Chinese Are Likely to Halt Purchases of U.S. Treasury Debt 90 comments
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Nervous Times In China
The Chinese are learning the hard way about an old American banking story. The man who owes the bank $50,000 dollars on a secured loan may lay awake at night worrying about how he can repay the loan. If the same man owes the bank $5,000,000 of unsecured debt, it is probably the banker who is awake all night wondering if he is going to get paid.
Chinese Premier Wen sounds like he is having some sleepless nights worrying about whether or not the US will be able to repay the $700 billion that China invested in US treasury securities. In a remarkable statement, Premier Wen publicly stated that he is “worried” about the ability of the US to pay back its huge debts to China. As reported in Bloomberg, Wen is asking for assurances from the US that the debt is safe.
“We have lent a huge amount of money to the United States,” Wen said at a press briefing in Beijing today after the annual meeting of the legislature. “Of course we are concerned about the safety of our assets. To be honest, I am a little bit worried. I request the U.S. to maintain its good credit, to honor its promises and to guarantee the safety of China’s assets.”
U.S. Secretary of State Hillary Clinton urged China, while visiting officials in Beijing on Feb. 22, to continue buying U.S. debt, which she called a “safe investment.”
“China is worried that the U.S. may solve its problems with the fiscal deficit and banks by printing money, which will stoke inflation,” said Zhao Qingming, a Beijing-based analyst at China Construction Bank Corp., the country’s second-biggest lender. “If the U.S. can make sure this won’t happen, then China will continue to invest.”
Delegates of China’s legislative advisory body suggested that the biggest foreign holder of U.S. debt diversify away from Treasuries into more risky assets at the annual meeting that started on March 3.
Jesse Wang, executive vice president of China Investment Corp., said on March 4 that his $200 billion sovereign wealth fund may invest in “undervalued” commodity assets. Zhang Guobao, head of the National Energy Administration, said China should invest more in commodities instead of hoarding the U.S. dollar, the official Xinhua News Agency reported on March 7.
China should seek to “fend off risks” as it diversifies its $1.95 trillion in foreign-exchange reserves and will safeguard its own interests, Wen said. Chinese investors held $696 billion of U.S. Treasuries as of Dec. 31, an increase of 46 percent from the prior year.
Chinese Concerns Justified
China is justified in worrying about its large US treasury investment, despite the worthless assurances from our Secretary of State. Congress is blithely spending money by the trillions, as Chairman Bernanke continues to speak of buying mortgage backed securities and long term treasuries. One of the major constraints on Chairman Bernanke’s desire to print money (via the purchase of US government debt) has, no doubt, been the worry about a potential backlash from China, the biggest buyer of US debt.
The heretofore mutually beneficial arrangement of China purchasing US debt with trade surpluses generated by American purchases of Chinese goods is drawing to a close. China’s trade surplus has all but evaporated, eliminating the need or ability of China to purchase additional US debt. In addition, the Chinese have made it clear that their national interests are best served by diversifying into commodities and other real assets, the value of which is not contingent upon an overleveraged debtor nation.
End Game Clear
As long as China continues to purchase US debt, Bernanke is constrained from blatantly printing money. As China throttles way back on its purchase of US debt, America will have three choices - 1. Borrow and spend less 2. Raise taxes tremendously or 3. Print money. Based on what we have seen so far, it will be some of number 2 and a lot of number 3.
The odds are that China will ultimately get its money back, but the value of what they receive will be far less than what they gave.
Stock position: None.
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This article has 90 comments:
America's founding fathers would be saddened. But, hey, they're just a bunch of dead old men. Who needs 'em when we have modern intellectual giants like Barney Franks calling the shots?
I don't really see the US doing anything....but spending money on.......crap.
3% a year for 30 years...
No wonder they would rather buy commodities.
Commodities don't default on you.
On Mar 13 08:53 AM LogicalSinger wrote:
> << I request the U.S. to maintain its good credit, to honor its promises
> and to guarantee the safety of China’s assets.>>
>
> No problem, Premier Wen, we will honor our promises... just as you
> honored your promise to introduce democracy to China, a promise made
> back when our country opened its borders to your products. You can
> count on us, pal! (toothy grin and wink)
----------------------...
This is a decoupling theory based on a brief decline in US imports of Chinese goods. For this theory to work, either (a) Chinese internal demand will suddenly reach US levels and keep the factories running, or (b) China will decide to quit trading with the US, let the factories shut down, allow unemployment and civil unrest to rise, and go into steep economic decline just to spite the US.
I'd say the Premier is just talking, exactly as our politicians do.
"As China throttles way back on its purchase of US debt, America will have three choices - 1. Borrow and spend less 2. Raise taxes tremendously or 3. Print money. Based on what we have seen so far, it will be some of number 2 and a lot of number 3."
----------------------...
Might I suggest a couple more multi-trillion dollar options:
4. Go one decade without a multi-trillion dollar war.
5. Eventually sell the mortgages, bonds, and stocks that the government has purchased so far. Obtain some return from the loans issued. Pay down debt with these revenues.
6. Reduce spending by cutting the number of foreign military bases in half, from several hundred to perhaps 200.
7. Reduce foreign oil consumption.
8. Reduce government subsidies to agriculture, oil, etc.
9. Freeze the government worker pension system.
I sympathise with your sentiments all the same, of course. Everyone wants to own something that's truly been delivered in the past and doesn't depend on anything that happens in the future.
Lead by example, like Dr Paul would say.
On Mar 13 08:53 AM LogicalSinger wrote:
> << I request the U.S. to maintain its good credit, to honor its promises
> and to guarantee the safety of China’s assets.>>
>
> No problem, Premier Wen, we will honor our promises... just as you
> honored your promise to introduce democracy to China, a promise made
> back when our country opened its borders to your products. You can
> count on us, pal! (toothy grin and wink)
China is no fool, they are going to hold onto the export side as long as possible to enlarge the participation of their people into the economy (the great middle class). They also realize that they will become more consumption base, how they do that and stay competitive is what they're working at now (it's not the USA after WWII after all, they're in a more different world, and they no doubt saw Japan's problems and want to ensure as their economy evolves it does not have a similar experience).
As for the USA doing anything other than honoring Treasuries that won't happen. It may be with inflated dollars - through not hyperinflation.
Take China's leadership recent comments for what it does best: more positioning than action.
""We have lent a huge amount of money to the U.S., so of course we are concerned about the safety of our assets. I do in fact have some worries," Mr. Wen said in response to a question. He called on the U.S. to "maintain its credibility, honor its commitments and guarantee the safety of Chinese assets.""
Translation: we reserve the right to reduce our exposure, in fact it is likely we will do so.
"He said that while China's first priority is to protect its own interests, it will "at the same time also take international financial stability into consideration, because the two are inter-related.""
Translation: There are other opptys out there other than the U.S. and we will start to consider them in a serious way.
""No country can pressure us to appreciate or depreciate" the currency, he said."
Translation: Don't tread on me.
Bottom line: I respect China and they have a great oppty to not make the same horrible mistakes that we have over the last 46 years, but to adopt the policies that have worked (like all the pro-growth policies, such as friendly business tax policies).
On Mar 13 10:23 AM johnthebears wrote:
>
> I am so sorry to say that I feel like I am living in Russia, a socialist
> communist country.
>
> We now have one party government and a dictator president that sees
> himself as the Messiah!
>
> Our country is now a bankrupt nation of poor people, already losing
> $11 TRILLION DOLLARS OF REAL WEALTH, MORE THAN THE VALUE OF JAPAN
> AND PERPHAPS GERMANY, that we may never recover, since investment
> banks can no longer create money at 40:1 to be bought by fools all
> over the world.
>
> This thing is global, and all nations are poorer now as well as America.
>
>
> It may take a couple of years before the average Joe to grasp the
> significance of what he has been voting for... the Democratic Socialist
> Republic of America, but truly Oboman's mentor, Rev. Wright's forecast
> has come to be...
>
> THE CHICKENS HAVE COME HOME TO ROOST AND I BLAME DEMOCRAT LIBERALS
> AND STUPID LIBERAL REPUBLICANS.
>
> THEY ALL SHOULD BE TAKEN OUT AND SHOT!
>
> WE MAY BE ON THE VERGE OF ANOTHER CIVIL WAR.
>
> I am sorry that I must sound so pessimistic on this Friday the 13th,
> but that is my true feeling of where we stand today in America.
Bears,
With comments like "THEY SHOULD ALL BE TAKEN OUT AND SHOT" we MAY be on the verge of another Civil War. Be careful what you wish for.
And you think it was GOOD for investment banks to leverage debt 40 to 1 just because the Ponzi securities could be bought by "fools all over the world"????? This is your idea of a functional economy that brought American prosperity?
And finally, I do truly understand that it pains your racist little heart, but the man IS the President of the United States. Learn how to spell his name.
On Mar 13 10:23 AM johnthebears wrote:
>
> I am so sorry to say that I feel like I am living in Russia, a socialist
> communist country.
>
> We now have one party government and a dictator president that sees
> himself as the Messiah!
>
> Our country is now a bankrupt nation of poor people, already losing
> $11 TRILLION DOLLARS OF REAL WEALTH, MORE THAN THE VALUE OF JAPAN
> AND PERPHAPS GERMANY, that we may never recover, since investment
> banks can no longer create money at 40:1 to be bought by fools all
> over the world.
>
> This thing is global, and all nations are poorer now as well as America.
>
>
> It may take a couple of years before the average Joe to grasp the
> significance of what he has been voting for... the Democratic Socialist
> Republic of America, but truly Oboman's mentor, Rev. Wright's forecast
> has come to be...
>
> THE CHICKENS HAVE COME HOME TO ROOST AND I BLAME DEMOCRAT LIBERALS
> AND STUPID LIBERAL REPUBLICANS.
>
> THEY ALL SHOULD BE TAKEN OUT AND SHOT!
>
> WE MAY BE ON THE VERGE OF ANOTHER CIVIL WAR.
>
> I am sorry that I must sound so pessimistic on this Friday the 13th,
> but that is my true feeling of where we stand today in America.
Their manipulation of their currency as decimated the US manufacturing base. Their massive buying of medium and long term treasury bonds (in support of their currency peg) as caused long term yields to remain depressed for a prolonged period, causing the inversion of the yield curve in 2005 to 2007 and setting up the conditions for leverage in the financial sector and the incentive for savers to become borrowers. They did this to America and now they have the gull to "warn" us?
Fact of the matter is, China's currency manipulation should be considered an act of war on America. It is a blatant attack on America's economy and a destabilizing force on its financial sector.
Quite the opposite should happen. America should be warning China to stop their blatant attacks or risk military intervention. What is happening now is tantamount to an embargo on America....nay....it is worse. And if an embargo is considered an act of war, then currency manipulation with the sole purpose of boosting domestic manufacturing at the expense of foreign manufacturing should also be considered an act of war.
Just my thoughts....
I'm sure that China will introduce democracy just as soon as the USA does.
Chris,
Your options are spot on, except possibly for number 9. It's already been partially done; new Federal employees were locked out of the traditional "Civil Service" retirement system by President Reagan. A "tier two" system was implemented with benefits essentially half a generous as the previous plan (the benefit was 2%/year of service but became 1%).
I gather you're advocating eliminating even the new plan and substituting a 457 system (the governmental equivalent of the 401K).
That would certainly save a little money in the near-term as boomers retire and are replaced by the new 457 only workers. But when the economy recovers -- it really will recover -- the government would have to pay significantly higher wages to attract quality talent. Washington DC is a HIGH cost city and the certainty of a guaranteed lifetime annuity benefit in retirement allows people to make the choice to live there on a lower present salary. Assuming rational investment of the employer contributions in a well-run retirement system -- which seems to be true for the FRS -- and the net present value of money, total Federal expenditures over the next century might actually be HIGHER in the absence of the FRS plan.
This is not an attack, just a "what about?"
On Mar 13 11:23 AM Chris B wrote:
> "The heretofore mutually beneficial arrangement of China purchasing
> US debt with trade surpluses generated by American purchases of Chinese
> goods is drawing to a close. China’s trade surplus has all but evaporated,
> eliminating the need or ability of China to purchase additional US
> debt."
> ----------------------...
> This is a decoupling theory based on a brief decline in US imports
> of Chinese goods. For this theory to work, either (a) Chinese internal
> demand will suddenly reach US levels and keep the factories running,
> or (b) China will decide to quit trading with the US, let the factories
> shut down, allow unemployment and civil unrest to rise, and go into
> steep economic decline just to spite the US.
>
> I'd say the Premier is just talking, exactly as our politicians do.
>
>
>
>
> "As China throttles way back on its purchase of US debt, America
> will have three choices - 1. Borrow and spend less 2. Raise taxes
> tremendously or 3. Print money. Based on what we have seen so far,
> it will be some of number 2 and a lot of number 3."
> ----------------------...
> Might I suggest a couple more multi-trillion dollar options:
>
> 4. Go one decade without a multi-trillion dollar war.
>
> 5. Eventually sell the mortgages, bonds, and stocks that the government
> has purchased so far. Obtain some return from the loans issued.
> Pay down debt with these revenues.
>
> 6. Reduce spending by cutting the number of foreign military bases
> in half, from several hundred to perhaps 200.
>
> 7. Reduce foreign oil consumption.
>
> 8. Reduce government subsidies to agriculture, oil, etc.
>
> 9. Freeze the government worker pension system.
Mr Big,
Sic 'em Buck Turgidson! Rattle those Minutemen! Brandish those Tridents! The PU239 in the triggers is gettin' a little weak from sittin' there in those tubes too long. Gonna have to replace the H3 any time now; poisoned with He. Gotta use 'em or lose 'em.
We can ALL ride down on the bomb!
On Mar 13 12:03 PM Mr. Big wrote:
> Sooner or later, Americans will realize that China has been waging
> a quiet war on America. You know what? China is winning. I'm just
> going to put it out there now: CHINA IS THE CAUSE OF THE CREDIT
> CRISIS.
>
> Their manipulation of their currency as decimated the US manufacturing
> base. Their massive buying of medium and long term treasury bonds
> (in support of their currency peg) as caused long term yields to
> remain depressed for a prolonged period, causing the inversion of
> the yield curve in 2005 to 2007 and setting up the conditions for
> leverage in the financial sector and the incentive for savers to
> become borrowers. They did this to America and now they have the
> gull to "warn" us?
>
> Fact of the matter is, China's currency manipulation should be considered
> an act of war on America. It is a blatant attack on America's economy
> and a destabilizing force on its financial sector.
>
> Quite the opposite should happen. America should be warning China
> to stop their blatant attacks or risk military intervention. What
> is happening now is tantamount to an embargo on America....nay....it
> is worse. And if an embargo is considered an act of war, then currency
> manipulation with the sole purpose of boosting domestic manufacturing
> at the expense of foreign manufacturing should also be considered
> an act of war.
>
> Just my thoughts....
Why is it that Japan maintains its manufacturing base and dominate certain manufacturing industries. Are you going to blame the demise of Detroit on the Japanese car makers (or the German's)? Blame the Nokia for taking market share from Motorola? In Japan the cheap goods are made in China and very expensive goods are made in Japan, clearly the Chinese goods service the lower part of the population. US's no. 1 export is MacDonald's, which dominate the world cheap burgers.
On Mar 13 12:03 PM Mr. Big wrote:
> Sooner or later, Americans will realize that China has been waging
> a quiet war on America. You know what? China is winning. I'm just
> going to put it out there now: CHINA IS THE CAUSE OF THE CREDIT
> CRISIS.
>
> Their manipulation of their currency as decimated the US manufacturing
> base. Their massive buying of medium and long term treasury bonds
> (in support of their currency peg) as caused long term yields to
> remain depressed for a prolonged period, causing the inversion of
> the yield curve in 2005 to 2007 and setting up the conditions for
> leverage in the financial sector and the incentive for savers to
> become borrowers. They did this to America and now they have the
> gull to "warn" us?
>
> Fact of the matter is, China's currency manipulation should be considered
> an act of war on America. It is a blatant attack on America's economy
> and a destabilizing force on its financial sector.
>
> Quite the opposite should happen. America should be warning China
> to stop their blatant attacks or risk military intervention. What
> is happening now is tantamount to an embargo on America....nay....it
> is worse. And if an embargo is considered an act of war, then currency
> manipulation with the sole purpose of boosting domestic manufacturing
> at the expense of foreign manufacturing should also be considered
> an act of war.
>
> Just my thoughts....
Washington has bailed out the banks, Wall Street & their Washington special interests and much of the cost is added to the national debt to by paid by this and future generations while real estate and investments continue to fall. Find out what a growing repudiate the debt movement could mean for treasury bonds, the dollar, gold and the stock market.
The Campaign to Cancel the Washington National Debt By 12/22/2013 Constitutional Amendment is starting now in the U.S. See: www.facebook.com/group...
"America's deficit with many of its trading partners declined sharply although the politically sensitive imbalance with China bucked the downward trend, rising by 3.5 percent to $20.6 billion. U.S. exports to China plunged by 19.7 percent, a much bigger drop than the 1.3 percent decline in Chinese goods shipped to the United States.
U.S. manufacturing companies who have been battered by what they view as unfair competition from China said that the continued high deficit with China, the largest U.S. trade gap with any nation, pointed to the need for the Obama administration to take a tougher line than the Bush administraiton with China.
"The United States will not be able to jumpstart its economy unless it stops trade cheats like China from decimating U.S. manufacturing," said Auggie Tantillo, the executive director of the American Manufacturing Trade Action Coalition, a group which is pushing the new administration to impose trade sanctions on China."
So there you have the problem in a nutshell. Will China be able to change its top-down economy and increase domestic consumption, social programs and jobs to quell unrest. Or will it remain as it is: a regime practicing totalitarian capitalism for the benefit of those at the top.
On Mar 13 12:59 PM Sober Realist wrote:
> Or will it [China] remain as it is: a
> regime practicing totalitarian capitalism for the benefit of those
> at the top.
>
>
>
>
>
On Mar 13 08:15 AM Andy1234 wrote:
> I am not communist at all.....but the actions of China seem pretty
> smart....atleast what the government is doing....and securing for
> their future (commodities).
>
>
> I don't really see the US doing anything....but spending money on.......crap.
Moral equivalence is the pseudo-intellectualism of the lazy.
On Mar 13 01:11 PM User 371080 wrote:
> As opposed to what? American totalitarian capitalism for the benefit
> of those at the top?
On Mar 13 01:15 PM user344210 wrote:
> Hmm, let's do a poll. Would characterizing the economy as "totalitarian"
> be allowed on a Chinese comment board or not and if not, does it
> tell you anything about the respective societies that it is allowed
> on an American comment board?
>
> Moral equivalence is the pseudo-intellectualism of the lazy.
China is buying up the most planet's remaining natural resources. Very smart.
Our regret will be that when the chance was there to get the rights to the resources the U.S. had squandered our position as an economic superpower. Nothing like being flat broke from a drinking binge just as the last and final shipment comes into the port.
On Mar 13 01:24 PM Contrarius wrote:
> Gee, is there any chance that you decided on that headline, "Chinese
> Are Likely to Halt Purchases of U.S. Treasury debt" -- an unsupported
> and unsupportable statement -- in an effort to knock down the markets?
I don't like this situation one bit, far too unstable.
Having said that, things nearly never pan out as bad as feared and I'm sure they'll find ways to cooperate (Taiwan is huge to the Chinese...).
On Mar 13 01:25 PM User 371080 wrote:
> As I suspected, there's no problem with benefit for those at the
> top. I seems as though a congress totally devoted to business interests
> isn't totalitarian in your view. I'm not going to debate you. We're
> too far apart.
No, this doesn't require "rock-solid logic". It only requires a sense of ethics that demands that other parties honor their commitments. What is "breathtaking" is the willingness of so many people to look the other way while someone is "drinking their milk shake".
On Mar 13 10:28 AM User 360916 wrote:
> Logical snigger: your rock-solid logic in the field of global trade
> is breathtaking. Why not run for political office and then you could
> call the shots! We'd be so much the better if your political beliefs
> became the foundation of global well-being! Hooray!
On Mar 13 08:53 AM LogicalSinger wrote:
> << I request the U.S. to maintain its good credit, to honor its promises
> and to guarantee the safety of China’s assets.>>
>
> No problem, Premier Wen, we will honor our promises... just as you
> honored your promise to introduce democracy to China, a promise made
> back when our country opened its borders to your products. You can
> count on us, pal! (toothy grin and wink)
The US threatens to print if China doesn't buy; and China threatens to sell if the US prints.
Who would have ever thought that the Communist Chinese government - which incentivises savings and thriftyness among its people - would be better capitalists than Americans whose government intentivises its people to spend and never save, don't plan for tomorrow, there is a free lunch and a free house and a free car and free job.....
Welcome to the new world order where sixty years of American policy has convinced us that we are entitled to whatever we want when we want it and government is here to make that happen if we can't or will not earn it.
In addition, 50% of all exports coming from China are owned and control by American companies. That is right, if you want to kill profits and make life miserable for Americans. Bring back all those low end manufacturing jobs. I am sure most Americans woulding mind paying $50 for a plastic fan.
Our problem here in the U.S. is that we don't prepare Americans for highing end jobs. Our whole education system is flawed. Cisco & Intel is looking to spend about $8 billion to built more plants in the U.S. Their concern is that we don't have enough qualify Americans who can do the job.
Chinese government is all hot air.
let them sell what they have and stop buying. those actions will ruin china truly. usa will be unscathed.
The Chinese Regime has tilted the market playing field steeply in favour of state-owned companies and private entrepreneurs who have official connections and play by party rules. Those who buy into China's propaganda machine aren't seeing the true picture.
China will eventually fail because the regime relies too heavily on visible growth for legitimacy. Beijing invests in tangible signs of progress—factories, industrial parks and the like. This emphasis on “visible” gains has in turn led to huge social deficits - health care, education and environmental protection have all been neglected. Their rampant economic growth has concealed serious structural,institution... and policy flaws which will come to the forefront within the coming decade. Have you heard of China's coming 4-2-1 problem?
So for China to demand assurances from us without reciprocative change from themselves won't work in the long run.
China could slow or stop buying Treasuries, but eventually, all of their surplus usd has to come back to the US. China could buy oil from Saudi Arabia, copper from Chile, etc, etc...but the Saudis, Chileans, and everyone else then holding usd will have to do something with it. Since hard cash earns 0%, Treasuries make sense due to their liquidity and risk profile.
Something else that I see as completely ridiculous is the idea that the US could default on its external debt in "a few years." This is simply not true. As long as the usd is the world's reserve currency, with no ensuing threat of replacement (eur is more flawed than usd, gbp has nothing behind it anymore...), US debt can be monetized. My views on c/a deficits are the same as global warming, the effects of debt and pollution are difficult to measure and rationalize...but too much of either will always result in disaster. The only way I could see the US defaulting on its debt is to make enough terrible policy decisions (anti-business, protectionist), which could lead to Zimbabwe-esque inflation, making the usd absolutely useless aside from fire tinder...which isn't too realistic of a scenario in my view.
China does, however, have a genuine concern regarding usd inflation, as it would affect the yields on the Treasuries they hold...but I strongly feel that Wen's recent statements were political rhetoric more than viable threats. ...but if inflation does pick up or for some other reason China does carry through and reduces their Treasury exposure/purchases, the news alone would affect the markets.
It is funny/ironic/depressin... though, to see a world in which it seems that recent policy moves of the US are more socialist, while recent policy moves of China are more capitalist...
WHITEHAWK, great comments and I like the political translation...great contribution!
One thing I see through all of this... China is going to require massive amounts of essentially every traded and untraded commodity over the next decade or so. On top of that, if the recent threats are real and China does begin to purchase commodities with their usd for more than just consumption...especial... if they do so as an investment or hedge from a fear of usd inflation...commoditie... will absolutely take off.
The usd is a very flawed currency, as Jim Rogers tends to point out every time he gets in front of a camera (I share nearly every one of his views), but - for now - it is the best of the worst possible options as the world's reserve currency.
Thoughts???
Cheers
Armageddon is going to be a BLAST.
Um...sure. Until he realizes that doing so devalues all the previous debt he bought from us. The more you keep buying, the more worthless it is. I'd advise the Chinese to put an immediate halt to purchases, honestly!
I already know that much of the exports coming from China are from American companies.... The whole point of keeping the currency cheap is to attract foreign investment into China (cheap labor, right?). In other words, China wanted foreign companies to open up shop in China so that the Chinese people can be employed. So you are missing the point. It's all about jobs. It has always been about jobs. The millions of jobs lost in America are the millions of jobs gained in China.
On Mar 13 02:20 PM wzyguy wrote:
> About China's currency manipulation. This is not true, don't believe
> the spin the U.S. government throws out. IMF did study last year
> and came to the conclusion that the Yuan is actually over-priced
> compared to the dollar.
>
> In addition, 50% of all exports coming from China are owned and control
> by American companies. That is right, if you want to kill profits
> and make life miserable for Americans. Bring back all those low end
> manufacturing jobs. I am sure most Americans woulding mind paying
> $50 for a plastic fan.
>
> Our problem here in the U.S. is that we don't prepare Americans for
> highing end jobs. Our whole education system is flawed. Cisco &
> Intel is looking to spend about $8 billion to built more plants in
> the U.S. Their concern is that we don't have enough qualify Americans
> who can do the job.
>
> They are blackmailing each other:
>
> The US threatens to print if China doesn't buy; and China threatens
> to sell if the US prints.
This economic codependency is actually good news for now. It creates a guarantee of mutual economic destruction that prevents military or economic conflict between the US and China. Much like the smack-talk that went on between the US and USSR during the cold war, this guarantee of mutual destruction will prevent anything from happening. Japan and probably Taiwan are safe - for now.
But what happens a decade or two from now when the situation is different? What happens when dollars don't buy very many commodities any more (which is what China is really concerned about)? What happens when rising Chinese internal demand and rising wages make them less export-dependent? The removal of the codependency could lead to new conflicts - economic or military.
In 15-20 years, do we really want our country to be competing for oil with 1.2 billion Chinese and most of the world's manufacturing capacity? The future premier may tell the US: "Let us control Saudi Arabia, Iraq and all of Africa, or we will crash your currency. We can afford to do that, you know."
We have an interesting and symbiotic relationship with China. We are the great power of the 20th century. They are the great power of the 21st.
The Chinese are concerned with their treasuries, and will, no doubt, be diversifying into stimulus investments in their own economy, and commodity purchases around the world. This will put more pressure on treasury rates as a major buyer scales down their activity. Rates will begin to climb soon as the Treasury department continues is massive program of debt finance.
This is one reason that I continue to believe that TBT is a good bet.
> Their manipulation of their currency as decimated the US manufacturing
> base. Their massive buying of medium and long term treasury bonds
> (in support of their currency peg) as caused long term yields to
> remain depressed for a prolonged period, causing the inversion of
> the yield curve in 2005 to 2007 and setting up the conditions for
> leverage in the financial sector and the incentive for savers to
> become borrowers. They did this to America and now they have the
> gull to "warn" us?
"Hence to fight and conquer in all your battles is not supreme excellence; supreme excellence consists in breaking the enemy's resistance without fighting."
-- Sun Tzu ~ 400BC
you all are smoking crack!
TGIF!
china is not in the same league as the us.
they buy dollar denominated debt because what the heck else can they do? us dollar is the world reserve currency for centuries to come. that is the only reason they buy; otherwise, they are not so stupid to buy by the 40 - 50 billion barrel full each time there is an auction. the chinese government elite is making themselves safe the best way they can. again, they are not stupid.
besides that, how does anyone compare china a 1.3 billion nation with 3 trillion gdp( 90 from us consumers) to 300 million usa nation and 15 trillion gdp? i'm sure in private hilary clinton made clear the nature of the nations relationship. i'm sure she explained to them how a strong us, supported by chinese creditors,is good for the chinese status quo.
they had better strengthen their relationship or all the development will crumble. without the dollars flowing their way, what would be the basis for continued progress in china? so support the us and hope and hope our jupiter sized economy grows so that we get the national revenues and are actually able to honor obligations.
the best days of the usa are ahead of us. seriously, some of the posters here need to be reminded. the us credit situation is much better than it was at the end of the great war. also the economy is far more robust. so, just as our nation recovered after ww2 and absolutely dominated the globe we can now.
yes we can! a government of free people, by the people and for the people can borrow and invest that money. so the us behavior is Ok.
if things were in decline in the us chinese would just stop buying. i'm sure this wen's comments had only to do with the naval incident this week and the fact that now a us navy destroyer is right in their back yard escorting our spy ship.
Now we are deleveraging, and we need the help of the international banks, with bond haircuts and the like. It cannot all come from the treasury of the United States. If it does, the inflation that results will bite the Chinese. If they saw America forcing nationalization on the banks, then maybe this abandonment of the US by China won't happen. But if the bailout comes mainly from the treasury, it is in the interest of China to say goodbye.
They dump their toxic toys and other very cheap products here, and collect dollars. They have to either buy dollar denominated goods from US or anywhere in the world or buy US Treasuries. Or keep the dollar bills under mattress!
During period of economic panic world investors rush to buy US Treasuries. If Wen Bo does not like it he has clear choices: 1. Don't sell his toxic cheap goods to Americans 2. Buy other worthless currencies. 3. Keep the US Treasuries to maturity and collect the face value.
It is time that US Govt says that Chinese can opt to go to hell if they don't want to buy our US Treasuries.
There are 3-4 trillion dollars stuffed in Money Market Funds by Americans and others, which will easily finance US Govt deficits.
We need Managed Trade with the Red Communist Chinese, not really Free Trade. They are building their Military with our ill-earned dollars. Their aim is to harass our War Ships. They did it this week.
We have to be smarter when dealing with any Communists, including the Red Chinese. They are dangerous traitors.
Cheers.
On Mar 13 01:48 PM Amitabha Mukhopadhyay wrote:
> China simply has no choice. The path it has taken to take the country
> at high growth rate by producing goods at a very cheap rate by over
> exploitation of its labor force and them dump its goods on America
> and also keeping its currency artificially low. What it will do with
> its 2 trillion dollar reserve if America finding no other alternative
> starts printing the money. Then the chinese reserve of 2 trillion
> dollars will dimish to 1 trillion dollars.
They will only do this when (if) they believe the benefit of increased internal demand exceeds the marginal benefit of the western consumer.
This would be a bad day.
The real question is: will China buy five times more bonds this year than they have been buying up till now?
US threatens to print more money, so China hold onto the debts and buys a little more, in the meantime, what will US do?
China threatens to sell if US print more money, so US hold off the printing for the moment, and China do? but more commodities, prop up local consumption and hoping its domestic grow so when they dump the debt, loose half of the value of US debt, China economy is no longer tied to US import, what happen after this? more misery in US consumer life.
Any better thoughts?
> They are blackmailing each other:
>
> The US threatens to print if China doesn't buy; and China threatens
> to sell if the US prints.
China harrasses a US surveillance ship, so Obama sends warships to the China Sea, basically saying, "We'll see how tough you are when our Navy gets there. "
So China comes back with "Keep your spy ships away from us, and by the way, we've been hearing rumors you clowns are broke. Any truth to it ? We're holding a lot of your paper, as you may recall..."
Nobody is going to do anything right now. China does not hold the upper hand. Virtually every country that is in trouble right now needs the US economy to get going or nobody gets out alive. It is absolutely ridiculous to suggest that China, or any nation that cares about its financial future, will make a move that seriously threatens the US economy.
Afterwards, they may want to take some steps that make them less dependent, but for now they know there is no other way out.
Ignore the trash-talk. It gets headlines, but it is not where the action is.
The Chinese play a _very_ long game. Even those with language skills and local contacts often have a very hard time discerning precise policy objectives-- the leadership of the CPC does not advertise its policy debates in the same way that we do in the West. If you want to understand Chinese "signals" -- you have to look at the original Chinese text, and gauge that, particularly in the context of Chinese press coverage of the comments . . . relying on a translation is dubious. Chinese political language is nuanced and subtle, and if you're reading a translation you're pretty far from the source.
Prime Minister Wan's comments and Chinese policy have to be evaluated in the Chinese policy context. Concerns for the CPC seem to be, in no particular order:
1) Annoyance at foreign pressure over Tibet
2) Long term desire for unification with Taiwan
3) Strategic claims in the South China Sea
4) Concern over economic slowdown and possible domestic unrest
5) desire to keep the Yuan low, to discourage consumption and to keep employment high in the export sector.
6) desire to secure natural resources to supply their economy.
Folks with long memories will recall the same story used to be told about Japan-- that one day the Japanese would stop buying Treasuries, and the dollar would collapse.
Didn't happen, and the Japanese kept right on buying Treasuries, as I suspect the Chinese will do. My suspicion would be that they _will_ try to get more from the US than the Japanese did (because they have much greater strategic ambitions), but its a safe bet that crashing their most important export market is not one of their desired outcomes.
Many countries will be in dire need of US Dollars, e.g. Russia still has huge reserves but already spent $200bn in defending its currency and many poor countries might be crowded out this year, China could help those countries out with its reserves. The US can't really print its way out of this mess as the price of natural ressources would immediately rise for US citizens. There's no point in accepting worthless pieces of paper.
The US is a big export market, yes, but Taiwan and Tibet are even more important than exporting to the US.
On Mar 14 02:52 AM Crocodilian wrote:
> Folks with long memories will recall the same story used to be told
> about Japan-- that one day the Japanese would stop buying Treasuries,
> and the dollar would collapse.
>
> Didn't happen, and the Japanese kept right on buying Treasuries,
> as I suspect the Chinese will do. My suspicion would be that they
> _will_ try to get more from the US than the Japanese did (because
> they have much greater strategic ambitions), but its a safe bet that
> crashing their most important export market is not one of their desired
> outcomes.
The Debt of any other country (ex. Japan) would have depreciated by 25% on average since August of 2008.
This is posturing similar to that of Geithner's "China is a currency manipulator" statement prior to confirmation, but with more teeth.
American protectionist leanings versus Chinese interests.
This is why GOLD must be owned.
us elected officials are just being nice.
folks, our cycles will go on as long as we have a union. never-mind the words, china's actions will be nothing but friendly to the us. that is no matter what the rhetoric sounds like,they will buy treasuries and corporate debt and state debt and certain municipal debt. so will russia. so will brazil. and india, forget it, they will try to buy up all our paper!
china is a friendly nation just like france.
i honestly believe the statements are personal hurt feelings over the us spy ship. after the incident they were probably told right away that the destroyer was coming. that hurt those guys feelings, why not stop spying and go away? so now they are talking trash.
Premier Wen is sticking his thumb in so many eyes that the IMF and WTO are apparently suffering permanent blindness. The competition with this "trading partner" in the "free Market" of global trade is bizarre.
"Fat & Lazy People."
You'll hear that in Europe, and
almost everywhere.
Come to think of it, maybe they are right.
too bad I didnt have time to read it all.
Several Americans have told me emphatically that the don't need to travel because they have everything they need right at home. My response is always the same, how do you know. Willful ignorance.
On Mar 14 10:31 AM wavelength wrote:
>Thank God this country is still free enough
> to allow the buying and selling of gold bullion. Other than buying
> gold, keep your powder dry (and recall the Chinese invented it),
> and resist the temptation to second guess the Chinese. If you can
> afford it, take a vacation in Hong Kong and Shanghai. Do what a Chinese
> person would do. Learn something.
After the dust settles China may emerge as the superpower of the world. This is not a pretty thought! Would it lead to the third world war?
The Above is where you are very very wrong...your own article gave what will most likely happen and that will be an exchange of money owe for real estate and commodities and this is China's end game.
"In addition, the Chinese have made it clear that their national interests are best served by diversifying into commodities and other real assets"
If anyone thinks that our elected congress will not sell out our country from under us then they obviously do not understand our current situation.
Correction: note end of last sentence.
On Mar 14 03:14 PM DonaldRay wrote:
> "As China throttles way back on its purchase of US debt, America
> will have three choices "
>
> The Above is where you are very very wrong...your own article gave
> what will most likely happen and that will be an exchange of money
> owe for real estate and commodities and this is China's end game.
>
>
> "In addition, the Chinese have made it clear that their national
> interests are best served by diversifying into commodities and other
> real assets"
>
> If anyone thinks that our elected congress will not sell out our
> country from under us then they obviously do not understand our current
> situation came to be.
----------------------...
Financial Times 3/14/09
Luo Ping, a director-general at the China Banking Regulatory Commission, said after a speech in New York that China would continue to buy Treasuries in spite of its misgivings about US finances.
Mr Luo, speaking at the Global Association of Risk Management’s 10th Annual Risk Management Convention, said: “Except for US Treasuries, what can you hold?” he asked. “Gold? You don’t hold Japanese government bonds or UK bonds. US Treasuries are the safe haven. For everyone, including China, it is the only option.”
www.ft.com/cms/s/0/ba8...
Any coherent individual should, by now, be aware that Chinese Premier Wen Jiabo has issued a warning to the United States Government concerning the future level of Chinese participation in the US Treasury Market. Given China's status as the largest single holder of US Treasury debt, we were not surprised by the quick response from the White House.
Media accounts of the incident took a somewhat puzzled tone concerning the timing of the Premier's statements. For our part, we will not pretend to know the exact motivation behind the statement itself and the timing. However, we suspect that the Premier's comments are the first stage of a thoroughly calculated plan with regards to the the unfolding global Situation.
First of all, we expect that the Chinese economy will continue to deteriorate at a rather alarming pace. The large surplus that the Chinese Government has enjoyed for so many years will be reduced quite dramatically. Occurring concomitantly will be the necessity for a large Chinese stimulus package, one that will dwarf the faux-spending measures that have already been announced.
Secondly, the United States Government will continue to spend money as quickly as possible. President Obama will certainly request the additional $250B that exist in the Budget for shoring up Bank's balance sheets. Now, we have conducted a thorough assessment of the banking industry and the capital levels of Major Institutions, and in our best estimation can say that the US Banking Industry requires a minimum of an additional One Trillion Dollars to bring back some degree of solvency. In other words "We ain't seen nothin yet".
Obviously, the two situations above present conflicting realities for both China and the US. China will face rising internal pressures to spend its money domestically at a time when the US is attempting to borrow the money to recapitalize its insolvent banking system. We assume that history (of human civilization) will repeat itself, and the Debtor nation will ultimately choose to debase its currency as a means of managing its obligations. Then again, perhaps Mrs. Clinton will be able to talk our way out of it.
TheValueatRisk.blogspo...
U.S. Defense Department says "We are going to continue to operate in those international waters and we expect the Chinese to observe international laws around them."
Officials at the Chinese embassy in Washington did not return calls seeking comment on USNS Impeccable. However Premier Wen Jiabao expresses concern about the outlook for the U.S. and the safety of its Treasury bonds.
www.reuters.com/articl...
online.wsj.com/article...
Who's rocking the boat? USA wants a war with China to kick start it's war driven economy (maybe weasel out of its debts) or China wants to assert its place as a global power no longer tolerating be treated as sick man of Asia en.wikipedia.org/wiki/...
Follow the foot prints of China!
Start accumulating slowly Commodity stocks and countries (EWZ,EZA) producing them, on every dip, along with oil. Deflation has depressed these stocks currently and also probably short term in the near future.
Since 1913, US $ has lost 95% of it's value, just like most of our premier Banks! which by the way lost 90%+ in 18 months! Chinese have ultimately realized this.
There is absolutely NO resolve by the Americans or the GOVT to bite the bullet and take bitter medicine to cure this ailment. More DEBT to cure the ills of YEARS of DEBT has been accepted as necessary evil and inevitable remedy by pundits and all alike.
The country is run by collectively cognizant dissonance leaders desperate for a solution without accepting any responsibility or substantial change in the status quo!
Need I say more!
I actually think they are doing us a favor. Politicians in both parties think squandering is their birthright. Hell they scare me too!
It is possible a year from now the US will look better to China. However we have a congress that will vote on 800 billion without even reading the bill.
On Mar 13 08:06 AM wdhalgren wrote:
> It's interesting that the communist Chinese are using their excess
> earned dollars like a private equity fund, buying copper mines and
> oil rights. Meanwhile the capitalist US is using our unearned (newly
> printed) dollars to buy homes for the masses (mortgage subsidy) and
> new social programs.
>
> America's founding fathers would be saddened. But, hey, they're just
> a bunch of dead old men. Who needs 'em when we have modern intellectual
> giants like Barney Franks calling the shots?
Extraordinary article and line of comments, a very interesting read.
I find myself in agreement with so many writers. A couple I found most valuable were Carneades and Sunny 12945.
*****
Carneades:
"First of all, we expect that the Chinese economy will continue to deteriorate at a rather alarming pace. The large surplus that the Chinese Government has enjoyed for so many years will be reduced quite dramatically. Occurring concomitantly will be the necessity for a large Chinese stimulus package, one that will dwarf the faux-spending measures that have already been announced."
******
Sunny 12945:
"Follow the foot prints of China!
Start accumulating slowly Commodity stocks and countries (EWZ,EZA) producing them, on every dip, along with oil. Deflation has depressed these stocks currently and also probably short term in the near future.
Since 1913, US $ has lost 95% of it's value, just like most of our premier Banks, which by the way lost 90%+ in 18 months! Chinese have ultimately realized this.
There is absolutely NO resolve by the Americans or the GOVT to bite the bullet and take bitter medicine to cure this ailment. More DEBT to cure the ills of YEARS of DEBT has been accepted as necessary evil and inevitable remedy by pundits and all alike.
The country is run by collectively cognizant dissonance leaders desperate for a solution without accepting any responsibility or substantial change in the status quo!"
*****
So, bottom line, America is virtually bankrupt and there is really no way out of the dire situation we as a nation face. China is also facing very hard times and social upheaval. Their military will grow very fast to keep the unemployed population in check.
Even OPEC is in trouble with their over expansion of real estate as in Dubai, and the investment of their sovereign wealth funds invested in failed banks in US and Europe.
We know that China has bad banks as well as Japan. Ben says the "Great Recession" will end when the banks are stabilized... not sure whether he meant with unending printing presses or tanks!
We are now living in a socialist society with one party government that takes from the rich, gives to the poor to stay in power. Nothing could be more contrary to the heritage that made America the greatest nation in the history of the world. It has been pointed out before that 200 years is about as long as a nation can survive without decline. I never would have believed that America could become so morally corrupt with such greed and incompetence to allow this to happen.
We now have a president that studied Islam for more than 5 years, praying the Koran 5 times a day while living in Indonesia with his father. He married a 'Christian' girl who was never proud of her country until her husband ran for president. She attended a revolutionary extremist church that preached hatred, rather than the love of Christ. (It was the only "politically correct" way for a Muslim to be accepted by liberals and by George Soros who financed the takeover of the democrat party).
It is impossible to think what "change"' will come as we become more friendly with the Muslim-Arab countries of the world. Is Shira law next on his agenda? A Liberal Supreme Court now in the cards, anything is possible.
In terms of investments, commodities are favored, commercial real estate may also be good in a few years. Also, FXI may be good in a couple of years if there is still a capatialist system. As for stocks, earnings trends are still down, not up, so this current runup is a bear market trap, stealing more of the nations wealth.
One more thing... I truly believe huge inflation is coming with high interest rates. Guess what happens to T Bills when interest rates rise to 20%? Your right, their value drops far below zero. Hello China, welcome to the USA!
Sharia Law is anything but liberal. Its oppressive in the extreme.
The current US Supreme court is so far to the right that the addition of more progressive justices would only serve to bring the court more to the center.