Posted on 08/13/2014 2:31:29 AM PDT by Sir Napsalot
Although investors hang on every comment by Federal Reserve Chairwoman Janet Yellen to get insight on the direction of interest rates and what it means for the economy and asset prices, the real power to determine U.S. interest rates may be in the hands of China, according to Lombard Street Research. Facing an overvalued currency that is hurting corporate profits and slowing growth, China appears ready to dump its $1.3 trillion in U.S. Treasury bonds to drive U.S. interest rates up and strengthen the dollar...
(snip)
China tried to slow the fall of the dollar by increasing its holdings in U.S. Treasury bonds from $400 billion in 2007 to $1.33 trillion at the end of 2013. Despite spending almost a trillion dollars on U.S. Treasury purchases, the weak-dollar policy caused the Shanghai Index to fall by 38%. During the same period the U.S. S&P Index rose 199%.
As the overvalued yuan caused China export competitiveness to evaporate, China has tried to “rebalance its economy” to avoid massive unemployment by shifting to service industries. However, “an expensive currency in a world of weak demand makes it impossible for China to rebalance its economy without a collapse,” according to Lombard.
(snip)
"For a long time the threat that Beijing might sell US Treasuries rang hollow, but no longer,” according to Lombard. “Growth trouble across the Pacific may have a much bigger impact on US yields in 2015 and 2016 than the expected pace of US central bank tightening” from the Federal Reserve, they argue.
The People’s Bank of China in November of 2013 announced it was ending its purchase of U.S. Treasury bonds. ......
(Excerpt) Read more at breitbart.com ...
All "good things" must come to an end. Eventually, we will have to pay for it some how, some ways.
Interest rates are good or bad depending on how you position yourself. Rising interest rates are good for some investments. Position yourself there, and you will do fine. The best part is that it will finally force the government to address the deficit. The worse part is that for homeowners, a rising interest rate climate till suck the equity out of their homes.
Does this mean that all of the money printed under Obama is about to be dumped back into the economy? Or what?
The economics articles often make no sense at all to me.
Interesting and interesting comments at the link. Thanks for posting.
>>> The economics articles often make no sense at all to me.
I am definitely not an expert, and like you, “economics articles often make no sense at all to me”, either.
I just know for certain we will see the beginning of a real bumpy ride.
>> Eventually, we will have to pay for it some how, some ways.
Naw. Yathink?
More and more I believe that “some how, some way” will be a “one time” wealth tax. 10% to 20% of all household and corporate wealth.
It’s for the children. Native AND immigrant.
And Bush and Clinton. But the money isn't "there" anymore. It was used to purchase piles of IOU's that are now in the hands of China and the Fed (and some Europeans, Middle Easterners, etc). The IOU says the American taxpayer owes you such and such money. If the American taxpayer were to actually pay off those IOUs, that would end the American economy. So we are not going to do that. The Fed will double down and keep printing. The politicians will keep getting that money and keep spending it.
Thanks to American political stupidity, sooner or later there will be a breakdown of worldwide law and order. We will technically default to some extent which will tank the stock markets which are structured around the treasury bubble. We will monetize to some exxtent which really will be printed money sent abroad where it will be "hot" and create asset inflation worldwide followed by a bust (2008 all over again except worse this time).
The alternatives to those two catastrophes are laughable: 1) we grow our economy enough to pay off the debt (Obama says no way). 2) we roll the debt forever (sell new paper to pay off the old). But nothing lasts forever.
The consequences of federal default will be enormous. Fannie and Freddie will default, many states will default, public pension funds will default. The economic legal system will get tossed under the bus, bondholders worldwide will get stiffed causing worldwide depression. We may join that depression or hyperinflate then join. I have a feeling the politicians will ask the Fed for hyperinflation but the Fed won't completely oblige and the politicians will print themselves, probably confiscate all the food and hand it out, etc. We may get to civil war even before that happens. There will be a reset, then we may have a luxury of starting over or we may not.
What I see is that China is between a rock and a hard place.
Low world market demand for their products, massive unemployment concerns, overvalued currency,which the article claims make it “impossible for China to rebalance its economy without collapse”.
What happens if China goes down? Civil war? Does China start a war? Does China turn into “free market” Russia?
China has A LOT of serious problems. The biggest one being rampant corruption. China, Russia, and Iran are all slave nations with the highest addiction rates per capita in the world.
The Manyamar region has been taken over by the heroin cartels and that doesn’t happen without government complicity.
With the cartels, comes violence “terrorism”, and even more corruption.
http://online.wsj.com/articles/owner-of-myanmar-hotel-where-john-kerry-stayed-is-on-u-s-blacklist-1407813815
ASIA NEWS 8/11/2014
Owner of Myanmar Hotel Where John Kerry Stayed Is on U.S. Blacklist
U.S. Delegation Didn’t Violate Sanctions, but Stay Highlights Difficulty of Avoiding Targeted Cronies in Country
You can really spin this any way you want. Theoretically, the Fed can simply purchase all the treasuries the Chinese want to sell and things just keep going. The demand for US dollars overseas seems to be infinite. It really isn't infinite, it just seems to be.
The thing you have to keep in mind is that US dollars, CDN dollars, Jap yen, Euros are just currency. They are not real money. Real money is a store of value and it is scarce. These currencies are subject to inflation (in other words they lose their value) because they are not scarce, by design. You asked about all the printed currency being dumped back into the economy. At some point those dollars will come home to roost and prices for everything will be bid up, way up. Google "German inflation Weimar" if you want a primer on what inflation does to people in a paper economy.
If you can convert at least a portion of your wealth to real money and real, hard income producing assets you will be way ahead of the game. Real money is gold and especially silver. Paper dollars are pretty pieces of high grade paper and have no intrinsic value. Precious metals have to be wrested from the earth, milled, refined and minted. As a result, they have intrinsic value.
If you want an education on what is really going on search "Kyle Bass" on youtube. He is a hedge fund manager, not a singer. He might be the smartest man in America when it comes to investing. He knows what he is talking about.
Also what palmer said in post #7. All this is possible.
Link the Chinese dumping of bonds to the Fed’s stated policy of no longer buying US bonds in Oct., now how does it look? Who picks up the slack?
Oct. of ‘29 was the stock market crash and the beginning of the Great Depression, Muzzies being big on symbols, kinda makes you think something evil is coming this way.
China's been buying up our debt, meaning we "owe" them that money when they cash in a bond. If they were to "cash in" all of the chips, the casino (America) goes broke real quick. We can't pay the Chinese for the debt they own, so dumping our bonds would mean we're deleveraged and likely plunged into a recession, or worse, in a matter of a few hours.
This was known for a long time and is a big reason Obama plays paddy-cake with the Chicoms. If they dump the majority of the bonds they own, the market will crash with it. We could be in for a rough ride here very soon.
Good information, FPC. Thank you for this.
Likewise gold and hard assets will be demanded by foreigner in leiu of dollars. Let's say you want some fuel from abroad or a new TV. Just find a middleman, give him the gold, and get your TV. The government will declare that to be illegal, but that just means the middleman will get a bigger cut.
Bitcoin might be a game changer. It's intrinsic value represents the time, energy, and intellectual effort needed to produce it and maintain the system. Since there will be a finite amount coined, it will be scarce. It actually comes closer to real money than currency.
The only problem with bitcoin is that it is dependent on the internet for its survival. No internet or no internet access and bitcoin goes away. Gold and silver are independent of any other system. They stand on their own.
Let’s have an honest audit of the Federal Reserve Bank books.. Balance sheet in particular might expose where a mega-chunk US Debt holdings are located.. Then ask who’s to big to fail.
I’m no financial guy but does this have anything to do with US imposing sanctions on Russia over Ukraine? I read the Russia and China made some pact to drop the dollar or something like that. Again I’m not a financial guy.
LOL. The headline should read: China Appears Ready to Lose Even More Money
Stupid central planners never think its their local decisions and plans that are wrong. No, it’s always somebody else’s fault. Doesn’t this sound like our local liberals?
Bitcoin requires real-world work and even has a form of real world value (e.g. as a component of a one-time pad). But that goes equally for copies of Bitcoin - of which there can be an indefinite number.
Whereas there is no physical Gold.20 or Silver.20.
Now there are paper versions of Gold and Silver: indeed the supply of synthethic/paper Gold and Silver 'outweighs' the real supply by about 100 to 1. This is the mechanism by which the price of Gold and Silver are suppressed.
The moment that the dollar loses reserve status, the value of real things will go up. As we would expect.
But at the same time this cloud of 'fake' gold and silver will tend to disappear/be revealed as valueless - because traders will no longer dare hold promises to deliver real Gold when the price of real Gold is spiking up due to a permanent change in dollar status.
Therefore its likely that - when the dollar loses reserve status - the price of real Gold (and Silver) will *superspike*. This change in the buying power of precious metals will represent the largest transfer of wealth in history.
Once - if ever - the pols/gub’mint starts outright confiscation, it will never end.
It can’t, because at that point the general economic activity suffer greatly (more than even now) and the amount of legitimate tax and other monies collected by governments at all levels would therefore necessarily shrink.
Ergo, they will ever need to confiscate more.
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