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 ...
Me too. I try to understand what it means in our perspective but it fails me.
The worse part is that for homeowners, a rising interest rate climate till suck the equity out of their homes.
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How? ...If someone has a fixed rate mortgage, or if the home is paid off, why would an increase in interest rates cause a reduction in the equity of the house/property?
Since many countries are turning away from the dollar for their trade, there is no longer a need for central banks to maintain a reserve of dollars. They will send those back to us.
The dumping of the treasuries will cause the price of the bond to drop, thus increasing the effective interest rate.
All of this will cause higher interest rates on NEW bonds—which sucks up free cash in the economy. As the rates go up, the US will have to spend more money to service new debt.
Keep in mind, once a bond is sold the interest rate is fixed ( there are exceptions, but I am keeping it simple.). So higher government costs will come with new issues.
Kind of like platinum and palladium. They have the same characteristics as gold and silver, they are just not as readily accepted.
As for the rest of your post, I agree.
Agreed. The administration can never allow interest rates to reflect reality. A tripling of interest rates on $17+ trillion in treasury promissory notes is just short of infinity. The deficit would be back near $2 trillion. It would be better for the administration to inflate and then blame evil businesses for hiking prices on food, rent and fuel.
If an audit of the Fed was done and the results made public the entire paper economy would collapse in short order. It will not happen.
Bitcoin cannot be “printed” infinitely. That is false.
I vote we all just don’t pay them, tell them to take a long walk off a short pier.
It’s coming anyways, let’s just get it going.
You opened the can. Read every post on this thread and you will know more about economics than most economists.
Yes, one could make a case for Platinum and Palladium. They could conceivably be pressed into service as true money.
It sounds like my efforts to not buy Chinese and only buy Canadian and American are paying off!
I know trouble is coming, I’m just surprised it hasn’t started yet. If they thought they could, they’d come take over North America in a heartbeat. I think they are close to thinking they can do it.
bttt
Bitcoin can be COPIED indefinitely. Someone could set up a new BitCoin clone tomorrow: they wouldn’t even have to write their own code.
Let me rephrase your post. Clones of bitcoin, eg. litecoin, can be produced without much effort. This changes the dynamic.
If you owned a diamond, for which you paid $50,000, then suddenly a new mine was discovered which could yield untold millions of comparable quality diamonds, the value of your already-owned diamond would become whatever is the going rate for the brand new diamonds. Without respect to what you paid, your property is actually worth only what a buyer would have to pay for a comparable item. It’s why mortgage lenders depend on recent sales of comparable properties when determining the reasonableness of your offer to buy. So even if you own your home outright, most of your neighbors likely do not. So as the fire-sale persists among your neighbors, the value of your property declines.
Ok.. I thought you meant counterfeited. I guess I could use my laser printer to set up new dollars as well.
Thanks you all so much, I learned so much from reading comments from both here and at the link source.
So even if you own your home outright, most of your neighbors likely do not. So as the fire-sale persists among your neighbors, the value of your property declines.
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Appreciate the reply. I understand the scenario you posed, but it doesn’t apply in my situation. I just don’t see an increased interest rate having an impact on my equity.
In my case, it’s a small neighborhood of homes built in the mid-’80s and most are owned outright. Only about 4 of about a hundred sell each year (quickly) when owners choose to move elsewhere. About 1/2 of the homes are more pricey than mine. It’s a mature neighborhood, in that all kids from the ‘80s are now grown and the area is crime free and quiet. Prices probably range from $230-520K now.
Just default...
Everyone wakes up one morning and dollar denominated external assets are devalued. Internally held assets are not.
Two US currencies..internal dollars and external dollars.
Issue the new currency and exchange for the old inside the country...for a limited time. (This will mostly be an electronic transformation..not a guy taking old dollars and handing out new dollars.)
Of course, this means WAR.
But war is coming anyway.
>> Once - if ever - the pols/gub’mint starts outright confiscation, it will never end... they will ever need to confiscate more.
Yep. That’s why I put “one time” in quotes. :-)
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