NY Times:

China announced a $586 billion stimulus package Sunday in its biggest move to stop the global financial crisis from hitting the world’s fourth-largest economy.

A statement on the government’s Web site said China’s Cabinet had approved a plan to invest the amount in infrastructure and social welfare by the end of 2010.

The statement said the Cabinet, at a meeting chaired by Premier Wen Jiabao, had ”decided to adopt active fiscal policy and moderately easy monetary policies.” It did not give details.

The statement said the spending would focus on 10 areas. They included picking up the pace of spending on low-cost housing — an urgent need in many parts of the country — as well as increased spending on rural infrastructure.

Money will also be poured into new railways, roads and airports. Spending on health and education will be increased, as well as on environmental protection and high technology.

My comment: Now that the US is entering a depression and consumer spending will collapse there will be lower trade surpluses in China. That will lead to less recycling of Chinese trade surpluses into US Treasuries. Remember there will be no more need for the vendor financing relationship between the US and China that has been going on for many years. It appears we are nearing or entering the end game for the dollar. As the depression around the world increases there will be less foreign buyers of US bonds. This will be happening just as the explosion in government spending to save the economy begins to take place here in the US. How this is not dollar negative is beyond me. A currency crisis in the US sometime during 2009 is looking like an increasing probability.

John Polomny
The Real Deal