Early Warning

[Stephen Calhoun]

Is China quietly dumping US Treasuries?
By Ambrose Evans-Pritchard - 9/6/2007
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/09/05/bcnchina105.xml

by the same author; 8/8/2007
China Threatens 'Nuclear Option' of Dollar Sales
http://www.globalpolicy.org/socecon/crisis/tradedeficit/2007/0808nuclearoption.htm

irony department quote from above:
"A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation."

(This is a proposal to bite the hand that feeds you.)

See also, from 2005, esp. first part; money quote:
"the dollar's reign as the world's reserve currency is at an end now that the Americans have debased their currency."

Gold: The Debt Trap
http://www.safehaven.com/article-2669.htm

and

http://www.battery.com/content/news/charger/November2005/tipping.html

---

Metals...

[Phil Florian]

More scary is this:


China's Secret Conspiracy

http://www.thewavemag.com/pagegen.php?p ... leid=26378

[Stephen Eisel]

click here round eyes

[Stephen Calhoun]

Stephen, my namesake, I don't quite know what to make of you linking to puerile posturing by Republican candidate and egoist Duncan Hunter.

Maybe it's more parody ala Phil's humorous contribution?

The US is faced with a serious structural problem where potential ripples of the macroeconomic kind could deflate demand for domestic investment (bonds, equities, derivatives) products.

China is looking for better returns. If Duncan Hunter, and The Hillary for that matter, think thrashing the rate of return is scary for China, I reckon the Chinese will--nevertheless--still find the Euro and aggregate European savings rates more attractive.

Actually, it would be more prudent to increase the rate of return but therein lays the spectre of stagflation.

[Stephen Eisel]

Stephen, my namesake, I don't quite know what to make of you linking to puerile posturing by Republican candidate and egoist Duncan Hunter.

Thanks for being so open minded and responding to the content that I posted Could we discuss what Duncan actually "wrote"? Is the below quote from the posturing egoist have any truth in it?

[quote]American workers are the most productive and innovative labor force in the world. Unfortunately, they are asked to compete in an unfair environment against other workers who make only a fraction of a living wage and are employed by companies that face few, if any, responsibilities to the environment or the long-term prospects of their employees. Our domestic manufacturers are forced to compete against foreign companies that benefit from their country’s currency and regulatory regimes. Ominously, China is cheating on trade and using billions of American trade dollars to build ships, planes and missiles at an alarming rate while, at the same time, taking millions of American jobs. I will reverse this “one-way streetâ€Â

[Stephen Eisel]

Maybe it's more parody ala Phil's humorous contribution?

It would be easier just to blame Phil Phil this is all your fault.

[Stephen Eisel]

Steve, my brother from another mother, I only posted the link to Duncan's site because it rings of some truth. Sure, he is probably panderring to the Union vote. As president would Duncan change the dynamics of the relationship between China and the US? Probably not.. But I do believe that he has the facts right on what trade with aChina is doing to the American worker.



PS.. I am not a Duncan supporter...

[Stephen Calhoun]

Mr. Hunter reacts that the American worker is competing in an unfair environment given the reality of the difference between the labor markets in China and the US.

This is unfair like it's unfair that I drive a 7 year old Honda and the neighbors just bought a Hummer. If the US wants to level the field it can reduce worker pay, regress environmental protection and regulations and degrade the working class's standard of living. Maybe this can be driven low enough to be level.

Right? Heck, at least everything is already trending in that direction!

I don't see anything very intelligent or well-reasoned about Hunter's glib prescription. It's kind of like threatening to not go into the bank you have your money parked in.

But, macroeconomically speaking, any kind of trade pinching we provide the Chinese will degrade the value of the dollar, cause inflation, increase consumer debt, and, roil the dollar markets as the Chinese retaliate by...selling off their US treasuries. And spank us.

In other words, it's way too late for protecting the supply side of the equation.

This (current account and debt) problems were long in the making and has been aggravated by many factors but two important ones are the anti-wage tax cuts and the the elephantine Fed spending.

I note Mr. Hunter's record on appropriations and tax policy is congruent with helping the US economy walk toward the cliff's edge.

He can't be very smart, right? Ring of truth? He's glib, insipid, unintelligent.

Trade with China. Come on. We buy stuff from China; that's the main driver. Hunter, as far as I can tell, wants it both ways: pander to the working class he's hammered the heck out of for years, and, support the fat cats who fund him and purchase his support.

In this respect he's stupid and a liar.

[Stephen Eisel]

This is unfair like it's unfair that I drive a 7 year old Honda and the neighbors just bought a Hummer. If the US wants to level the field it can reduce worker pay, regress environmental protection and regulations and degrade the working class's standard of living. Maybe this can be driven low enough to be level.

It is a bit deeper than the analogy that you give. Think of your neighbor as a Chinese company and yourself as an American company both manufacturing the same product. He can hire slave labor. You have to pay your employees $15 an hour while he pays his $1.00 an hour. You have to follow strict environmental guidelines that cost you a bundle. He does not even have a fire extinguisher in his factory. When you ship product to China and have to pay 27.5% tariff. The Chinese pay a small tariff.. Is it any wonder that your Chinese neighbor is driving a Hummer.. Is leveling the playing field a bad thing?

[Stephen Eisel]

From the Globalpolicy.org article:

A bill drafted by a group of US senators, and backed by the Senate Finance Committee, calls for trade tariffs against Chinese goods as retaliation for alleged currency manipulation. The yuan has appreciated 9pc against the dollar over the last two years under a crawling peg but it has failed to halt the rise of China's trade surplus, which reached $26.9bn in June. Henry Paulson, the US Tresury Secretary, said any such sanctions would undermine American authority and "could trigger a global cycle of protectionist legislation".

It just got more expensive to shop at Wal-Mart.

[Stephen Eisel]

But, macroeconomically speaking, any kind of trade pinching we provide the Chinese will degrade the value of the dollar, cause inflation, increase consumer debt, and, roil the dollar markets as the Chinese retaliate by...selling off their US treasuries. And spank us.

It is a definitely double edged sword for both the US and China. If the Chinese start dumping the US dollar then bond yieds would rise and affect interest rates. Yes, the US dollar would become weaker. But this would adversely affect China's exports to the US. China should play by the rules. It is in theory a free market.


I think that Duncan wanted to revoke China’s most-favored-nation trade status.

[Stephen Eisel]

Stephen I have a couple of questions for you..

If China has $3.3 trillion in US Treasury Bonds then China owns an I.O.U. while the U.S. has China's cash???

So, would not the rest of the World wait and buy China's I.O.U.'s at a discounted rate? And by waiting to buy these Treasury Bonds could not other countries get an even better rate of return by simply not buying them at first?


Am I missing something?

This would also definitely impact the Chinese economy..

[Stephen Calhoun]

China holds dollar-denominated investments in its portfolio. Some portion is in US Treasury issues; a mix of short term and long term Treasuries, probably not too many bonds, (not issued since 2001.) This portfolio includes other stuff too.

If China wants to calmly diversify this, as you say, IOU portion, it will carefully sell the IOU's in the secondary market AND NOT BUY at a level of replacement NEW US treasury issues.

I assume the price is set by the secondary market's drivers of supply and demand and with respect to this when there's a lot of demand for safety (as in: the rock solid safety of US Treasuries,) the price will be higher and the spreads lower. When demand is soft, the reverse is true.

Buyer's can wait and miss the boat, or not.

What's China up to? They're looking for better returns and more purchasing power, and, maybe hedging against the volatility in our equity markets.

I'm inexpert so I can only contribute this MacroEc 101 take. However, I also assume that if demand for new issues softens the Fed starts to move toward a most delicate balance between lowering domestic bank-to-bank interest rates to help ward off a recession and raising interest rates on new Treasury issues to 'stiffen' demand.

[ryan costa]

What is there to dump 3.3 trillion in U.S. Treasury Notes/Bonds/whatever in?

The sheer quantity of that much pseudo-assets can't really be invested in something else that would yield much more real interest.

Maybe China could set something up so they clearcut the remaining rainforests or half of siberia. This would make the raw materials costs lower for them to replace much of China with parking lots, sprawling housing developments, Mcdonalds, and big box shopping centers and highways. Thats been most of the U.S.' "growth" for the last 60 years, but we had our own forests and a temporary supply of cheap and plentiful oil for that.

If the U.S. wants to return to its tradition of tariffs as a regulator of trade, it had best not do this as a sort of "retaliation". It should do this as a complete refutation of all the schools of thought calling for greater globalism and unrestricted free trade.

Here's a stat I read recently. As of a few years ago we had 2700 times more trade with China than we did in 1980. Regardless of the exact figure, are we 2700 times less likely to go to war with China now? Do our top military brass, state department heads, elite politicians, top right wing academic shills, and general public feel 2700 times more at ease with China?