In conventional thinking, China’s problems are China’s problems. As those related to its currency, it is believed a mere matter of either intentional policy (devaluation = export stimulus) or the outflow of “hot money” because of China’s unique circumstances. From this position, one populated by policymakers, what has transpired over the past year plus was all very confusing. It is exceedingly difficult to reconcile “hot money” outflows with global liquidation(s).

There were many clues that this was the wrong approach. The Treasury International Capital (TIC) data though delayed a few months actually provides a great deal of what is necessary to clear up the matter. What was evident even last year during the summer was that this was not just China’s problem. I wrote last September:

While China has received note for its now-open UST sales, it has not been alone or unique in that regard. Indeed, there have been several surprise “partners” in central banks (or national governments, which is not always one and the same) contributing “reserves” in the face of financial retreat in global “dollar” supply. Straight away, the UST holdings by Japan show the grim reality in far closer proximity, in this respect, to China than seems otherwise appreciated.

Central banks as a class were “selling UST’s”, and though China contributed perhaps a majority it was others across Asia but especially Japan that suggested widespread funding problems tied to the eurodollar that were being directed toward the Far East. From that realization, it was easy deduction to put together Japanese banks with Chinese “dollars.” That meant, of course, spillover for Japan. I wrote in early November 2015, less than two weeks before the yen began its middle finger (or whatever the Japanese equivalent affront might be) to the Bank of Japan:

What is more visible is, again, that China is not alone in its official sector struggles. From Brazil to even Japan, “dollar” wholesaling is in some high degree of irregularity. For Brazil and the oil export countries, for example, that isn’t surprising but the addition of others like Taiwan (dating back all the way to 2012) and Japan suggests both that hidden asymmetry as well as its more Asian aroma.