Posted on 07/18/2018 8:16:29 AM PDT by SeekAndFind
There’s a flip side to the U.S. trade deficit that President Donald Trump rails against—the flow of capital from abroad that covers that gap. It leaves the U.S. vulnerable to other kinds of retaliation.
As the world’s biggest debtor, the U.S. depends on investors abroad to continue to invest in America. And among the biggest investors is the country that Trump is targeting for its big bilateral surplus with the U.S. and its alleged unfair trade practices: China. As the largest holder of U.S. Treasury securities, China helps fund both legs of the so-called twin deficits—the budget shortfall as well as the trade gap.
That makes the U.S. dependent on the kindness of strangers, just like Blanche DuBois in Tennessee Williams’ A Streetcar Named Desire, notes Danielle DiMartino Booth in her Daily Feather advisory. And those strangers can turn testy, as Russia did by dumping half of its holdings of Treasury securities in April after the U.S. placed sanctions on Russian oligarchs and other Russian organizations.
“The ginormous Panda in the room is China, the reigning holder of U.S. Treasuries, and whether it reacts in similar fashion,” Booth writes. It’s a question that takes on increased import with Trump’s latest threat to add tariffs on an additional $200 of imports from China. Back in January, there were reports China could sell some of its $1.2 trillion of Uncle Sam’s obligations, although that talk was dismissed in April. “To be sure, it would be one effective, shot-across-the-bow way for the Chinese to strike back aside from retaliatory tariffs, especially if it feels the U.S. has gone too far,” she adds.
China has two ways of hitting back at the U.S. financially: by either reducing its holdings of U.S. securities or by devaluing its currency, the yuan, according to Capital Economics.
(Excerpt) Read more at barrons.com ...
The numbers show that, even more than Uncle Sam, U.S. home borrowers depend on the kindness of strangers. China could retreat from bolstering the American housing market merely not reinvesting the monthly MBS interest and principal payments, resulting in a stealth tightening of mortgage credit.
The housing market is already in the doldrums, as May’s weaker-than-expected existing home sales at an annual rate of 5.43 million, 100,000 less than forecast and below April’s 5.45 million annual pace. That disappointing home sales pace comes with unemployment at just 3.8%. But with single-family home prices up 5.2% from a year ago, home sales are sluggish. A further push up in mortgage rates, already at seven-year highs, would further crimp this key sector of the U.S. economy.
We hold the ace in the deck.
We embargo all of their shipments to Walmart at our ports. Two weeks later all the wheels will be coming off their society.
RE: We embargo all of their shipments to Walmart at our ports.
How’s that going to affect the price of most everything we buy in the USA?
Yeah, no they don’t want to get into a Mexican standoff with us.
Anyone who thinks China will trash their own capital assets is delusional.
It would mean their complete economic collapse. It would initiate a wholesale debt deflation in China. Everything would become worth almost nothing.
That any so-called economics mag and writer would proffer that as a potential outcome....shows they have an agenda. And part of that agenda includes deceiving people.
San Francisco should be a great housing market for those who like human waste.
Hawaii. Big island. Mostly underdeveloped. Chinese investors are buying up empty lots for their grandchildren. SF is now a chinatown since Honk Kong went to the Chicoms. Our consumers are not too nationalistic. More than a bit spoiled.
1. Most "homeowners" don't own a home at all. They have a mortgage, not a home.
2. A 30-year mortgage -- or even a 15-year mortgage -- makes no sense for a growing number of people who don't have enough confidence in their job situation to even know where they'll be working 18 months from now.
3. It's often pointed out that a home is the biggest investment most Americans have. That may be true, but if you ever looked objectively at your home purely from an investor's perspective you'd be a damn fool to buy it.
This is economic mal practice and BS. A tariff increases domestic production, employment,spending and GDP. It is not recessionary AT ALL!
It’s time we wean off of China; at least reduce the dependency and over-exposure to Chinese lending, control of markets and Chinese real estate investment/ownership in the US. They are our biggest economic and military foe.
There’s always some withdrawal pain coming off an addiction.
It’s all upside for the the US worker.
False. The Federal Reserve is.
And any attempt to sell off a massive amount of Treasuries bought at low interest will cause the Chinese to lose hundreds of billions of dollars, and the Federal Reserve will just step in and buy them at a discount.
The bonds would crash, then the US Tsy could buy them back at cents on the dollar and eradicate all our debt in one move.
China just lost a trillion dollars.
Ergo
Chinese will never risk crashing these bonds!
One more point as well; taxes. You NEVER actually own that home/property; its on one verrrrry long lease from the local governments.
If all your money is flowing out of the country, then obviously you’ll depend on the people receiving that money to invest. If you manage to keep that money in the hands of people here, then those will be the people investing.
China is buying up huge swaths of farmland, and oil and gas properties. If they didn’t buy them, do you think they would be unowned?
If you owe the bank $100,000 and cannot pay, YOU have a problem.
If you owe the bank $1,000,000 and cannot pay, The BANK has a problem.
China accepts pieces of paper that promise to pay pieces of paper in exchange for real stuff. They can only do two things with those pieces of paper. They can hold them and watch their value erode or they can spend them on things priced in dollars.
They have purchased Treasuries which are just another form of a paper promise. They can hold them to maturity and get paid in, yep, pieces of paper or they can sell them (all) at a very steep discount.
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China’s economy is already under stress with no easy way out of the trouble they are in. Even taking unreliable and inflated GDP stats as valid, China is accumulating debt at a rate that exceeds its nominal GDP growth. The trade war that China so far seems to be embracing has hammered its stock market and prompted backdoor state support, while the US stock market and economy are booming. A pullback of Chinese capital from the US housing market would do if any little harm to the US.
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