Wolf Richter with Jim Goddard on HoweStreet.com.
Nagging questions: Will China’s waning appetite for US Treasuries cause a disruption in the US Treasury market? Why did Chapter 11 bankruptcies in the US more than double in December? And what will the Canadian housing market do as borrowing gets tougher for debt-dependent households — and more expensive.
The formerly hottest trophy market in the US gets a dose of reality. Read… This is What Happened to Sales & Prices of Manhattan Office Buildings as Chinese Buyers are Suddenly “Absent”
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Chinese buyers have been very active in San Diego since 2013. My latest listing was sold to a Chinese buyer for all cash above list price. 25 day escrow. They must convert all their cash into cash flow. Unfortunately, your children will rent property owned by the top 10%. The home ownership rate is falling fast.
With price not a factor, the Chinese are driving up prices by themselves just by paying over list price, and cash sales have no appraisal. Here in San Diego, 32.1% of properties sell for over list price. That’s low. In San Francisco, 64.5% sell over list. Tell me there’s no BUBBLE.
Bingo bingo bingo. American home ownership is at it’s lowest level since the statistic began being tracked (1965). It’s alarming.
Chinese buying of treasuries is irrelavent in the big picture of things.
If the FED can do trillions of QE, whats a trillion more to buy all the chinese treasuries via Belgium or some other Luxemburg subsidiary. I am not worried about that.
What are Chinese doing with all those freshly printed dollars? Let them all in to come here and invest all that money in real estate and then tax foreign buyers 90% of the profit. They got rich stealing our technology and not playing by the rules, time for payback.
The realtors are more powerful than people imagine. They need rising property values. Take China out, and those values plummet.
“The realtors are more powerful than people imagine.”
There’s always accomplices from the inside. But blame rarely fall on them, always on those evil foreigners.
“evil foreigners” (just to be clear)
Of course. Guns don’t kill Americans, opioids don’t either. And it’s not foreigners sending those jobs abroad. You see any foreigners in Con gress? Americans kill Americans. Full stop.
This is why muppets deserve their fall.
China is just ONE part of the equation. Even if you take away Chinese demand for US Treasuries or even US real estate, there are others (e.g. Japanese, Canadians, europeans, Russians etc.) who will still buy into US.
USA is still the world’s leading economy in terms of productivity and technological innovations. For all their ills and sins, their wall street is also unparalleled in terms of liquidity and depth. Only companies with access to liquidity can bring innovations to fruition, especially concerning those developments with longer gestation periods (e.g. pharma/bio-tech or aerospace products).
Which other countries has these supporting conditions to compete with the US in terms of commercial innovations? Is it surprising that almost every other nation wants to put their money in the US?
As they say, money talks and bullshit walks, so count your blessings if people actually want to put money INTO USA rather than taking their money OUT.
It only shows they have confidence in the US economy.
Many American folks are often more Trumpesque that they like to admit to themselves. Over-reaction and just wanting to find a convenient scapegoat to blame for your own troubles, is the name of the game.
In the 80s, it was “those damn Japs are buying up US real estate and taking over the world!”.
Now, its those “damn Chinese” jacking up the prices?
Is the Japs taking over the world anytime soon? Who’s going to be next up for blameworthiness? The Indians? lol
Did Americans blame themselves for their speculative fervor in the fantastical rise and fall of US real estate over the sub-prime fiasco of 2008? If they did, I’m not sure they learnt anything because real estate prices in most of California is already way past the previous peak in 2008. And for California, the speculation is mostly NOT due to the Chinese. So, is San Fran prices “plummeting” anytime soon? I doubt it, and I don’t own any properties in SanFran, but if it does plummet, I’m going to take the opportunity to buy in, as many others would too….including Americans themselves.
So come on… we’ve heard about China this or that so many times its getting stale. Time to have a new story line or a new scapegoat.
Meanwhile, I’m putting my money where my mouth is…on the side of US economic resilience.
What happened to all that “liquidity and depth” in 2008?
Turned out that the taxpayer had to supply a whole bunch of “liquidity and depth.” Now the thank you is 24% interest rates on their credit cards.
you’re assuming that those bonds will monetize themselves? the Chinese don’t have dollars, they have “sterilized” treasury bonds. the reason anyone would buy zero real interest rate bonds is because they can be collateralized, even when bought on margin. the secondary market is secondary to new issuance, as Obama said, we have to raise the debt ceiling its money we already spent.
the tax cuts will push the deficit spending even more, meaning future bonds have to be printed and MONETIZED to pay the bills, and the Fed does not monetize directly to any degree, that would require serious changes to the charter and essentially taking UST off balance sheet. The Fed has no money to monetize US debt, its off balance sheet, the Fed is just an office with a PO box, a phone and one employee, several paid actors who do promotionals, and a basement in a building where illegal transfers of government funds are conducted.
Yeah, print money and lend it to yourself, what a cool idea.
I wonder why nobody else has ever thought of doing that?
One thing China is doing with the treasuries is buying commodities. Gold is number one. What a trade! Gold for paper. Also they are buying up tremendous quantities of copper and rare metals used in making jet engines and electronics and batteries. Prices are cheap now. Metals are a compact store of wealth and are non-perishable.
You got it right. The Fed will buy any or all treasuries as required to keep the game going. The treasury market does not require any buyer other than the Fed.
No problem printing money to pay the deficits – everyone is doing it. The only consequence is out of control inflation and as the Fed tells anyone who will listen inflation is just fantastic. Pay for bloated government and military without taxation and enjoy rampant inflation – win, win.
The most worrisome news out of China at the moment involves the HNA Group. Trading in four of its units have been suspended pending “major news” but no one knows what that news is. HNA has over $180 billion in assets and reportedly is facing a severe financing crisis. The CEO’s trip to Davos just cancelled to boot. Sounds like Chinese authorities don’t want him to leave the country. What is the Chinese word for “contagion”?
Anyone thinking that China has discovered some economic elixir needs their head examined. China will crash and go down in history as the biggest waste of resources. Free market has its flaws, but the idea that some communist thugs know best is a joke. They have enslaved their country through cheap labor for the benefit of the party apparatchiks. It will go on until it doesn’t. What’s the contribution of China to humanity since gun powder? Only freedom makes creativity possible.
You just provided a good summary of the accusations surrounding HNA. There are strong suspicions that HNA is a front being running for the benefit of certain party bosses. US (and other) regulators are actually holding up deals with HNA until they get clarification on the ownership structure.
Those Communist thugs managed to suck up much of the world’s manufacturing with the gleeful acquiescence of the world’s industrialists all of whom are capitalists. Cheap Chinese labor benefitted their whole country at the expense of the working and industrial classes in the West, again with the approval of western capitalists.
As far as China’s contribution to humanity since gunpowder one must realize that China’s economy was the dominant economic power from 1100 to 1800 and was #2 until about 1850 when the opium wars and foreign military intervention brought China to her knees. Western, especially British industrial expansion was militarily based in an effort to colonize as many countries as possible with needed commodities.
If you are really interested in where China was and where it is going then check out Global Research; China: “Rise, Fall and Re-Emergence as a Global Power”
Oh my, Global Research.ca is the canuck version of infowars. ;)
China’s main problem is demographics, they will grow old before growing rich.
Nicko2; The article was based on the book; “The Eastern Origins of Western Civilization” by Professor John Hobson of international politics at the U of Sheffield.. John Hobson is a fellow of the British Academy and won the British Academy award for his books in 2015. James Petras, (retired Bartle Professor (Emeritus) of Sociology at Binghamton University in Binghamton, New York), was the author of the original article and was picked up by a number of publications including Global Research. Attack the facts..
It is true that China is growing old with a one child policy but I understand that is no longer policy (2013) but has become ingrained in the culture..
‘British industrial expansion was militarily based in an effort to colonize as many countries as possible with needed…’
British ‘industrial expansion’ has a formal name: ‘The Industrial Revolution’ and was not primarily driven by the military.
The Industrial Revolution itself could be summed up further as The Steam Revolution.
Ironically, it was the need for coal for heating fires that lead to the first use of coal as a source of motive power.
The mines were constantly flooding and the Watt- Boulton atmospheric walking- beam engine was the first use of a fossil as power to pump them out.
The improvements to the engine and its subsequent application to a railway engine by Stephenson (the Rocket)
and then agriculture were driven by a purely domestic desire to escape the limitations of animal labor, especially when it had to be supplied by the thinking animal.
The modern individual in the developed world, for whom serious physical exertion is usually recreational, should be able to sympathize.
It might have been the dominant power from 1100 to 1800 but other than the forbiden city with thousands of eunuchs and concubines for the exclusive use of the empror, I cant name a single thing they did for the betterment of humanity.
to memento mori;
Lets start with paper and go on to printing, the compass, moveable type that westerners think came about with the Guttenberg Bible. Do you want it by alphabetical order? Bells, Beverage (as in fermentation), Cook ware (20,000 years ago) Cultivation, Gunpowder, Dagger-axe, Deep water drilling (for water) the list goes on and on and this was the pre-Shang era.. After the Shang (1600 BC), Artillery, banknotes, the bellows, Belt drives, belt hook, the blast furnace, Brandy (gotta love that one).. I haven’t even gotten to the C’s but I’m betting eyes are glazing over.. My point is all one has to do is look to see what China has given the world.. Modern China After 1912 (Dr. Sun Yet-Sen) Single-mode optical fibre to “Turning Urine Samples into Brain Cells”.. I don’t want to know that one but the who one dismisses China is willfully blind..
to: David Calder
I still dont see anything of significance in that exauhstive list of inventions in wikipedia (if you think chop stiks invention chnaged the world…).
When you take into account their population, that is a very insignificant and poor contribution. Further, most of those inventions can be claimed by any of the old civilizations, not only China. Not saying chinese are dumb, but throughout their history they have been a slave society without any period of some semblance of freedom or wellbeing for the common man. Expect the same if they ever come to dominate the world.
I’m sure you have seen this old WW2 “Why we Fight” film from 1944 but if it was true then (were we a bunch of liars then?) then it’s still true today. The Chinese economy will dominate the world partly because our industrialists and capitalists sold their souls to the highest bidder or was it the cheapest wage payer, but also because the Chinese are industrious and intelligent and innovative.. We hold no monopoly on brains..
China 1000 Years of bloodshed https://www.amazon.com/Beware-Dragon-China-Years-Bloodshed/dp/B0062GKUMY will give you a better perspective.
The The replacement of chines smugglers with European ones leading to a rise in supply to meet demand for opium in china was the direct result chinas untenable trade practices.
The demanded payment in silver, but would not pay in silver, until the opium supply came on stream.
china is doing exactly the same today. Milking the west of wealth/resources (with untenable and unfair trade practices) and HOARDING them.
Some sort of conflict or radical change must ensue, to balance this.
All the parallels are there for anybody who bothers to look for/at them.
Just like last time. china does not learn from its own history. Instead it teaches its Population fairy tales of victimhood. just like the fakestinians and DPRK. The demonisation of japan and England along with the west in general, continues to this day and has even accelerated under XI.
All the parallels are there for anybody who bothers to look for/at them.
“Only freedom makes creativity possible.” Don’t forget the downside. Freedom makes derivatives + delusions possible.
Who caused the mortgage meltdown? Was it “creativity”?
Nothing can be crazier than the Western elixir i.e. “The Best Things in Life are Free!!!”
“Nothing can be crazier than the Western elixir i.e. “The Best Things in Life are Free!!!”
You confuse the land of legalised corporate fraud (AKA the USA) with the rest of the western system.
Such generalizations are DANGEROUS.
The Fed monetizes DIRECTLY? I didn’t know that
Well, not directly. They have a stable of selected banking friends that take a cut to provide the pretense that the Fed doesn’t monetize directly.
The Fed monetizes DIRECTLY, yes – damn skippy!
The “balance sheet” is a shell game. The Fed prints money and holds interest rates low to incent the banking system to create many millions more. The world is drowning in dollars. The treasury market doesn’t give a damn about China.
The stock market goes up everyday – where did you think the money all comes from?
Everyone says rates are on the increase but what happens when Europe blows up?
Ahh there you go again with Europe blowing up I’ve been hearing that for so long it’s losing all believeablilty They we’re all screaming on Bloombug that the Euro was going to 90 cents and the opposite happened of course Blah blah blah
Exactly. Don Quijones would often have articles decrying some happenings in Europe that presumably would have led to some crisis.
Nope. Hasn’t happened.
Sherlock Holmes said “Once you eliminate the impossible, whatever remains, no matter how improbable, must be the truth.”
The truth is people even Greeks have more money than they’ve disclosed. Same with Murica. No money supposedly with the exception of opioids and bitcoins.
Europe an dteh Eur blows up when Club-med french and greek banking meet’s fiscal reality some time after draggi is no longer able to protect them.
It would be nice from a global perspective if they could get enough time to slowly resolve the NPL and insolvent bank issues in those areas.
Time is not on their side.
Are you kidding? The FED is part of the superhero team, with the ECB and BOJ, that are intent on saving the Bankster world from all evil forces. China bluffing that they will not roll over their Tbills/bonds – ya right. Where will they stuff the money? In their own banks? LOL. They are too busy sticking a billion fingers in a billion holes in their Great CurrencyControl Wall to really play a serious game of poker in FX. As I indicated earlier, the suggestion that the dollar is getting gamed lower in FX to save the Chinese collective butts is an an intellectually attractive thesis. All other is smoke, mirrors, and customary and required magical distractions.
The FED are a bunch of scoundrels and thieves Nothing more And the rest are just as bad I say bring them all down
Yep. China’s apparent growth is nothing more than a result of temporary and artificial dollar liquidity. But every single time China does this, the business media starts talking about how great the economy is. You would think they would be on to China’s currency tricks by now, but they get fooled every time.
If it reached that stage then the Fed would simply PRINT a USD trillion+++ a year and buy the Bonds.
I fully expect the world’s Central Banks to end up buying EVERY Bond and Share put up for sale. Then the Governments will own EVERYTHING, just like Marx dreamed.
I sold my house to a chinese couple, so have friends. In Seattle there is a large infux of chinese buyers. when I go to the local park, its filled with chinese, young and old, weddings, young children. Have to admit a bit disconcerting. They poured over the border when Canada put in the tax for foreign buyers. Every where you will hear Chinese spoken, and usually a RE agent with them. My RE agent told me that Chinese buyers will look at 10 to 16 houses a day, sometimes put in multiple offers, drive hard bargains. Plenty of houses sold and sit empty.
Yeah, I’m done with attempting to buy a Seattle house. I finally have a down payment sized chunk of money invested in a few index funds. With the returns it’s generating, I’ll rent and keep building a nice nest egg, thank you very much. Doing much better in the market than I would even owning in Seattle’s white hot market. In a less hot market, renting would be even more of a no brainer.
The Chinese will eventually get their heads handed to them buying $1M crapshacks in marginal neighborhoods here. They are the final greater fool.
I live in Everett/Mukilteo where our little kiddie park on Beverly Park Road is a little UN.. Many families from India, China, Ireland, Germany, Poland, really from all over and most seemed to be tied to Microsoft or Amazon.. We bring our grandkids and all seem to get along just fine.. The smiles all look the same to me..
For a Michael Pettis analysis of this question – here is link to one of his typically LONG writeups. He covers 5 scenarios of China changing its purchase of UST:
Why China Likely Won’t Buy Fewer U.S. Treasury Bonds (Jan 12, 2018)
Money to pay for DOD, SSN, USG DEFICIT spending was taken in the form of payment to China, through the BIS. We own them payments in dollars which were MADE in Treasury bonds, which cannot be repatrioted. Deal done. The shell game continues as long as the debt remains off balance sheet, and the dollar does not pull the rug out from under those bond prices. We took trillions in collateral and now we want to pay them pennies on the dollar. Makes it very hard to line up some new suckers.
I can’t for the life of me understand why anyone would buy US debt that’s going to be printed away by the Fed.
The treasury market does not need the Chinese buyers, and the FED can print, but… Unfortunately, the US is also a major exporter of its hubris. If foreign peeple see that printed money makes life easy, and the payback is beyond their time comprehension, they demand it from their own governments. So the damage goes global, and there’s no clean shirt. Hence printed money does not damage the western government bonds…until it does.
Sooner or later the US will have to take measures to start to reduce their huge “galaxy class” debt.
The only thing keeping the country afloat financialy is that the “World Currency” is still the US Dollar.
Will it be the same in ten years?
Our trade deficit is caused by foreign demand for dollars for their mattress. When foreign savers decide to save in some other currency we will lose our reserve currency status and our trade deficit, jobs will return as prices rise.
What will they wish to save ten years from now? Chinese yuan? Russian rubles? In that case those countries will have trade deficits and loss of jobs.
I would be curious to know what role the Exchange Stabilization Fund has on making sure everything is kosher in the bond auctions. Buyer of last resort perhaps? But we know more about the deep ocean trenches than the ESF. No books. No oversight.
China must buy US Treasuries for as long as they choose to maintain a trade surplus with the US. They sell the US goods and the US has nothing of value to sell the Chinese except Government debt. If they stop buying treasuries, then the ships full of Chinese goods will stop coming to unload their cargoes in the US.
Yes. In this case China is ‘forced’ to save US dollars.
Other foreign savers do their part by preferring to save dollars rather than their own currency, bidding up dollars, and driving the trade deficit.
The U.S.A. has about 100 trillion in assets.
They owe about 20 trillion . Of that they owe about 6 to outsiders
and the rest to themselves.I wish my finances were so good.
you seem to be placing a high price tag on Mt. Rushmore. A bunch waste land that’s used for free or leased for almost nothing to oil companies and ranchers is not worth 100 trillion – but given the out of control dollar inflation it might be worth 100’s of quadrillions soon.
USG owns nothing, other than a liability to provide services and a lot of equipment, land and buildings which are specialized to that purpose. The total obligations of the USG overhwhelm its ability to raise revenue. The privatization of government services is the path of least resistance, and since many government services are not or could not be profitable under any circumstances the future of all government is doubtful.
The taxpayer owns 2 trillion dollars worth of bad paper on the Fed balance sheet and owes the Banking system an interest payment on 2trillon dollars which absorbs 50+ billion dollars each year? The government doesn’t own anything except the right to destroy personal hopes and dreams of close to 7 billion H.B.?
Just don’t sell?
China’s holding of US debt peaked in 2011 at $1.3 trillion, now they are at $1.2 trillion, so they have been a net seller for the last 7 years, they are just making it public now. Their foreign exchange reserves have also declined since 2014.
I really don’t understand what all the commotion is about.
The Chinese are not buying American treasuries. They are getting them through money creation in China from chinese companies.
When chinese companies sell to US companies, dollars go to treasury bills. This HAS to happen because these shadow bank transactions are already trade notes. They just go from being trade notes to being treasury notes,
Even if the Chinese central bank decided to buy Eurobonds, the seller of the Eurobonds would still have to buy dollars. In fact, the transaction at that level isn’t even in dollars, it’s in treasury bills.
As long as the US runs a trade deficit, this has to happen. This isn’t a POLICY it’s a settlement, not unlike the settlement a person does on their etrade account.
When “China buys treasuries,” what is really happening is the Chinese central bank is creating money out of thin air pay the Federal Reserve for US government debt that the Fed bought with money it created out of thin air. Selling debt to Chinese central banks was never “needed.” The United States, like all governments, relinquished control of the money supply to oligarch bankers long ago. The Federal Reserve is privately owned by private bankers. Who knows who owns and controls the Chinese Central Bank!
All money in the western world is created out of thin air when banks issue loans. We work for years and years of our lives to pay interest and taxes to repay borrowed money that never existed. Only after everyone realizes the truth and demands change will our children be freed from the endless debt-bondage of the modern credit-money enslavement scam.
“When “China buys treasuries,” what is really happening is the Chinese central bank is creating money out of thin air pay the Federal Reserve for US government debt that the Fed bought with money it created out of thin air.”
If you need to bash the Fed to make yourself feel good, you should at least know WTF you’re talking about.
When china buy’s T Notes.
They buy them from the Treasury Auction.
Just like Everybody else.
The FED has no part in the Treasury PBOC/CCP china Transaction.
Except in some cases, to receive overseas funds, on behalf of Treasury.
Then in such a transaction if any money is created from Air. It is created from air in china which the PBOC and CCP do, every day (Almost). When they do this they also suppress the fact they are doing it, which is why RMB/CNY is not worth the used toilet paper it is printed on. As you cant get a real number, on How much is out there.
You’re right! Mea Culpa! And you’re right about no one knowing how much debt or money exists, especially when the Federal Reserve opposes any attempts at audits and transparency.
But you seem to have missed my greater point; the US never needs or needed to “rely on China to buy treasuries,” as the title of this article presumes. The US monetary system is controlled by banker oligarchs who want to keep the government and the people buried in debt. Most people are oblivious to the fact that all “money” is created out of thin air when bankers issue loans, and that we pay interest and taxes for repaying money that never existed in any tangible, physical form. When enough of us wake up, we can get rid of this scam.
I try to spread the word by trolling a few finance articles per month. “WTF” are you doing to spread the word?