China’s Empty Threat of Dumping its US Treasuries

“We are looking at all options.”

In an interview about the trade sanctions that President Trump is throwing at China and at Corporate America – whose supply chains go through China in search of cheap labor and other cost savings – Ambassador Cui Tiankai defended the perennial innocence of China, as is to be expected, and trotted out the standard Chinese fig leafs and state-scripted rhetoric that confirmed in essence that Trump’s decision is on the right track.

Speaking on Bloomberg TV, he also trotted out all kinds of more or less vague and veiled threats – such as, “We will take all measures necessary,” or “We’ll see what we’re doing next” – perhaps having forgotten that China and Hong Kong combined export three times as much to the US as the other way around, and the pain of a trade war would be magnified by three on the Chinese side.

When asked about the possibility of China’s cutting back on purchases of US Treasuries – the ultimate threat, it seems, these days as Congress is piling on record deficits leading to a ballooning mounting of debt that requires a constant flow of new buyers – Ambassador Cui Tiankai said:

“We are looking at all options. That’s why we believe any unilateral and protectionist move would hurt everybody, including the United States itself. It would certainly hurt the daily life of American middle-class people, and the American companies, and the financial markets.”

So let’s dig into this threat.

China held $1.17 trillion in Treasuries as of January. That’s about 5.5% of the $21 trillion in total Treasury debt. So it’s not like they have a monopoly on it. These holdings have varied over the years and are down nearly $100 billion from November 2015:

So over the years, the Chinese haven’t been adding Treasuries anyway. Instead, they’ve been shedding some. At the moment, they’re replacing securities that are maturing and nothing more. So they could decide not to replace any maturing Treasuries or they could decide to sell Treasuries. How much impact would that have?

If China dumped its Treasury holdings, in theory, new buyers would have to emerge to buy them, and these new buyers would have to be induced by higher yields. Hence long-term Treasury yields would have to rise.

The vast majority of Treasury debt is held by pension funds of the US government and of state and local governments, and by Americans, either directly or via bond funds, or via stocks in companies like Apple and Microsoft, whose “offshore” cash is invested in all kinds of US securities, including large amounts of US Treasuries, and shareholders of those companies own those securities.

Then there’s the Fed. It holds $2.42 trillion in US Treasuries, or $1.64 trillion more than before the Financial Crisis as a result of QE. If push comes to shove, the Fed could easily mop up a trillion of Treasuries, as it has done before.

In addition, everyone is now fretting about an “inverted yield curve,” which is the phenomenon when long-term yields, such as the 10-year yield, fall below short-term yields, such as the three-month yield or the two-year yield.The last time this happened was before the Financial Crisis.

The Fed’s rate hikes, which started in December 2015, have pushed up short-term yields. For example, the three-month yield went from 0% in late 2015 to 1.74% today. But the 10-year yield, at around 2.2% in December 2015, then declined to a historic low. It has since risen, but only to 2.82% today. In other words, since December 2015, it has gained 62 basis points, while the three-month yield has gained 174 basis points.

What the Fed wants to accomplish with its rate hikes is push up long-term rates. But markets have been fighting the Fed so far. So a sort of a monetary shock, administered from China’s dumping US Treasuries and thus pushing up US long-term yields, would solve that problem. And the Fed can go about its path of raising short-term yields, confident that the Chinese authorities will do their part to push up long-term yields faster than the Fed is pushing up short-term yields. This would steepen the yield curve.

For people who dread and want to avoid a flat or an inverted yield curve, China’s dumping of US Treasuries would be a godsend. So China’s threats of this type of retaliation make good media soundbites but are ultimately vacuous.

One-third of the voting positions at the Fed are still vacant, and no one knows what the “New Fed” will do, but it’s unlikely to be dovish. Read…  What the Fed’s “Dot Plot” Said About 4 Rate Hikes in 2018 
 

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  161 comments for “China’s Empty Threat of Dumping its US Treasuries

  1. mean chicken
    Mar 23, 2018 at 7:35 pm

    Good points, currency movements are also part of the trade puzzle.

    • Mark out West
      Mar 25, 2018 at 8:42 pm

      BUT where is the story about interest payments on an extra 1.5 Trl in an environment of Trade Wars and rising interest rates.

      Seems that Wolf dos care about money printing effects.

    • mike
      Mar 26, 2018 at 11:33 pm

      China is not a factor since it has been reducing it’s treasuries holdings. However, the problem remains with our budget deficits, need to meet enormous liabilities (e.g., from social security payments to baby-boomers) and QE unwindiing, who will buy our treasuries as our gigantic liabilities become known?

  2. Dar Robbins
    Mar 23, 2018 at 7:35 pm

    IMHO, I believe the FED cares more about preventing long term yields from rising than an inverted yield curve. Reason being that higher long term yields would curtail Real Estate sales as a result of higher mortgage rates, sending RE prices crashing and vaporizing precious bank collateral in the process. Without collateral, banks can’t lend. The absence of lending goes with the absence of profits which the FED is designed to protect.

    • Mar 24, 2018 at 12:04 am

      The Fed specifically wants long-term yields to RISE. Longer long-term yields mean higher borrowing costs for businesses, consumers, and home-buyers. That’s how monetary policy gets transmitted into the real economy. That’s exactly what the Fed wants. It wants to tighten “monetary conditions,” which are still extraordinarily loose. Short-term yields are not crucial for the real economy.

      • Nuke em Duke
        Mar 24, 2018 at 2:53 am

        There is no such thing as “the real economy”……that’s the entire problem.
        America believes it’s own BS to the point where the snake is literally eating it’s tail and thinking it’s found a great new diet plan.

        • nik
          Mar 24, 2018 at 4:41 pm

          Whoa…there Buckaroo…America has a Very Real Economy producing at least TWO things the world always needs…1) Shiny New Weapons 2) Massive Debt…! guess I should have said Woe….lololol

        • zhCthonic
          Mar 28, 2018 at 10:50 am

          The “real economy” is now dwarfed by international flows of fiat currency and credit. That is what the Fed really wants to control: the sloshing about of excess central bank injected liquidity created to normalize money center banks’ books post-2008. Must keep peons, their pensions, and their 401k’s invested in virtualized, monetized assets and securities and other abstractions of ownership, and minimize leakage into real property or goods.

      • Michael
        Mar 24, 2018 at 8:23 am

        If the FED truly wanted that it could ramp up rolling the longer dated treasuries it accumulated during its “Operation Twist” campaign.

        The FED certainly realizes that if it does significantly increase real long term rates, financial asset prices prices in by ZIRP and QE would be toast in short order. More importantly they also realize that due to how little ammunition they have, they’d have to step in much sooner to abate the deflation that would ensue.

        Steepening of the curve due to growth is a much different phenomenon than the steepening of the curve due to China unloading.

      • Dar Robbins
        Mar 24, 2018 at 8:33 am

        I do not share that opinion. If the FED wanted long term yields to rise, they could easily sell the some of the $2.42 trillion in Treasuries that they hold. They are not doing that. They are raising the short end of the yield curve that only serves on paying banks in the form of higher interest on their excess reserves held at the FED.

        • Mar 24, 2018 at 9:59 am

          The Fed has started to unload its securities. The pace is gradually accelerating and will reach $600 billion a year starting in Oct 2018. So the Fed is very much interested in “normalizing” long-term rates.

        • JZ
          Mar 24, 2018 at 4:42 pm

          Wolf, no matter how much you howler on this one, the mass will NOT hear. They idn’y care about the TARP, the bail out, the ZIRP, the QE. They won’t heed QT either. They will know when the Dow got cut in half.

        • Gadi
          Mar 26, 2018 at 2:08 pm

          From want I understand, banks borrow short and lend long. If the curve flattens, they lose money.

      • Detroit Dan
        Mar 24, 2018 at 8:55 am

        Regardless of what the Fed wants, long term interest rates do not drive the economy. Rather, it is the prospect of making money by borrowing and investing — the demand for loans — that is crucial. As we’ve seen with QE, the Fed can control the long term interest rates if it wants, but the effect on the economy is limited. For example, the lower interest rates from Q.E. encouraged financial speculation, but did not boost production and consumption.

        If the Fed really wants to tighten monetary conditions (discourage borrowing), it may lead to a recession. I suppose this may be what they want, since most of the establishment would like to see the Trump Administration fail. Also, there are a lot of financial excesses which will need to be purged sooner or later.

        The larger point is that monetary policy — tinkering with interest rates — is an unfocused tool that really doesn’t accomplish much. We’ll get a recession due to the weight of private debt and lackluster demand regardless of what the Fed does.

        • JZ
          Mar 24, 2018 at 9:19 pm

          The loose money did accomplish A LOT in real economy besides the financial asset price increase. I agree that the production and consumption is driven by real world expectation of future demands more than it is driven by cost of borrowing money. But here is what it did in REAL economy. The money losing unsound businesses. In other words, although the FED loose money can NOT create sound businesses, it does create the Tesla, the twitter, the snap chat, the Uber, the Tharenos… until these unsound businessss hirs so many people, they start to take toll on the wages of the sound businesses. Can you imagine Tesla could survive to this day without being able to pool money from the bond market? If the FED keep it loose, Toys r us will be able to roll their debt for ever. The FED can NOT create sound business, but they can prevent the unsound business from going under. That, it does have real world effect.

      • Dar Robbins
        Mar 24, 2018 at 10:48 am

        Wolf,
        About your comment that the FED started to unload it’s treasuries:
        While that’s true, the Fed isn’t actually selling Treasuries. They’re allows some of them, to “roll off” the balance sheet when they mature, without replacement. I suspect, although I can’t confirm that more of these “roll offs” occur at the shallower end of the yield curve. We’re certainly not seeing the FED’s liquidation of MBS.
        https://fred.stlouisfed.org/series/MBST

        • Mar 24, 2018 at 1:17 pm

          Dar Robbins,

          Do yourself a big favor and read my monthly updates on the QE unwind. Here’s the last one, which covers February. It explains the technicalities of what’s going on with MBS:

          https://wolfstreet.com/2018/03/01/feds-qe-unwind-marches-forward-relentlessly/

          In terms of MBS, there are timing differences that cause large weekly fluctuations and also delay when MBS that have been allowed to “roll off” actually disappear from the balance sheet. This delay is two to three months. So what you see now reflects trades from two to three months ago. So you need to look for lower lows and lower highs, which is what we’re getting. I explained this in full detail in the update for January:

          https://wolfstreet.com/2018/02/01/feds-qe-unwind-accelerates-sharply/

          I will do the next update in early April based on the Fed’s balance sheet that reflects the Treasuries that are maturing on March 31. I wait because Treasuries only mature mid-month and at the end of the month, and it’s only then that the Fed can allow these securities to roll off.

          The Fed publishes a maturity schedule. So you know exactly what matures and when. There haven’t been any short-term bills on it for years. It’s all longer-term notes and even some 30-year bonds (issued about 30 years ago, by definition).

        • Dar Robbins
          Mar 24, 2018 at 7:08 pm

          Wolf,
          I did read your monthly update which I respect. I also find them interesting however, I don’t believe the FED will ever tighten quantitatively. They’ll collude with other central banks in the future as they have done in the past through swap agreements as a mean to shift the spotlight away from their monetization. Time will tell how all of this will unfold. Best Regards, DarR

      • MJC
        Mar 24, 2018 at 11:35 am

        Monetary policy 101, the Fed picks a FF target and then drains reserves from the banking system in order to enforce the rate target – that IS tightening as banks then can’t lend as much. Also, a large percentage of business and mortgage loans are tied to LIBOR and other short-term rates. When FF rate goes up, those businesses and homeowners pay more interest. Short-term yields are crucial for the economy – every other rate is a combination of the short-term rate plus a term premium (inflation premium if you like). With respect.

        • Mar 24, 2018 at 1:41 pm

          In the US, the number residential mortgages that are linked to LIBOR or other short-term rates is small. The vast majority of residential mortgages in the US is fixed rate — and largely parallel the 10-year Treasury yield.

          This is not the case in Canada and other counties, such as Spain, where variable rate mortgages are more common.

          There are some corporate and government bonds that have floating rates. In the Treasury market, they’re called FRNs. But their share of total Treasuries outstanding is minuscule. In the corporate bond market, floating rate bonds are also only a small portion.

          Some commercial bank loans are based on LIBOR or other variable rate. This is mostly the case with credit lines, and less often the case with term loans. Term loans have to be refinanced at the end of the term. So that’s when the higher rate would apply.

          The place where short-term rates have a big impact is on credit cards, credit lines, in the commercial paper market, and in other short-term credit markets. But the Commercial Paper market has become a lot less important since the financial crisis, with commercial paper outstanding having plunged from about $2.2 trillion in 2007 to about $1 trillion now. By comparison, corporate bonds and C&I loans now exceed by a wide margin their balances before the Financial Crisis.

        • Wisdom Seeker
          Mar 26, 2018 at 1:32 pm

          MJC, your “Monetary policy 101” coursework is at least 3 years out of date.

          As of the current tightening cycle, the Fed sets the rates at the FF by paying Interest on Excess Reserves (IOER), not by selling securities to drain liquidity. IOER is essentially a giant handout of taxpayers’ funds to the big banks, given that the money in question derives from interest on the Fed’s holdings and would otherwise be remitted to the Treasury Debt. Only in the last few months has the Fed actually started to sell securities. The IOER program is a huge red flag that the Fed has been captured by financial-sector interests.

          Also, your “term premium” language is purely theoretical. In the real world, the yield curve is what matters, and it moves all over the place without regard to anyone’s theory about premia. Currently the term premium is very small, but that shouldn’t be taken as a statement by the market that risk is low.

          As for which yields are crucial, the term premium is irrelevant. Only the loans that are rolling over at higher rates are forcing borrowers to pay more. By definition those are only the loans with shorter remaining terms (regardless of when issued).

          The genuinely interesting question would be to look at the term structure of the entire loan market, and see what fraction of loans are due within the next 3, 6, 12 months. Then of those, what fraction are still being rolled over despite higher rates, vs what fraction are being paid off and not rolled over.

      • d
        Mar 24, 2018 at 7:07 pm

        Should china dump all its US T’s overnight and refuse to buy more the only injured part would be, china.

        There are still at least 3 buyers for every US T note available.

        THE SECTOR THAT WOULD BE SERIOUSLY EFFECTED IS THE GLOBAL JUNK BOND MARKET. In which many chinese private and State owned companies are big borrowers.

        By junk maybe get your money back, by US T’S get your money and your coupon.

        Many US fund managers would buy existing or new T’S IF they could get them.

        P 45 is approaching the issues like the standard P 45 bullying bull in a china shop .

        THE WRONG way.

        However china and only china is the trade criminal, in these trade issues

      • DCR
        Mar 27, 2018 at 8:44 am

        The Fed wants short-term yields higher so as to replenish ammunition for the next swoon in the values of long-duration assets. They believe the values of long-duration assets underpin both the economy, through spending by the affluent, and the banking system, through collateral behind loans. The Fed worries that a flat yield curve signifies potential trouble ahead as carry traders are squeezed, but the Fed is fine with spreads compressing (which they have done significantly) as long as nothing breaks. The Fed is not looking to slow the economy, but rather to grab some dry powder for the next bump in the road.

  3. James
    Mar 23, 2018 at 7:42 pm

    And wouldn’t the Chinese effectively devalue the treasuries they’re holding by driving rates up?

    • Mar 24, 2018 at 12:07 am

      Not if they hold the securities till maturity. At maturity, they will get paid face value no matter what the rates will be. Losing money on a bond is only an issue when the bond has years left before maturity and they sell it into the market.

      • newbie
        Mar 24, 2018 at 1:36 pm

        Wolf,
        How do sovereign government debt holders account for any opportunity cost of foregone income, or a type of mark-to-market, if at all, when they hold instead of selling? Is that type of shadow cost reflected in government accounting?

        • Mar 24, 2018 at 1:47 pm

          Opportunity cost never gets accounted for on any financial statement – whether corporate, central bank, or government. It’s just a potential income that got away.

    • Dar Robbins
      Mar 24, 2018 at 9:02 am

      Absolutely. Selling their US Treasuries would drive down their prices and send yields rising. However, should they do that too quickly, they’d be shooting themselves in the foot.

  4. Arnold Ziffel
    Mar 23, 2018 at 7:54 pm

    If the Chinese dump their treasuries for dollars where are they going to spend the funds? (rhetorical question)

    • Mar 23, 2018 at 9:30 pm

      Arnold

      They probably will buy as much Gold as they could driving Gold Higher from Chinese Demand combined with a much lower Dollar .

      • Arnold Ziffel
        Mar 23, 2018 at 9:46 pm

        Peter Schiff has reached that conclusion that China will load up on gold.

        • Mar 23, 2018 at 9:55 pm

          I believe Schiff is correct as Chinese look for a wealth preserver who knows maybe a GOLD BACKED YUAN IS IN THE CARDS ?

        • robt
          Mar 24, 2018 at 1:31 am

          Vinman, the problem with any gold-backed currency is convertibility. If only one currency is gold-backed, any other fiat currency can be used to redeem gold. If gold can’t be redeemed by converting any fiat currency to yuan, then using yuan to redeem gold, it’s not convertible, therefore it’s not gold-backed. Here’s another problem: the unit of currency has to be arbitrarily ‘fixed’ to some quantity of gold.
          Any excess yuan overseas obtained from trade could be redeemed for gold. This is the problem that the US encountered in the early ’70s and had to suspend redemption of gold for dollars when Europe and especially France, had too many dollars and believed gold’s fixed price to the US dollar was undervalued – they would rather have gold than dollars. Gold at that time was price controlled, i.e. fixed to the US dollar, so things were a little different, but today, with arbitrage capabilities of microseconds, the same effect could take place, and China or any other country purporting to have a gold-backed currency could be drained of its gold.
          Gold backed currencies would probably only work if all major currencies were gold-backed and redeemable in gold. I say major because there will always be nations whose currencies are worthless outside their countries, (or often even in their own countries), and the only solution for them is to use other countries’ currency either in the black market or in general circulation, as happened for example in Zimbabwe.
          Why would nations accumulate gold today? As settlement of last resort, with the value/price negotiated at the time of settlement.

        • Willy
          Mar 24, 2018 at 11:00 am

          China has already loaded up on gold.

    • Mar 24, 2018 at 12:08 am

      Oil? Natural gas? Soybeans? Lots of options.

      • raxadian
        Mar 24, 2018 at 9:24 am

        Not soybeans, unless there is a plague or a flood or something like that soybeans prizes are not gonna rise. It took Argentina not exporting a lot of soybeans a few years ago, Argentina is the number two producer of soybeans worldwide, for the down trend to change to rise.

        Oil is also complicated because they can’t get it to rise because there is too much oil thanks to fracking.

        Gas might be a good option. We can always count on the current crazy weather climate to make winters colder and summers hotter.

    • MC01
      Mar 24, 2018 at 3:10 am

      More empty houses in Sydney, Melbourne, Vancouver and Toronto.

  5. phlai
    Mar 23, 2018 at 7:55 pm

    Sometime you need to sacrificea bit short term benefit in order to gain a long term stability. US is a great country and should has all level of productivity rather than rely / depend on others.
    China is never a dove country except WWII. Once it had gain power and invaded the neighborhood.
    I always think Trump is crazy but I don’t think he is wrong on this aspect.

  6. Thomas H Belstler
    Mar 23, 2018 at 8:02 pm

    China dumping or not purchasing Treasuries is irrelevant. The Fed will just print the required amount of money and buy them up.

    What I consider more important is that you are evidently recommending that we jettison the practice of purchasing from the low cost provider and shop around for one that has a higher markup on those same goods. I believe that the US consumer is already stressed out and making them pay higher prices than necessary is going to impact the general economy in a negative way.

    The US has worked itself into this position over a long period of time and it won’t be easy to get out from under it, especially in a short period of time. There are no quick, simple fixes for an economy the size of the US economy.

    I also wish to point out that the plans that US industry has for the money from the taxpayer, i.e. the recent tax cut, includes big raises for the executive suite, stockholders and a miniscule portion for the workers. Modernizing plant and equipment and R&D is not on the list.

    • Mar 23, 2018 at 9:48 pm

      Thomas
      I agree the consumer is already stressed out and higher prices may cause a recession as it will make it harder to pay off the Triple Tower of Consumer Debts Auto Debt over $1 TRILLION , CREDIT CARD DEBT, OVER $ 1Trillion and COLLEGE DEBT OVER $1.5 TRILLION .

      • Thomas H Belstler
        Mar 23, 2018 at 11:06 pm

        The US economy can no longer function without continuing to incur massive amounts of debt both public and private. The US economy has not generated enough tax revenue to balance the Federal budget since before Ronald Reagan took office. It is already way too late to stop incurring debt. Lew Rockwell published this graph a few days ago:

        https://www.youtube.com/watch?v=wp-t5XBRoA4

        The only two ways out that I know about besides outright default are debt jubilees and my personal opnion is that it is too late for those. The second and preferred way for overindebted countries all over the world has been hyperinflation and that is what in my opinion is eventually going to happen in the US . How bad can it get? Here is a link to the worst hyperinflation ever seen in the world:

        https://www.globalfinancialdata.com/gfdblog/?p=2382

        • Mar 24, 2018 at 12:36 am

          Hyper inflation is not needed. 15% inflation per year will wipe out half of the purchasing power of every asset in just three years, and Warren Buffet would be ruined. And that would cause a hue and cry. 4% would be much more subtle, but it would still be too noticeable. Better stick with 2%. That’s considered a virtue, and no one is complaining. But since the debt is growing faster than 2%, it’s not working very well.

        • DCR
          Mar 27, 2018 at 8:50 am

          Better to stick with 4% inflation reported as 2% to slowly boil the most number of clueless frogs.

    • Tom Welsh
      Mar 24, 2018 at 4:47 am

      The Trump administration clearly feels that its utter failure, after a year in office, to do anything at all for the people who voted it in, needs to be reinforced.

      Substantially increasing the cost of living for the poorest 90% of Americans fits the bill nicely.

      • chris Hauser
        Mar 24, 2018 at 4:58 pm

        there is some truth in that, but throwing them some pay raises first makes it somebody else’s fault.

        or so a lot of people say.

        as to the chinese selling treasuries, they may do so if they so desire.

    • Dar Robbins
      Mar 24, 2018 at 9:43 am

      Thomas,
      Indeed, should the Chinese sell their holding of Treasuries, the FED could simply buy them up. However, monetizing debt to such magnitude ($1.07 trillion) would create a run on the US dollar sending it crashing.

  7. Gary
    Mar 23, 2018 at 8:13 pm

    So the Fed is rooting for a Chinese-delivered “monetary shock”, yet they are too timid to just say they’re thinking about hiking by 50 basis points or something like that?

    There seems to be a contradiction there.

    • Mar 24, 2018 at 12:11 am

      The Fed certainly wouldn’t get blamed if the Chinese did some of the dirty work for the Fed :-]

  8. raxadian
    Mar 23, 2018 at 8:17 pm

    A highter dollar means people will buy more US Treasuries anyway.

    China is cutting on their “Outside expending” anyway. So the worst they can do, undermine the US in other countries by investing money so they become the favored traded partners, will be limited.

    However the US will have to pay for more expensive goods because import taxes means they will rise the costs.

    Simply put the US is far from self sufficient when it comes to steel and aluminium and other goods.

  9. Anthony Hall
    Mar 23, 2018 at 8:35 pm

    the stock market is all about Confidence; if China dumps $1 Trillion in Treasuries, the Dow will fall, as will the Dollar.The Stock Market and Wall Street will Squeal . In a Trade War; which will win? Wall Street`s Paper or China`s real Manufacturing Wealth.

    • Thomas H Belstler
      Mar 23, 2018 at 9:48 pm

      You bring up an intersting point. Here is a link to a YouTube video talk by Jim Rickards wherein he addresses the exact point you bring up. To wi – where is the thin red line past which the world loses conficence in the US dollar. It’s 41 minutes but well worth the time.

      • Thomas H Belstler
        Mar 23, 2018 at 9:49 pm
      • JB Say
        Mar 24, 2018 at 12:08 pm

        USD is the least-worst currency and likely to remain so for the foreseeable future. Dumping USD would create a great buy opportunity for US goods, services and assets. And so demand for USD would rise again. If our global rivals could solve this conundrum they would have done so long ago. As long as the US produces and innovates, USD will dominate.

        • DCR
          Mar 27, 2018 at 8:59 am

          Gold is the “least-worst” money and will remain so for our lifetimes. If the Russians/Chinese/Indians begin settling trade imbalances with gold it will become the least-worst currency, and the U.S. will discover the downside of decades of shipping un-backed paper in exchange for real stuff.

        • d
          Mar 27, 2018 at 2:48 pm

          “Gold is the “least-worst” money and will remain so for our lifetimes.”

          Silver at current prices maybe, gold at over $300.00 Oz IS FOR FOOLS TO PHYSICALLY BUY and speculators to earn on.

  10. Mar 23, 2018 at 8:38 pm

    Be careful what you wish for, that’s a heck of a gambit

  11. andy
    Mar 23, 2018 at 8:44 pm

    China has how much? A trillion give or take. Let them dump it. Worth like facebook and alibaba dot coms combined.

    • Willy
      Mar 24, 2018 at 11:08 am

      A trillion here, a trillion there and pretty soon you are talking real money.

      Anybody see my point?

  12. Mar 23, 2018 at 9:26 pm

    If the Fed is currently selling $20 Billion in Securities a month which will rise to $50 Billion a month by October it would be a pure reversal of policy to go and buy up to a Trillion in Treasuries if the Chinese decide to dump them . So wouldn’t this expand there balance sheet to over $3 TRILLION IN Securities and another Trillion in monetization of the debt which would drive down the dollar also ????

    • Thomas H Belstler
      Mar 23, 2018 at 9:52 pm

      Jim Rickards addressed the question of how big the Fed’s balance sheet can get. There is a limit and he cites examples of countries whose central banks went over the limit.

      https://www.youtube.com/watch?v=wp-t5XBRoA4

      • Mar 23, 2018 at 9:58 pm

        Thomas thanks for the video will check it out over the weekend !

    • Mar 24, 2018 at 12:17 am

      The Fed would do this only if “push comes to shove,” as I said. In other words, if the US government can no longer fund itself (like Greece), the Fed will help out. That’s one of the jobs of the Fed: act as lender of last resort.

      • Nuke em Duke
        Mar 24, 2018 at 3:19 am

        Wolf…..
        So the US has the right to an “Eternal Credit Card”?
        Without ever having to face up to the repayments thereof?
        If the answer is yes, and the evidence certainly points in that direction, then the simplest solution is EVERY nation on Earth should also demand one, or, stop doing business with a nation that says that it can have one but no one else can.
        Time for the US economy to reveal itself for what it really is….a Banana Republic backed by Banana Fiat Currency and Banana Nuclear Weapons.
        I say, either accept the situation and rebuild……with the help of ALL the nations of the world……or move to the Moon.
        This planet deserves truth in international finance….not to be eternally frog marched by a charlatan that thinks it is above basic laws of mathematics, honesty and human decency.

        • Mar 24, 2018 at 9:45 am

          Every nation that has its own currency has the right to destroy it. This includes the US, Japan, China, the UK, etc. and in some sense the Eurozone members.

          If a nation borrows in a currency it doesn’t control, or totally control, it sooner or later ends up in a debt crisis. This includes Greece, Mexico (last one the Tequila Crisis), Argentina (dollar debt), etc.

          You take your pick.

        • Brutalis
          Mar 24, 2018 at 11:29 am

          US dollar is backed up by 11 carrier strike groups. Nothing is “banana” about these.

        • DCR
          Mar 27, 2018 at 9:05 am

          11 hypersonic missiles later and there are 11 new U.S. reefs on the bottom of the ocean, most likely accompanied by smoldering uninhabitable cities across the globe. The days of our carrier supremacy supporting dollar hegemony are numbered.

      • Detroit Dan
        Mar 24, 2018 at 9:00 am

        The U.S. government, unlike Greece, can always fund itself through its central bank. (Greece is reliant upon the EU.) The Fed can buy up all the U.S. “debt” with the only consequence being a fall in the value of the U.S. dollar. This would make U.S. exports more competitive and imports more expensive, thus dealing with the trade deficit.

        Interesting to see that people still think gold is relevant. IMO, gold was useful because it was hard to counterfeit, but that era is long gone.

        • Willy
          Mar 24, 2018 at 11:13 am

          Tell that to Russia and China, as they purchase by the ton. They could be smarter than you, or even Donald Trump.

  13. MCH
    Mar 23, 2018 at 9:45 pm

    The only reason this effort to dump US treasuries and conduct retaliatory measures would work is because our corporations have become so dependent that they can’t even take a minor bit of pain. Ultimately, china’s Only ability to survive a trade war will be due to the fact that their leaders can ride out the political storm. Whereas the urgent need to get re-elected means our leaders will cave.

    • Thomas H Belstler
      Mar 23, 2018 at 9:59 pm

      I think that China has big time debt problems. They too have worked themselves into a corner from which it will be very difficult to extract themselves without severe economic dislocation. One thing to keep in mind though is that the Chinese public has undergone many decades of economic dislocation in the not that distant past, so they may simply decide that this too will eventually come to an end, tighten their belts a few notches and carry on.

      The only major country that can write a check for all debts public and private and not see more than a small bump in the road is Russia.

      • Mar 24, 2018 at 12:27 am

        Most of Russia’s debt is loaded on its state-owned and state-controlled companies, and they borrowed in foreign currency which Russia cannot inflate away. These state-owned companies are also responsible for many of the subsidies (fuel subsidies, etc.) that are normally paid by governments directly. So the debt figure in Russia needs to be combined with the debt figure of the state-owned and state-controlled companies. And then it’s an entirely different story.

        That’s why Gazprom’s stock price is about $2.50 a share. It’s denominated in rubles, and so it doesn’t look that bad in rubles, but the ruble has lost half its value against the dollar since 2014.

  14. Rolo
    Mar 23, 2018 at 9:58 pm

    According to Pettis there is nothing but upside for the USA if China starts dumping treasuries. The funny thing about these tarriffs is that Trump is insanely persistent and will not stop at a mere 50 billion. He’ll keep going until he ‘wins’, whatever that means.

    (To quote Mr. Trump’s alter ego ‘Mr Garrison’ on South Park, winning likely means F***ing them all up the ass).

    It seems the Chinese can’t do much to harm us, being that we got all their stuff and they only have paper.

    http://carnegieendowment.org/chinafinancialmarkets/75248

    • Old Codger
      Mar 24, 2018 at 11:52 am

      Rare earths?

  15. Murdoch_Mysteries
    Mar 23, 2018 at 10:04 pm

    Simple solution: maybe the people in the USA should quite buying so much cheap crap from China.

    • mean chicken
      Mar 23, 2018 at 10:18 pm

      Because the labor arbitrage importers of that stuff will lose their 90% markup.

      • Tom T
        Mar 24, 2018 at 6:46 pm

        Caustic clarity for a mean chicken I’d say.

    • Rates
      Mar 23, 2018 at 11:05 pm

      Exactly, especially from companies who import from China at full value to dodge taxes
      https://www.reuters.com/article/us-usa-trade-china-apple/designed-in-california-made-in-china-how-the-iphone-skews-u-s-trade-deficit-idUSKBN1GX1GZ

      Did you guys make your comments through your iPhones? Then you are pissing on your fellow Muricans as usual.

      Check your facts.

      • mean chicken
        Mar 24, 2018 at 9:53 am

        The iphone has too many components, IMO. This will change over time as the integration improves and cost to manufacture will fall. Those with the technology needed to accomplish this (self-assembly manufacturing for instance) will be the low price leaders.

    • Thomas H Belstler
      Mar 23, 2018 at 11:29 pm

      My question about that solution is what will be left on the shelf if all the imports are taken out? A while ago I saw a picture in a German newspaper that showed a supermarket that had taken all the imported items off the shelves in one section of the store. There was hardly anything left. And no, it was not the section that had all the imported items. The caption said that they had picked a random section in order to illustrate the amount of goods that are imported. Keep in mind that Germany is another high wage country.

    • Tom Jones
      Mar 24, 2018 at 5:13 pm

      Since the game is rigged and wealth flows to the top, all the majority of Americans can afford to buy these days is “cheap crap from China”…not to mention the fact that, except in a few exclusive shops, that’s all available in stores to buy. Korea and China…most things come from one or the other..

  16. mean chicken
    Mar 23, 2018 at 10:05 pm

    ” the US consumer is already stressed out”

    Hmm, wonder how that happened? I’m looking over an old bur very high quality wood router I took down off the shelf today for some work I’m planning and noted the housing was cast by Lester die-casting company, now bankrupt and out of business.

    • Rates
      Mar 23, 2018 at 11:08 pm

      ” the US consumer is already stressed out”. Not true. Wolf has the stats to back it up. Retail sales are up compared to last year. Ports and containers at Los Angeles are doing brisk business.

      Sorry if you have not been participating. Muppets up big.

      • Thomas H Belstler
        Mar 23, 2018 at 11:18 pm

        Yeah but how is the consumer paying for those increased sales? They’re going on the credit card and that’s not good. The consumers are robbing Peter to pay Paul! It works for some time but eventually the tab comes due and then things no longer look so good to say the least.

        • Rates
          Mar 23, 2018 at 11:24 pm

          True, but saying “US consumers is already stressed out” is incorrect either.

          Let’s get this one BS out of the way. US consumers never stresses out when it comes to buying. They’ll spend as long as the banks are lending.

          The correct statement is “US consumers are in the process of stressing out the banks.”

          US consumers will throw people under the bus if necessary to get cheaper prices. Heck they just awarded Amazon for company of the year or something even after hearing about the inhuman ways Amazon treat their workers.

      • backwardsevolution
        Mar 23, 2018 at 11:22 pm

        Inventory surplus and debt.

  17. Rates
    Mar 23, 2018 at 11:32 pm

    Dumping Treasury’s is an empty threat. What I want to see is an analysis of a 40% devaluation of the Yuan. That way China can export deflation around the world.

    Guess what that will do to overvalued assets in the US? The next recession is going to be terrible in the US.

    Take a look at the Hong Kong Dollar. Lots of action there.

    Will the US go tit for tat by “defaulting” on the dollar? Once again, the muppets will take it in the gut. Bacon at 15 dollars, here we come.

  18. John
    Mar 23, 2018 at 11:34 pm

    It sure seems strange to me that msm (wolf included) seem to paint this as all China’s doing or that they’re the arseholes. The way I see it is that its just as much corporate america at fault as well as the consumers who bailed on small businesses to suck on walmart, target, etc etc. Who held a gun to their nose anyway?
    Way back in the 70’s a big computer parts company from Mpls moved production to Ireland. Their govt provided the facilities as well as tax incentives to facilitate that move. I don’t remember the exact numbers but I knew very well someone in management and they told me that their cost on a hard drive went from like $35 to $15 aproximately. I said well you can really lower prices here then huh? He laughed and said we can actually charge more than when we made them here in MN. I asked how this was possible. He said because all companies that were having production done overseas were in agreement that the gains would go to executive compensation and some to shareholders.
    I also knew some that in the 90’s took production to China. They told me that costs of production declined every year and were expected to and actually negotiated to do so years ahead. I wondered why prices on their products didnt decline here! He just laughed.
    But yeah, its all them rotten chinamens fault huh?

    • Mar 24, 2018 at 12:42 am

      As you might notice, I put “Corporate America” and its supply chain into everyone of my trade articles as one of the culprits. There are other culprits, such as US policy, including having allowed this to happen for two decades. Reciprocity should have been a requirement from day one. It still isn’t today.

      • John
        Mar 24, 2018 at 12:55 am

        You’re right Wolf, you are one of a few who do criticize where its due. Way to many though are delighted to see corporate interests raping other countries labor forces but then when that chicken comes home to roost, why its always that other countries fault.

      • HowNow
        Mar 24, 2018 at 8:06 am

        Good luck on the notion of “reciprocity”! The unions called out corporations that exported, not only jobs, but pollution, unsafe working conditions, and the middle class standard of living, from America. The unions in the U S have been decimated – by their own demands on corporations (and internal corruption) and by the “capitalists” who plucked “the invisible hand” out of Adam Smith’s “Wealth of Nations” while ignoring his cautions about abuse from those who controlled capital and power.

        John’s point earlier about consumers being “culprits” (as though their are actually guilty parties…) – shouldn’t be overlooked. Americans chose the lowest-priced goods since they’re only a paycheck away from destitution.

        Outsourcing, when there’s a huge differential between home produced goods and those from overseas, is inevitable unless you have a protective government, like some of the Scandinavian ones. But in a winner-take-all culture, we’re going to see our working class turn into an underclass, and eventually, into “untouchables”. India comes to mind. We’re headed toward that model. And if that’ll “make America great again”, then re-elect the stable genius.

        Note: Lobbyists, who have helped gut the unions, are “unions” of their own making. McCain and Feingold tried to reduce their influence but Congress tabled that idea. To continue blaming Democrats or Republicans for our political condition is beyond naive, it’s ignorance, as in ignore what’s in front of your face. As long as the charade goes on, we’ll have a Congress that only responds to their benefactors.

    • Rates
      Mar 24, 2018 at 10:22 am

      https://www.reuters.com/article/us-usa-trade-china-apple/designed-in-california-made-in-china-how-the-iphone-skews-u-s-trade-deficit-idUSKBN1GX1GZ

      “Using a rough calculation, that implies the iPhone 7 series added $15.7 billion to the U.S. trade deficit with China last year, about 4.4 percent of the total. That’s also about 22 percent of the $70 billion in cell phones and household goods the U.S. imported from China.”

      Tax evasion at scale, by Americans and supported by America consumers.

      Guns don’t kill Americans. Americans kill Americans.

  19. Thomas H Belstler
    Mar 23, 2018 at 11:51 pm

    You are, of course, absolutely right and I stand corrected.

    Rates
    Mar 23, 2018 at 11:24 pm
    True, but saying “US consumers is already stressed out” is incorrect either.

    Let’s get this one BS out of the way. US consumers never stresses out when it comes to buying. They’ll spend as long as the banks are lending.

    The correct statement is “US consumers are in the process of stressing out the banks.”

  20. timbers
    Mar 23, 2018 at 11:59 pm

    Just because China can’t out-Fed the Fed, don’t assume it can’t retaliate.

    What China could/should do – and these are just suggestions – for it’s own benefit and national sovereignty – is things like require Apple to pay increasingly high worker pay and benefits and taxes to China to the point of driving Apple out of China. After all the profit margin for Apple products is far and away beyond most monopolies, right? China could triple labor pay and it wouldn’t dent Apple profits. And China should ban Fake News like Facebook and other American media and icons – imagine how many people I work with are investing in these stocks and will see their retirement go down the drain. If it’s true Facebook is heavily invested in meddling in American elections (unlike Russia) than Zuckerburg seeing his fortune vaporized away by China could have a hugh political shock wave in U.S. politics.

    These are just a few thing to think about.

    • Max Power
      Mar 24, 2018 at 6:33 am

      China doesn’t need to do any of that in order produce the results you mention, they just need to let the Yuan float. Obviously though, they are completely uninterested in doing that.

      Also, China already bans most US media, as well as Facebook.

      Oh, and BTW the “fakeness” of US media can’t hold a candle to the communist party controlled media of China.

      I think you have a lot to learn about China my friend.

      • timbers
        Mar 24, 2018 at 6:59 am

        I was going to mention floating the yuan, also. These are just ideas to illustrate it’s not just about buying USD and fighting the Fed on it’s terms. And yes I do have a lot to learn – as do you.

        For example over at Naked Capitalism there is mention that China is targeting U.S. farm products – hitting areas that voted for Trump.

        As for the measure of the very much you need to learn about China and Chinese fake news, their is old Russian saying:

        “The difference between our propaganda and your propaganda, is that you believe your propaganda.”

        I’ll give the America’s fake news the crown over China any day. Because IMO far more Americans believe it, than do Chinese believe their’s

        • Mar 24, 2018 at 9:54 am

          This talk of “hitting farm products” is always funny. These people don’t think this through. And it’s politically convenient.

          These are global commodities. So China buys soybeans from Brazil instead of the US, thus taking over the demand from other nations that had been buying from Brazil, and it’s doing so by paying more than they were. And where are these other nations going to buy their soybeans now? From US farmers. They have to buy somewhere… In a global system, you cannot just shift your purchases and assume that nothing else will change.

        • Max Power
          Mar 24, 2018 at 10:20 am

          At least in America you have a choice of news and information outlets… in China – fogget’ about it. It’s all controlled over there, plus access to external sources is strongly controlled as well.

          In China you could count the minutes before some “hidden operator” would have deleted the comments I just made.

        • timbers
          Mar 25, 2018 at 9:05 pm

          Wolf – you may be mistaken. Shifting purchases away from the U.S. reduces demand for the USD. At some point that matters.

    • Murdoch_Mysteries
      Mar 24, 2018 at 5:32 pm

      If you ‘invested’ in Facebook, Netflix, or Tesla then your deserve to lose all your money.

      Amazon really is amazing being able to stay in business basically losing money on retail for most of its history only making a profit from it AWS subsidiary.

      Bring on the end of QE and finally let the market be able to re-rate risk. Put the zombies out of business. Make cash flow positive companies the winners and the negative cash flow companies out of business.

      I’m sure that Mr Trump would welcome the demise of Facebook and Amazon along with a reduction of influence that Google has as they basically all supported Hillary.

  21. Nicko2
    Mar 24, 2018 at 2:45 am

    China is investing $2 trillion in two dozen countries, building out infrastructure and services along the New Silk Road. That is where the future is. They don’t need the US as bad as many think.

    • Max Power
      Mar 24, 2018 at 6:43 am

      Au contraire. The main aim of all those investments is to benefit China so that it can increase its access to more raw materials in order to create more stuff to sell to… Americans. It’s no different than the investments that the old European powers used to make in African colonies where all the railroads went from the interior of those countries to the coast in order to make raw materials available for export to Europe in order to be processed into high-value goods back in Europe.

      The American market (to sell into) is and will always be way more important to China than say the Ethiopian market.

      • Thomas H Belstler
        Mar 24, 2018 at 12:10 pm

        I think the Chinese have a longer planning horizon than the US. So they help other nations build out their infrastructure not just for access to their raw materials but also to increase the growth rate of their economies. They are counting on the fact that these countries are now attached to Chinese made goods and services and are likely to prefer to buy and sell Chinese made products over other brands. All denominated in Yuan or commodities that the Chinese need of course.

  22. LouisDeLaSmart
    Mar 24, 2018 at 2:49 am

    \\\
    I believe this answer was more in line with the Chinese philosophy, where one does not reveal his position until the move is made. And that leaves the adversary to act upon the potential, which is pretty much a guessing game.
    \\\
    Nah, China is too smart to do such a stupid move. I guess they will proceed very similar to what Russia did in their sanctions. They will isolate an industry, it seems agriculture, and put tariffs on products where it matters. Then they will funnel state subsidies and grow their agriculture until they themselves become the exporter. To additionally strengthen their position they might later impose food standards that make it harder for the US to export (EU does this all the time).
    \\\
    I am not sure these tariffs will suffice. Even if some products rise 30% in cost, would the price justify US manufacturing cost?
    \\\
    If tariffs are only towards China, who long will it take other corporations to re-export products under “made in Vietnam/Philippines/South Korea”?
    \\\
    Bottom line is, until the real-estate market goes to where it should be, at least a 50% decrease, the cost of living and associated labor expenses are too high to do manufacturing.
    \\\

  23. Silly Me
    Mar 24, 2018 at 3:10 am

    It’s all good and well. US policies in the last decade have been increasingly focusing on wreaking havoc elsewhere, thus weakening potential competition to the dollar, in order to enable the Fed to conjure up more money out of nothing without the threat of inflation. It’s all in the books: right, we are bad, but they are worse. Talk about putting the cart before the horse.

    • Nicko2
      Mar 24, 2018 at 3:50 am

      Invading Iraq and Afghanistan reduced completion to the dollar? If anything, it made those counties more dependent on it. It’s a testament to the inherent strength of the US economy that Trump is so impotent to damage it, try as he may.

  24. Rob
    Mar 24, 2018 at 6:25 am

    They could just put the money on deposit with banks. Or buy agency bonds as the Fed sells.
    Or put the money on deposit with Chinese bank branches and use it to finance strategic acquisitions below the $1bn mark.

  25. cdr
    Mar 24, 2018 at 6:42 am

    Agree – empty threat.

    China has a big problem … how to get rid of all the dollars it accumulates from selling its exports to the US. Dollars are not the currency of China. To be useful in China, the currency needs to be exchanged for actual Chinese currency or something of value that it can hold for a while, then, later, get Chinese currency.

    China’s choices:

    1) Launder it in US real estate
    2) Buy US factories
    3) Buy US or UST Debt
    4) Exchange it for other foreign currencies and replace the US dollar problem with an identical problem using a different currency.
    5) Bribe US politicians

    In the old days, this caused currency values to fluctuate. Today, currency values are managed via central bank printing and BS. Accumulations caused by foreign trade don’t matter.

    Remember this: To the Chinese, a dollar really is just paper and will remain only paper until it’s repatriated in the US. China is sort of a dollar sinkhole. The only threat they offer is actually spending them in the US to purchase real US assets. Otherwise, they took out little pieces of paper, which had value to us, and exchanged them for goods and services. The dollars they now have are somewhat worthless to them, from a certain perspective. Investing in UST debt is better than shoveling them into a backroom and letting them just sit there.

    • cdr
      Mar 24, 2018 at 8:32 am

      The real China threat involves their items being so cheap and so plentiful that US jobs are lost in the rush to import and purchase cheap Chinese goods. The little Tariffs being imposed recently keep the playing field level.

      Them having our dollars and buying our debt just should otherwise make us want to say Thank You, come again, please take our paper bits in exchange for your goods. Or – Invest in the US – Buy Bonds – Thank you very much for giving us our paper back in exchange for different paper.

      A bigger threat would be if the ECB started normalization. Of course, that would precipitate the end of the EU because it couldn’t afford to maintain its lifestyle if it actually had to pay for it with real money from real people who earned it. But, hypothetically, that would put the US against both China and the EU, which might be a problem.

      • cdr
        Mar 24, 2018 at 8:39 am

        To really spook China, we should threaten to stop taking their dollars back. They would have a pile worth over $1Trillion that they worked hard to build, using valuable Chinese resources over a long period of time, yet have worthless paper to show for it. Or, perhaps, a surtax on dollar repatriations. Watch the fun.

        To put it another way, they don’t own us. We own them. If they give us a hard time, we can threaten to make it difficult to spend their dollars back over here.

        Yes, there would be a host of repercussions, but it would be fun to see the looks on their faces.

  26. Kent
    Mar 24, 2018 at 8:30 am

    If China needed US dollars to import stuff, it would be selling treasuries for that purpose now. It’s not. So why would China trade an interest bearing US note: the treasury bond, for a non-interest bearing note: the Federal Reserve note? Empty threat.

    • cdr
      Mar 24, 2018 at 8:54 am

      Absolutely true. Actually, from the Chinese perspective, they’re both fairly worthless since neither is legal tender in China. Until they actually spend the dollars here, they are working hard for nothing of value in return. And, boy, could we raise prices when the Chinese come shopping. US prices vs Chinese prices for US goods and services. Food for thought. Them having so many dollars to dispose of makes them our b*tch, from a certain point of view.

      • cdr
        Mar 24, 2018 at 9:00 am

        Until they actually spend the $$$, think of each pile as another empty Chinese city.

        • HowNow
          Mar 25, 2018 at 10:58 am

          This is beginning to sound like a conversation among inmates in a debtor’s prison.

        • cdr
          Mar 26, 2018 at 9:48 am

          hownow,

          The problem with most people is they know nothing about elementary international economics and basic trade theory. They try to substitute that ignorance with inflamed and uninformed opinion that makes no sense but at all but follows the rest of the uninformed crowd well.

          Tell me HowNow, do you want a strong dollar but great US exports, like most TV ‘experts’? If you don’t get the humor, you don’t understand squat about this topic.

      • ZeroBrain
        Mar 25, 2018 at 2:45 pm

        Do you realize that running up debt via trade imbalances is how reserve currencies become former reserve currencies?

        Also, you keep posting mutually exclusive arguments – on the one hand you say they need us as a consumer and yet you also say we’re giving them nothing of value / worthless pieces of paper. If the pieces of paper are worthless, they’d be better off just keeping their currency suppressed via currency creation WITHOUT buying USD and just investing that additional amount in infrastructure, technology, education, military, medicine, etc at home.

        • cdr
          Mar 26, 2018 at 9:53 am

          ZeroBrain,

          No, my argument is basic, elementary economics without the shrill panic most people who don’t understand intl econ 101 bring into the mix.

          If anything came across as controversial, it’s more of a reflection of how little most people know about international trade, but happily substitute that ignorance with inflamed and uninformed opinion.

  27. gorbachov
    Mar 24, 2018 at 9:07 am

    The US does not have a debt problem.They owe most the debt

    to themselves.If outsiders controlled about 21 trillion then maybe

    it would be an issue.China’s military is a bigger problem to America

    than their influence on US monetary policy.

    Finally, these new tariffs would seem to be an attempt to get jobs

    into flyover country which is the presidents base. It would be interesting

    to know what the unemployment rate is in those areas that elected him

    particularly if one included those who are able to work but are too

    discouraged to look.

    .

    • Kent
      Mar 24, 2018 at 10:18 am

      I don’t think it is necessarily a lack of jobs as it is a lack of decent paying jobs. Mid-westerners remember union jobs with good pay, good pensions and good health insurance.

      You can try and bring back all the factories you want, but you’re not bringing back the unions. So it’s really for naught.

    • Rates
      Mar 24, 2018 at 1:22 pm

      I guess 2008 wasn’t a debt problem eh, since most of the debts were owed by Americans to other Americans?

      Heck, let’s take that statement to a higher level i.e. the world does not have a debt problem since most debts are owed by human beings to other human beings?

      What are we stressing about then? Wolf, what’s the big deal here? Help me, apparently I can’t see the truth or something.

  28. phlai
    Mar 24, 2018 at 9:34 am

    China communist only fright when you really fight.

  29. illumined
    Mar 24, 2018 at 9:40 am

    Here’s another reason why China’s threats to dump treasuries are empty: If they did their currency value would skyrocket against the dollar. In doing so it would be a massive self inflicted tariff on everything they export to the US, which makes it a US trade war victory by default since it finally fixes our trade deficit.

    • Rates
      Mar 24, 2018 at 2:01 pm

      LOL. China fixes their own currency. “Skyrocket” how? The Yuan’s value is not determined by the market. The Chinese have been attempting to appease Trump by fixing up the Yuan’s value, NOT because of the “market”.

      Muppets are very dangerous in their ignorance.

      @XiJinPing, please initiate the 40% devaluation protocol to teach muppets about their ignorance.

  30. Bobber
    Mar 24, 2018 at 10:27 am

    I think the other impact would be to stock prices. They would drop significantly. But, the middle class wouldn’t care about that either because they own few stocks. A large stock price drop would actually allow them to buy new stocks at much lower prices and perhaps double their retirement income. Millennials would love a stock price drop too, so they can buy houses and other things to spur economic activity. Their life would look a lot better. Retirees could even take some capital out of bonds and CDs and buy some low priced stocks to come out way ahead. Trump is making some good moves when it comes to trade.

  31. Mar 24, 2018 at 11:20 am

    It may be an empty promise but its viable, and reflects the typical lever pulling mentality that seems to work on the margins of US policy. Regime change, check. You miscalculate the damage to the credit rating of the US and those bonds when supply overwhelms demand. Yields go up because. The Feds higher long rate gambit is inconsistent with economic growth, period. No mention of how we make future BIS settlements with “unsterilized” cash, (ask Bernanke). (Got TIPs?)
    Between the time those jobs return (never) and the rising cost and lack of consumer goods (bankruptcy for Walmart and Amazon – think about that) is a gap we might call a depression. We could redirect manufacturing to Mexico, if Trump thought about it. The Fed can load up the balance sheet once more, how does that quick shift affect markets? China can do more than enough trade with ROW, they don’t need dollars and they have already positioned themselves for reserve currency status in the IMF SDR rollout. Empty but meaningful.

  32. MF
    Mar 24, 2018 at 12:08 pm

    And this is why Trump will win yet another negotiation.

    This article points out that China’s treasury holdings a paper saber. It is more properly heard as the rustle it is, rather than the rattle China hopes you hear. It’s the ancient tactic of appearing strong when you are weak.

    Trump understands the other part of that equation: when you are strong (i.e.: when you own the world’s reserve currency), you can and should dictate the terms of battle.

    It’s negotiation 101: set the table. Send an invitation that cannot be refused.

    • Rates
      Mar 24, 2018 at 1:58 pm

      A 40% Yuan devaluation will send America into a tail spin. Prices everywhere will drop so fast, banks in America will wonder how loans will ever get paid. Real estate, stocks, etc, etc, built on top of inflation expectations will …. why don’t you do the homework for once eh?

      Remember, most of the debt in China are denominated in Yuan.

      After that Murica will set to devaluate the Dollar for the final game. As usual Muricans lose again. Bacon at 15 dollars.

    • cdr
      Mar 24, 2018 at 2:23 pm

      MF: Boiled down to the basics: perfectly analyzed.

    • Paulo
      Mar 24, 2018 at 5:55 pm

      Kind of like how he just won the spending negotiation for 1.3T?

      I did not detect sarcasm in your post, so tell me, what negotiation has Trump won?

      He is going to run the US economy over a cliff, my friend. Bigly.

      • MF
        Mar 25, 2018 at 4:46 pm

        @ Paulo: You’re correct; no sarcasm. But don’t confuse my willingness to acknowledge Trump’s sound strategy vs. my approval of the man himself.

        Concerning omnibus: our ability to curtail spending passed silently in the night long ago. Japan has shown that extend and pretend can last far longer than anyone imagined. We will duplicate her “success” regardless of who occupies the Oval Office.

        Economy off cliff: see previous paragraph.

        Negotiations: The entire Establishment power structure tried to neutralize Trump before the GOP primary, during the national election, before he took the oath of office, and immediately after. Yet, he’s governing. How is this possible if he’s won no negotiations?

  33. Harvey Darrow Cotton
    Mar 24, 2018 at 1:25 pm

    That’s how China can really get back at us…By continuing to buy Treasuries! Wait, whut?

  34. Drango
    Mar 24, 2018 at 5:01 pm

    Thanks for this post. Every reporter or commentator who says that China has some kind of leverage on the U.S. by threatening to sell treasuries is either a fool or scaremonger who should be treated as such from then on.

  35. Steve
    Mar 24, 2018 at 9:44 pm

    “You have hurt the feelings of the Chinese people…”

    I’m always amused by this typical reply…

  36. steve brassey
    Mar 25, 2018 at 2:24 am

    a gold backed currency? does anyone out there realize how tiny the gold mkt is? my second pet peeve is why everyone is so unaware of how dirty the Omaha Sage is? in an interview back when things were coming un-done in the ’07-’09 mess, he said that nobody could see the mess unfolding, especially the credit rating whores. he, as the largest shareholder in Moody’s, definitely did. the truth will win out…….eventually.

  37. hendrik1730
    Mar 25, 2018 at 5:12 am

    Trumps’ trade war will increase the prices of goods in the States so inflation will rise and trading/consumption will drop. If inflation rises, the FED will have a choice : either do nothing and let inflation balloon ( hurting all savers ) or increase the interest rates ( hurting all investors in stocks and bonds plus making (public) debt servicing much tougher ). So, whatever the FED does, it will be bad. Add dropping consumption ( and therefore, falling income for everyone ) to all this, the future is black.

    Trade wars never solved economical problems, they only lead to shooting wars.

    • Mar 25, 2018 at 9:26 am

      There won’t be a trade war if China does what it is supposed to do, and if Corporate America reroutes more of its supply through the US. If China decides to retaliate to drive the trade war, which it started decades ago, to the next level, it will shoot itself into both feet.

      • Rates
        Mar 25, 2018 at 10:21 am

        https://www.reuters.com/article/us-usa-trade-china-apple/designed-in-california-made-in-china-how-the-iphone-skews-u-s-trade-deficit-idUSKBN1GX1GZ

        “Using a rough calculation, that implies the iPhone 7 series added $15.7 billion to the U.S. trade deficit with China last year, about 4.4 percent of the total. That’s also about 22 percent of the $70 billion in cell phones and household goods the U.S. imported from China.”

        Tax evasion at scale, by Americans and supported by America consumers.

        So please don’t just blame the Chinese. But I guess like Trump, it’s playing to the choir?

        • Mar 25, 2018 at 12:09 pm

          You ALWAYS have to blame Corporate America along with China’s policies. I do every time I write an article. Apple is part of it by having its supply chain anchored in China. But Apple has had lots of complains about China’s policies, concerning IP, user data etc. So Apple sits on both sides of the fence.

        • d
          Mar 25, 2018 at 6:10 pm

          “You ALWAYS have to blame Corporate America along”

          Is it really “Cororate America” any more?

          Or are they simply a group of Globalised Vampire Corporates. With loyalty or consideration, for and to, nobody, but themselves

          Anchored in the US for Convenience, whilst actually currently allied with china, and making alliances with their replacement for china, india.

          Globilisation came about, without a GLOBAL RULE BOOK.

          The average Three Year old would have told everybody. THAT WOULD NOT WORK.

        • ZeroBrain
          Mar 25, 2018 at 3:23 pm

          We shouldn’t blame China one iota, full stop. It is up to US politicians and citizens (not China!) to enact policies that preserve and defend US workers and leadership in science, technology, manufacturing, and so on. China pursued a policy which enabled technology advancement (and yes, transfer) and an increase in the quality of life for its own citizens – as it should!

          The US citizenry CHOSE to go along with it. The US citizenry CHOSE to give up their industrial base and know-how, in return for several decades of excess. I blame US citizens greed and stupidity.

        • JB Say
          Mar 25, 2018 at 4:38 pm

          You’re so right. I’ll never forget the day I crafted all those US trade agreements with China. Along with all the other “US citizens”.

        • ZeroBrain
          Mar 25, 2018 at 7:49 pm

          JB Say – Obviously I’m talking about US citizens in aggregate. What, you think these politicians didn’t get elected? The populace isn’t responsible for the actions of its government in a democracy?

        • JB say
          Mar 25, 2018 at 8:39 pm

          The US was organized as a republic, not a democracy. Since the early 20th century its more like a plutocracy or an oligarchy. The economy is corporatist. Once the US was a country with a government, now the US is a government with a “citizenry”. Its been this way longer than most Americans have been alive. Eisenhower’s farewell address spells it out as good as any other source.

        • ZeroBrain
          Mar 26, 2018 at 12:42 am

          Yes it’s a republic. Congrats, you got me on a technicality which has no bearing on the argument.

          “Boo hoo, us poor Americans, we’re the *victims* in all of this.” Get real – Joe six pack has for decades voted in politicians based on slogans and likability. Only real political involvement, organization, and self-education on the part of everyday Americans is going ensure that politicians are elected that act in the best interest of the people. The alternative (that we have today) is that decisions get made FOR YOU, and when that happens, it’s YOUR FAULT for not standing up for your values and future. (Again, dealing with the populace in aggregate.)

          Anyway, I’m approaching the 5% of all posts limit so that’s the last I’ll say on the matter.

      • d
        Mar 25, 2018 at 6:02 pm

        “If China decides to retaliate to drive the trade war, which it started decades ago, to the next level, it will shoot itself into both feet”

        TYPO Should read ” it will shoot itself in both feet ”

        P 45, and also Europe, want a level playing field, or else.

        P 45 is not doing, or trying to do anything regarding trade that should not be done. Just as normal doing it the WRONG way.

        china had its 15 years at the WTO, to become a TRUE free market economy. It has simply wasted and abused that time.

        china has to promptly start playing by the same rules as everybody else, or it will soon be in huge trouble, not only with the US.

        TPP was driven into existence by chinas restrictive and unbalanced trade practices. A MASSIVE point so many still miss.

        We know this is true as THAT IS WHY the first nation in the world to sign a free trade deal with china, also STARTED TPP.

        There is no point crying to a Lying Bully, that he is not sticking to his agreement.

        Simply DO SOMETHING about it.

        WE DID.

      • Mar 25, 2018 at 11:19 pm

        Wolf the biggest culprit of corporate America is Wal-Mart there is a reason they earned the nickname China Mart . Remember all the stories in the Late nineties about Wal-Mart squeezing all there vendors to supply there products more cheaply well that forced there suppliers to move there manufacturing overseas . Sam is rolling over in his grave right now .

  38. Sinbad
    Mar 25, 2018 at 4:37 pm

    If the Yuan based oil futures goes ahead, and China buys $100 billion in oil a year, surely China would no longer need at least $100 billion in US dollars?

    • d
      Mar 25, 2018 at 6:20 pm

      CNY/RMB base oil futures are simply about stealing a large part of the oil speculation/Gambling market for the Chinese and moving it into local currency.

      The futures contracts are in chinese toilet paper, based in the mainland.

      The oil is still first paid for, in US $. That wont change for some considerable time. The arab’s in particular, are not that stupid, they have seen what china has done in Ecuador..

      Even though china has take over the sale of all of Ecuador’s state oil, basically by force. Ecuador still gets paid it pittance in, US $.

  39. STANLEY G KORTE
    Mar 26, 2018 at 10:49 am

    I disagree with your comment “the Fed could easily mop up a trillion of Treasuries, as it has done before” The treasuries bought by the Fed during QE were bought from US commercial banks. They were actually swapped for Fed IOUs (Other deposits held by depository institutions, or reserves and excess reserves – a liability on the Fed’s balance sheet) Link: https://fred.stlouisfed.org/series/WRESBAL If the Fed bought treasuries directly from the US Treasury the Fed would have to print currency to fund the purchases. The US Treasury cannot spend a Federal Reserve IOU. This would send inflation well above the Fed’s 2% target rate.

    • Mar 26, 2018 at 3:53 pm

      In a liquid large market, such as the Treasury market (or the stock market), it doesn’t matter who anyone buys from or sells to. China sells $100 billion of Treasuries to whoever is willing to buy. To get investors to buy those Treasuries, China offers to sell them at above market yields (below market price) — hence yields in the overall market go up. To counter this, the Fed puts out on offer to its primary dealers to buy $100 billion in Treasuries at below-yields (above market price). Arbitragers buy from China (at below-market price) and sell to the primary dealers (somewhere near the Fed’s above market price) and make money. And the primary dealers sell to the Fed and make money.

      There’d be 100s of hedge funds and banks trying to make the easiest nearly risk-free trading profit in the world.

      • STANLEY G KORTE
        Mar 26, 2018 at 5:48 pm

        You missed my point completely. I am saying that IF the Fed purchases treasuries in the future they will need to print currency to fund these purchases. That did not happen during QE. The Fed gave the banks an IOU to fund those purchases. You need to understand the liability side of the Fed’s balance sheet to understand my point. See link: https://fred.stlouisfed.org/series/WRESBAL

        • Mar 26, 2018 at 7:25 pm

          Every transaction that is recorded via modern accounting, including those on the Fed’s financial statements, has at least two entries: a debit and a credit. And for each transaction, the sum of the debits and the sum of the credits are equal in amount. So when the Fed creates a credit, it also creates a debit of the same amount on its books. Hence during QE, assets and liabilities rose dollar for dollar at the exact same rate. That doesn’t mean that the Fed didn’t create the money or didn’t buy securities with it. But it does show that the Fed uses double-entry accounting with debts and credits.

        • STANLEY G KORTE
          Mar 26, 2018 at 9:46 pm

          The Fed did not create as much money as you think to fund QE. Here are the entries:

          Commercial Banks books:
          debit – Excess reserves held by the Fed – $2.8 trillion
          credit – US treasuries and MBS – $2.8 trillion

          Federal Reserves books:
          debit – US treasuries and MBS – $2.8 trillion
          credit – Reserve balances with the Fed $2.8 trillion

          Watch this 3 minute Ben Bernanke video: https://www.youtube.com/watch?v=F92N3YUOvB0&t=43s

        • Mar 26, 2018 at 11:23 pm

          At the peak, the Fed held $2.47 trillion in Treasuries (now down to $2.42 trillion). Before the Financial Crisis, and before QE started, it held $780 billion in Treasuries. So it added $1.64 trillion in Treasuries during QE.

          At the peak, the Fed also held about $1.78 trillion in MBS, all of which were added as part of QE.

          The $1.64 trillion in added Treasuries plus all of the MBS accounted for $3.4 trillion at the peak. That’s how much money it created in order to buy these securities with.

        • d
          Mar 27, 2018 at 2:45 am

          You are to be complemented on your Patience.

          Some people have so much trouble with that Basic Arithmetic.

          Some of the numbers out the claimed as Us QE are unbelivable.

          Waht would be nice to have, is the TRUE QE #’S, on the EU and CHINA.

  40. James H
    Mar 28, 2018 at 12:18 pm

    Don’t expect negotiating with the Chinese to be as easy as dealing with the South Koreans, Japanese or Europeans. The main difference is China does not rely on the U.S. to be its bodyguard. It can stand up to Russia or any other national threat on its own. It may have the best relations with China among G20 countries even if it’s mostly transactional. So don’t expect them to concede much ground in negotitions because the threat of puling military support doesn’t exist.

  41. Stanley G Korte
    Mar 28, 2018 at 2:55 pm

    Based on our discussions over the last 2 days do you still believe that the Fed could easily mop up a trillion of Treasuries, as it has done before?

    • Mar 28, 2018 at 5:03 pm

      Nothing has changed as far as the Fed is concerned. It can always mop up any amount it chooses. There are consequences, always. But it can.

      • d
        Mar 28, 2018 at 7:25 pm

        Issue?

        If the FED Printed, to mop up a large number (T’s or .’s of a T, (as opposed to 10’s of B’s)) of T notes brought to market at once.

        By a Foreign State (Normally with the intent of presurising the $ and/or the US).

        Would that qualify as Monetising US State Debt?

  42. Stanley G Korte
    Mar 30, 2018 at 8:37 am

    Since you deleted my last reply from the comment section and did not reply ….

    • Mar 30, 2018 at 9:12 am

      You have read something somewhere that is patently wrong, and you’re sticking to it fervently. I explained to you why this is wrong. But you’re not open to reality. You have a fervent belief in this nonsense, and nothing can dissuade you from it. This is fine with me. Everyone their beliefs! I allowed several comments from you on this issue. And each time, I tried to give you data to show where your notion is wrong. But you keep arguing it, unwilling to check into reality. And that’s fine too. But you cannot forever propagate this nonsense on my site.

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