This is a deflationary spiral playing out in a predictable manner. First commodities declined, hard. Balance sheets and earnings fell. Real estate falling. Equities now rocked, the effect amplified by fear and increasing uncertainty. There is about 2 trillion of US dollar reserves on China's balance sheet, and I am guessing that number will decline by half in the months, possibly years to come.
China probably will liquidate treasury holdings to fund their margin bank and other stimulus, and they will do it at a loss because global uncertainty is forcing yields down. Put simply, a lot of USD sequestered on China's balance sheet will find its way back into global commerce. Thankfully.
