issuance of notes goes on today: Scotland, Northern Ireland, Hong Kong, and Macau.  100% segregation of assets in reserves at the central banks, generally.

Where might issuance of competitive notes be legal?  Mostly teensy places, with the exception of the US & Japan (they aren’t sure) and the 4 mentioned above.

Q&A

Raising interest rates to improve matters?  Where to invest?

Gold, silver, TBT

Currency transfer schemes talk, no question

DM: There are lots of these schemes around

PANEL 3: TRANSITION TO A NEW MONETARY REGIME

Moderator: Steve H. Hanke
Professor of Economics, Johns Hopkins University

DM: Steve Hanke was a professor of mine when I went to Hopkins.

Targeting NGDP — Cato Institute — 2003 — Nominal Gross Domestic purchases or final sales

Richard H. Timberlake
Emeritus Professor of Economics, University of Georgia

Why did we go off the gold standard?

Dual Mandate is the main problem at the Fed.

Fed very different animal than at its inception.

Legal tender laws — goes back to the Civil war, 2.5x inflation afterward.  Debts paid off with depreciated greenbacks.  Tested by Supreme Court — Salmon Chase, Lincoln’s Treasury Secretary in 1864, was the Chief Justice at the time in 1869, and he changed his mind, on the ability to pay off pre-1862 debts with the greenbacks.

Rankled Grant administration — appointed 2 new justices, and a new case reversed the ruling. 1871

1884 — Congress can issue any currency it likes because it has sovereignty.

1913 — System needed a lender of last resort, thus Fed creation.

1922-1929 — Stabilized the price level, amid a gold standard…

Benjamin Strong dies, and power shifts from the NY Fed to the Board.  New leader opposes speculation; banks needing liquidity could not get it if they had been lending to the stock market. 1929-1933 huge contractions and bank failures.

FDR abandons the gold standard; devalues; collects gold; eliminates gold clauses.

Supreme Court relies on legal tender laws saying that Congress could define money as it chose.  He thinks the precedents should have been re-argued.

Judy Shelton
Author, Money Meltdown

Ruble collapse — Why back to gold standard?

Thinks all candidates should be talking about monetary reforms.

Money should be a stable unit of account and should be liquid.  It should allow us measure value well.  Convey the price signals of the market accurately.

Jefferson wanted a hard currency defined in terms of precious metals.

Offer Treasury Trust Bonds with a an optional conversion feature to gold.  Would receive par back or an ounce of gold.  Priced initially with par of an ounce of gold, no interest paid.

Argues for a balanced budget amendment.

Thinks other nations would mimic the ideas if a US Government gold bond would be issued.

Greenspan proposed this idea 40 years ago.

Lawrence H. White
Professor of Economics, George Mason University

How to go back to the gold standard?

A lot is calculating the proper initial parity with gold.

Treasury owns enough gold to re-establish a gold standard at $1600/ounce.

“At least I assume it is there, Fort Knox hasn’t been audited in a while.”

1) Eliminate excess reserve by eliminating interest paid on reserves.

2) Redeem reserves at Fed with gold.

Back M1 100% with gold — $8000/oz, Inflationary, reduction in wealth, etc.  Warehouse notes w/storage fees.

Central bank?  No monetary policy needed.  People would buy and sell gold daily.

Single mandate has not worked well for the ECB.  Inflation there running at 4% or so.

Competing private banks worked better than with central banks.

Or, the Fed could become a currency board in the short run.

Q&A

Taxation of Tsy Trust Bonds?

Shelton: Would confuse some of the issues.  Just get this out there so it can be tried.

Will the gov’t take action?  Guesses as to when?

Shelton, White: No idea.

Would would trust the Treasury w/Treasury Trust bonds?

Shelton: They would be collateralized.

Why is monetary reform important?

Hanke: because the Fed ran a reckless monetary policy, and did not regulate leverage of banks well.

LUNCHEON CONVERSATION

Robert Zoellick
President, World Bank

Questions from:

Sebastian Mallaby
Senior Fellow, Council on Foreign Relations

Asked about the EU crisis:

Missed his first point.

2) Greek debt forgiveness may come.  3) EFSF assist Italy and Spain with rollover.  4) Markets judging governments.  Slow motion run. 5) move toward political and maybe fiscal union.

All liquidity and buying time.  Emerging markets in the G20 look at the EU, and are surprised at the lack of coherence.  Zoellick doesn’t want to see the US get there.

What can Germany do?

Germany’s policies individually are reasonable, but not in aggregate. 2,3) Could provide even more in aggregate to the EFSF or IMF SDRs –> Germany: other Europeans should become more like Germany.

US underestimates Germany’s commitment to the Eurozone.  Merkel building commitment among the German electorate (?!)

What political/fiscal reforms could take place?  Uncertain.

Germany: Markets should not dominate the State (DM: Hegel?), unlike US & UK.

What else can be done?

Italy might be fixable, with a little bit of time.  Spain also.

Isn’t this just a question that reserve assets now appear to be risk assets?

Get countries to recognize the externalities inherent in their policy choices.  Get the emerging markets to move toward flexible exchange rates and independent central banks.

US Dollar will remain the main reserve currency, but may go multipolar to many reserve currencies.

Gold will judge the policies of Central Bankers.  At least Central Banks should look over their shoulder at it.

Q&A

Corruption? Why not exclude those nations the Eurozone that can’t stand the rigor?

US less transparent than the World Bank.

Question comes down to cross-subsidy of the less rigorous.

PANEL 2: FED POLICY AND THE ALLOCATION OF CREDIT

Moderator: Mark A. Calabria
Director of Financial Regulation Studies, Cato Institute

Malinvestment vs capital flowing to most productive sectors of the economy.

Jeffrey M. Lacker
President, Federal Reserve Bank of Richmond

Fed’s response led to misallocation of capital.

Monetary expansion was needed to prevent a collapse.

Initial Fed lending was sterilized — equivalent to issuing Treasuries, and lending the proceeds.

Fed could have just bought Treasuries, and not MBS or other securities.  To do otherwise distorts credit incentives.  It creates an appearance of unfairness.

Many contend as a result that credit allocation should not be an aspect of Fed policy. May compromise the independence of the Fed to do so.

Cornerstone of CB independence is control of liabilities.  Assets are more open to choice.  Thus it becomes a path of least resistance in a crisis.  Creates moral hazard, and probabilities of future economic distress.  Threatens CB independence.

Contain the willingness to intervene either by CB habit or law.  Would conflict with lender of last resort, which was more a product of a commodity money era.  Not elastic credit needed but elastic currency.

CB asset policy is an unfinished aspect of Central Banking.  This should be a top priority for action.

Allan H. Meltzer
University Professor of Economics, Carnegie-Mellon University,
and Distinguished Visiting Scholar, Hoover Institution.

Bailing out Bear Stearns was a mistake, and other non-commercial banks, including AIG.  Added to uncertainty of the situation, Fed then increased supply of credit, bought MBS and long-term Treasuries.  Fed acted too soon, if they had waited, they might have been able to do less.

Speculators front-run the Fed.

Fed doesn’t care about exchange rates except in a crisis — US Dollar down 15% recently.

Operation Twist not needed because they acted too soon, economy expanding rapidly now (?!)

Fed is too short-term oriented.

Believes that things will only normalize when housing values fall to their eventual equilibrium levels.

Chart on base velocity vs LT AAA Corp Bond yields.  Current conditions consistent w/ ’20s and ’60s.  Here’s my version, really only consistent with 1932-33 at present.

Greater centralization of the Fed and US Government control over the Fed.

Thinks higher future inflation is highly likely.

Fed has done well when it has followed the Taylor Rule.  Flip-flopping from one aspect of the dual mandate to another has not worked well.

Phillips Curve does not work, and the present Fed uses it for erroneous forecasts.

Fed kept monetary policy too low for too long and created the crisis.

Fed needs to be more accountable for its actions.

George Selgin
Professor of Economics, University of Georgia

Jokes that the Federal Reserve should be done away with, or that it should be significantly modified.

Describes how monetary policy works.  Little need for a discount window a common topic before.

Fed channels liquidity through soundest counterparties — primary dealers.  But if primary dealers are impaired, they become liquidity sponges.  Happened in 2008, so they worked to rescue primary dealers, excluding Lehman. [PDCF?]

Discount window didn’t help because of stigma, and thus the TAF was created.

1) End primary dealer system.  Not needed anymore with modern technology for auctions.

2) End Treasuries only.  Original Fed was not that way; avoid monetization of US debt. Let many parties bid for credit from the FOMC.

Eventual disbanding of FOMC, let a computer do it.

Roger Garrison
Professor of Economics, Auburn University

Natural rates of Interest and Economic Growth

The Fed attempts to expand growth beyond the natural rate of growth, and accelerates it beyond, setting up the conditions for a slump.

FOMC actions every eight weeks; learns once a decade when a crisis occurs.

Taylor Rule has no concept of the natural rate of interest.

Concludes that the Fed oversupplied credit, creating a boom and then the bust we are currently in.

Q&A

Opinions on Nominal GDP targeting?

Meltzer: easy to say, hard to do.  Follow Taylor Rule.  Lacker agrees.

Selgin thinks it is a much better idea.

Garrison: target a zero growth rate. Prices would fall.

PANEL 1: RETHINKING THE GLOBAL FIAT MONEY SYSTEM

Moderator: Mary Anastasia O’Grady
Member, Editorial Board, Wall Street Journal

Comments that the Fed buying MBS reminds her of the Latin American countries that she covers.

Benn Steil
Director of International Economics
Council on Foreign Relations

Central bankers as Churchillian war leaders, rather than dull technocrats.

Y = C + I + G  Economists treat C, I, and G as easy substitutes but they have different effects over time.

Krugman advocated creating a housing bubble, to replace the NASDAQ bubble.  (DM: They are trying to create new bubbles now via QE.)

Sweden and Australian central banks sold foreign assets to buy dollars and euros during their financial crises.

Central banking effective when governments can borrow near the policy rate of the central bank w/a tight correlation.  Implies that the ECB is no longer an effective CB for the fringe.

Central Bankers not particularly effective with fiscal policy.

Can Central Banks act without capital?  Will German taxpayers recapitalize the ECB? Doubtful.

On the Fed:

If the Fed got into trouble (negative net worth), the Treasury would back up, recapitalize it.

Suggests that the Fed should exchange MBS with the US Treasury for Treasuries.  Suggests that MBS will produce significant losses.

George Melloan
Former Deputy Editor, Wall Street Journal

Jokes about what a nickel could buy during the (big Baby Ruth bar) Depression and now (a jellybean).

Talks about post-WWII monetary policy in Britain, and how British Socialism led them astray.  War in Vietnam did much the same thing in the US, leading Nixon to end Bretton Woods.

Dollar’s primacy increasingly questioned.

Inflation coming as the Fed creates credit to fund the US government.

Doubts that multilateral currencies like the SDRs of the IMF would work. The Euro proves that.

The US needs monetary reform, but we might need to fail before that comes.  Gold, bitcoins, scrips, barter if things break down.  Fiat currencies are liquid, barter is inefficient.

If the US dollar goes, a lot else will go down as well. (DM: think about Chinese banks.)

Gerald P. O’Driscoll Jr.
Senior Fellow, Cato Institute

Gold standards can be done if the currencies reflect the fair values of the currencies.  I.e. France made its currency too cheap post-WWI, and Britain too expensive.

Gold standards are not always associated with deflationary periods with low growth.

No monetary system survives big wars.

Nixon went off the gold standard when the CPI was at a high 4.2%.  Monetary policy run by the seat of the pants then.

Argues that classical liberalism requires a gold standard.

Q&A

Fiat currencies even larger proportionately in Africa.  Give seniorage as foreign aid to Africa?

O’Driscoll: dollarization is faux gold.  Gold would be better.  Seniorage can’t be given away.  We need it.

Steil: Helps the African countries get along fine.  Dollarization of Panama has not hurt them; they know the US won’t send help.

O’Grady: Argentines tried to find a way to use US Dollars, but wanted seniorage, thus but devalued instead.

Question to Steil on Operation Twist, duration risk to Fed?

Steil: Operation Twist worked for several nations.  40 bp move would wipe out Fed capital.  ECB purchases of PIIGS debt an alternative to Eurobonds, bailouts, etc.

Isn’t fractional reserve lending the problem?

O’Driscoll: leverage would come from other sources.  MMMFs?

Melloan: Politicization of monetary policy is the problem.

DM: misses the concept that asset-liability mismatches with leverage produces failures.

O’Grady: Wouldn’t a single mandate solve things?

All of the panel expressed doubts on this point.  The Fed needs it to hide, but they would find other ways to do it.

I want to toss out a half-baked idea for others to play with, criticize, and adjust.

But first, a fully baked idea: the Euro was doomed to fail.  Any core Euro after kicking out the miscreants is also doomed to fail.  You can’t have monetary union long-term without political/fiscal union.  The roadblocks to economic union are cultural issues that express themselves politically.  The upshot is that either you politically merge nations that are similar (and intermarry), or your nation should have its own currency, so that needed macroeconomic adjustments can occur.  A single currency for disparate nations is a decidedly bad idea, and the Euro-sceptics so roundly derided in 1998 have been proven right within 14 years.

So, now for my half-baked idea — it is time to undo the Eurozone in entire, but we will keep the Euro, or rather, Euros.  This would have to be done quickly or it would not work well.  When those in the Eurozone wake up one morning, they find that they do not have Euros any longer, but Greeks have Greek Euros, Germans have German Euros, etc., and they do not trade at parity.

Most of this would take place through bank deposits and savings, which would instantly shift.  Currency is far smaller and would be stamped (for paper bills) or struck (for coinage) by governments that have an interest in having more currency in circulation, but until the stamping or striking, a euro is a euro, and can be used anywhere.  In the short run, that would mean that some currency would leak to core Eurozone countries and away from the periphery.

The pro-rata shares of the ECB would be handed back to the national central banks, and the ECB dissolved.  The national central banks would then be capable of pursuing the interests of their own nations.  What a thought!

But what about existing long term contracts to pay Euros?  If to a nation in the Eurozone, it can be paid in either of the new Euros, that of the payor or the receiver.  If to a nation outside the Eurozone, they get the Euro of that particular nation.  What was a credit loss or gain becomes a currency loss or gain.

Many of the Eurozone nations would have to support their banks during such a crisis for solvency reasons, but their national central banks would once again have the freedom to do this.

Yes, this would be painful, and it would be a mess.  But it would be a “Big Bang” that sets the nations of the Eurozone free from their artificial shackles, and allows the nations in the Eurozone to liquefy, inflate, and reconcile all of the debts built up.  It would also send losses to nations that lent to the Euro-fringe.  After this is done, all of Europe would be in better shape economically, and Europe would be more, not less united, because they don’t have to argue over monetary policy.

Thoughts?  I welcome them.   I know I have omitted a lot; I also know this is impractical given the nature of EU/EZ treaties, but I toss it out to stimulate discussion.

Update: thanks to Steve Hamlin for pointing out my typo in paragraph 2 — see his comment below.

This book grew on me. Think of it as “How I hit a home run in investing.”  Who are the sluggers that earned outsized returns?

But, there is a problem here, and the book would have been better if it had recognized the problem.  In a few cases, the “greatest” made one (or a few) good decisions.  In more cases, they made many good decisions that compounded over time.

Was the first group lucky? Maybe, but when things work out for the reasons that you specify in advance, I think not.  The problem of the first group is repeatability, which for John Paulson, is proving to be an issue for his asset management shop at present.

The investment markets are cruel.  No matter what you have done in the past, the question comes, “What have you done for me lately?” The pressure is high, so no wonder that one of the investors that the book mentioned has gone into hiding.

There are two more dimensions here.  Imagine an investor that made some amazing gains , but then craters.  There are some brilliant investors for which that has been true: Livermore, Niederhoffer, Keynes, and more… how much credit should we give to the gains, if the price is flameouts?

Second, imagine someone who is the best in class at a low-return area of the asset markets, like Jim Chanos in short-selling, or Bill Gross at Pimco.  They may not earn that much, but the skill level is really high.  But is the skill level so high when they chose areas of the market to work in that are low -return?

Maybe the book should have featured private equity players, or real estate investors, or those that have managed university endowments well… there are other investors that would be comparable or better to the returns of some in this book.

Or ask, where is Buffett?  He would deserve a spot here, not for any one trade, but for the multitude of clever trades and mergers he has done over the years.

Quibbles

The book needed a better editor.  Information on Templeton is repeated.  Beyond that, most of the ideas on how an average investor could try to replicate the strategies of the great investors are akin to drinking near-beer.  They are too weak, but on the other hand, without the brilliance of the investors, an average person would not know when to but and sell.

With those caveats, I recommend the book highly.  It is well-written, and it will fill out knowledge gaps in amateur investors.

Who would benefit from this book: Most investors would benefit from this book.  If you want to, you can buy it here: The Greatest Trades of All Time: Top Traders Making Big Profits from the Crash of 1929 to Today (Wiley Trading).

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

This is a book that is bullish on China; it does not visit any of the arguments of the bears.

That said, there are many reasons to commend the book:

• It accurately describes China’s foreign policy including its interactions with the developing world, which are often far more logical and consistent than US policy.
• It is fair in its rendering that China may have been a factor in the credit bubble, but was not the primary instigator.
• It describes how China has grown to interact with global organization on its own terms.
• It describes the history China/US relations fairly, including the rough spots where China and the US don’t see eye-to-eye, and sometimes play dirty.

Places where I think the book misses

It will be difficult to displace the US Dollar as the global reserve currency.  So long as export-driven nations sell goods on net to the US, and want to keep their currencies artificially cheap, they will have to buy US dollar-denominated assets in order to make that happen.

Pretend currencies like Strategic Drawing Rights are a nonsolution.  It has no active market, and reflects a view that one can have a single monetary policy for the world.  If a single monetary policy for the Eurozone does not work, how much less the world as a whole?

Beyond that, though China is a leading nation economically in Asia, Asian nations are more diffident to follow China’s lead politically.  Outside of Asia, China’s diplomatic moves have been received more favorably, say, in Latin America and Africa.  Asian nations have a long history with China, and realize that its size and power needs a counterweight like the US.  I agree with the author that the US lost a lot of credibility diplomatically after 9/11, given the way that we responded, but the US still has a lot of favor among Asian nations in a way that China can’t replace.

Finally the book fails to develop the details of China’s economic/financial system, and as such, falls into the hole that China bulls often do, neglecting the huge buildup of bad debt inside the major Chinese banks.

Yes, China has set up asset management companies to relieve the banks of bad debts, and transfer the losses to the MOF.  The question remains how long can this go on?  Probably a long time, because China discriminates against average consumers for the good of the Party, and the banks that aid the Party’s efforts.

Though on net I recommend this book, you would also benefit from Red Capitalism, and Uprising: Will Emerging Markets Shape or Shake the World Economy.

Quibbles

Date error on P. 38 should have been 1999, not 1990.

Who would benefit from this book: If you want to understand the Chinese economy, you will like this book.  If you want to, you can buy it here: China and the Credit Crisis: The Emergence of a New World Order.

Full disclosure: The publisher asked if I wanted the book.  I said “yes” and he sent it to me.

If you enter Amazon through my site, and you buy anything, I get a small commission.  This is my main source of blog revenue.  I prefer this to a “tip jar” because I want you to get something you want, rather than merely giving me a tip.  Book reviews take time, particularly with the reading, which most book reviewers don’t do in full, and I typically do. (When I don’t, I mention that I scanned the book.  Also, I never use the data that the PR flacks send out.)

Most people buying at Amazon do not enter via a referring website.  Thus Amazon builds an extra 1-3% into the prices to all buyers to compensate for the commissions given to the minority that come through referring sites.  Whether you buy at Amazon directly or enter via my site, your prices don’t change.

This will be a short post.  I am not worried about China selling its US Treasury bonds for several reasons:

1. As they sell, the Yuan will rise versus the Dollar, which the Chinese Government does not want. Eventually their exports will fall, as US exports rise.
2. After that, the Chinese Government faces a reinvestment problem.  What do they reinvest in?   The Euro is under threat, the Yen doesn’t want more investors, and the rest of the developed world’s currencies are in the stratosphere.

I think the threat of the Chinese Government to sell US Treasuries is empty.  They can’t do it without hurting themselves significantly.

Options:

• Buy storable commodities, gold? Done that.  Hoard more?  At these prices?
• Switch to other types of debt than government debt? After the brouhaha with Agency debt, I suspect they would be less than willing to wander off the beaten path.  Besides, they are pretty big, and they are dealing with thinner asset classes.  If they have driven up the prices of Treasuries, imagine what they could do to corporates?
• Start buying companies around the globe?  If governments would let them, maybe, but there would be a political stink.
• For a weird idea, China could buy surplus US housing and restore liquidity and collateral levels to a market in oversupply.  After a decade they get out at a profit, probably.

Also, the lower level of liquidity could be an issue if actions need to be taken to recapitalize their banks when the next crop of bad loans has to be reconciled in the next few years.

China’s options for holding the proceeds from its trade surplus are limited.  For all of their deficiencies, US Treasuries are a liquid and deep market.  Chinese exporters benefit from keeping the Yuan weak versus the US Dollar.  I don’t see things changing soon, absent a bolt from the blue.