China Starts Dumping U.S. Government Debt

http://www.wsj.com/articles/once-th...starts-dumping-u-s-government-debt-1444196065

What are the repercussions of this? Is this another "doomsday" article or another signal that the U.S. economy is headed for more trouble?

 

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Maybe the Zombie Fulfillment Center will actually have to raise rates after all?

 

The Journal isn't what it once was. Why the sensationalistic headline "dumping"? They didn't need the money before so they bought treasuries. Not they need to money to buy Yuan because they are not doing great so they sell a liquid asset. I think Chinese selling is more an indication of their own problems more than it has anything to do with us.

 

People have the idea that if China or other wants to sell US bonds, the US has to buy them back. It doesn't work that way. China has to find someone to buy them, and decide if what the other party wants to pay is acceptable. The US could buy them back. or even ISIS can, if they have the cash from antiquities or captured banks, and wants to start taking the appearance of a 'country' with a central bank and issue bonds to other buyers down the road.

 

I tend to agree with medoraman on this one..........it's indicative of the issues that China is having internally with their currency and economy.....it does raise the spectre though that with the US continuing to balloon our national debt, at what point does it get more difficult to sell that debt and at what price to get it attractive enough that someone will buy it? Beyond my pay grade...........

 

I'll third that notion. I've seen several stories about issues that China is having with "China" and all of the government backed businesses that are not producing as expected (imagine that?!?!) and all of their inflationary issues.

As the pressure mounts to sell - I believe that will weaken the dollar a bit - since people will not buy unless there is a discount.

I think we knew this a decade ago when China started - as the pundits put it - "buying up America" and we knew that if we defaulted - the Chinese would end up with our bad debt - and if they faltered - they'd have to sell it to someone at a discount (possibly buying it back cheaper than we sold it).

It wreaks of the toxic loan syndrome we just experienced in our own country - but I think it's a win / possibly win situation for us either way.

 

China has bene selling USTs all summer. First it was via proxy through Belgium, but since their stock market started crashing they've been doing it outright to free up funds to throw at the bonfire. This is a pretty important development, but in my mind is more of an example of the writing on the wall than the straw that will break the camel's back.

The Fed can always step in and buy anything that doesn't sell if they need to, but they won't do this unless they absolutely have to since it would amount to an admission that their policy has failed (even though that's already been admitted, but isn't widely known), and that QE to infinity is a reality.

QE3 was the first QE program that was not inflationary because it was done with the expectation that it was the last hurrah. So even though it was inflationary at face value it was more so an opportunity for people to get out of the way of what we are experiencing now. Any future QE means there's no such thing as a last hurrah.

I also do not believe that China cares whether or not they ever get their money back for the USTs they are holding or out of their stock market. They have a substantial gold stockpile, and a financial collapse would leave them in a very wealthy position regardless.

If you look at how quickly China's market ran up and then back down over the last year, it's hard to argue that this wasn't done deliberately as anyone who knows a thing or two about investing knows that a YoY return greater than 8% is a ponzi scheme. The Shanghai Composite Index was up over 60% at one point earlier in the year. If anybody over there cared about the integrity of their markets they would have intervened before it got so frothy.

 

How about the fed tells the banks: suck it up or else?

http://dailyreckoning.com/the-elites-private-warning/

 

Worst case scenario, we could default and let them take a hike........

Reagan and Truman would do that if pushed into a corner........

 

Or, maybe that's just me......

 

Wow, "phony baloney jobs and their million dollar houses". Me thinks the author is jealous too much.....

Also, if these "international elites" are so powerful, why do they need to us IMF reports to "signal each other"? They can't afford cell phones and international call plans?

Be careful of hateful "the elites control us and the economy will end soon" speech. They had the same with the TriLateral commission and Lyndon Larouche in the 70's. The internet simply makes it easier to spread fear.

 

Well of course elites trying to control us and the economy is total propaganda. Blankfein is just "doing God's work." I'm certain all elites are.

 

There is an implied logical fallacy here that the Fed and the banks are not symbiotic. The only reason the derivatives banks are solvent is because they are primary dealers of the Fed. So the Fed doesn't say "buy these treasuries or else", they say "here's some free money, you know what to do".

Whether it's the Fed buying treasuries or the banks doing so, it doesn't matter whose balance sheets it is on, because the money the Fed creates for the purpose of purchasing this debt is conjured from thin air, whether outright purchase or loan creation for the dealers. And guess what, if that is used to buy Treasuries, well that is the definition of QE which this article makes no mention of.

China not selling US Treasuries means more competition for the Fed to sell their quota, in addition to a net buyer becoming a net seller, so it definity applies downward price pressure due to decreased demand and increased supply for sale. If the Fed raises rates, then there will be that many less buyers as it cuts into the arbitrage banks get today with taking out zero % interest loans.

So raising rates doesn't make much sense to me in this environment, and if USTs do start being monetized again I doubt they will call it QE because that would tip too many people off to how dire the debt situation is if yet more QE is needed even though the Fed has put forward that they are going to do the opposite in the "near" future.

It is really no problem for the Fed to do more QE from a functional standpoint. Press a button. The problem with that is that it undermines their credibility since they previously said no more QE, and it also brings us closer to hyperinflation as the effectiveness of QE has gone down drastically since printing so much money the last few years that has no velocity because it only exists to shore up balance sheets instead of going into the economy. So every time QE is done it requires a bigger dose for the same effect. This default/hyperinflation dance is what they are managing. Every time they print money it makes the situation worse by creating more negative pressure. Artificial inflation's opposite and equal reaction is deflation, hence this commodity rout we are seeing. The elite should rightly be concerned about this, but there's no reason to think that they can't keep things afloat until QE is completely ineffective.

 

This is not a credible story IMO, just some hack trying to push buttons....

 

Can anyone be credible to you if they're not puking the status quo script?

 

Yes, of course they can, but what is required is a logical argument backed by with reputable facts.

 

What are "reputable facts?" Facts that fit the script? What "logical argument?" An argument at all against the status quo script is ill-logical button pushing by hacks.

 

Reputable facts are those which can stand up to a reasonable amount of scrutiny.
From there you base a conclusion.

I have no issue at all with someone challenging the "status quo", but to do it on wild speculation with nothing to back up the words, is truly a waste.

 

Yeah good spin Mike but it's not a grading excercise. Something either is or isn't a fact.

"Wild speculation?" The part of the article I was paraphrasing, (above the link) was: "If the Chinese are going to dump Treasuries, the Fed just calls the banks and says 'you buy 'em or we'll put you out of business'..." The quotes are not mine they are part of the article that was quoting Jim Rickards. It can't be a fact if it's conjecture. And this thread is about conjecture: "What are the repercussions of this?"

But hey, sounds like maybe you want something more hardcore and you just said you don't mind someone challenging the status quo, so here ya go.
http://davidstockmanscontracorner.com/

 

Had to fix my other post there.

Just to chime in. Facts are all reputable and not debatable or else they don't meet the definition of being a fact.

I didn't really find much of value in the first link posted. Jim Rickards made a great call in 1980, which he admits is because somebody told him. His track record of late is less than stellar. He's actually calling for $50,000 gold which means he thinks the Fed will opt for hyperinflation instead of default, since gold reaching fair value in the absence of a hyperinflation (rising on its own as opposed to rising with everything) would destroy the dollar before the price ever got near $50,000.

I don't think anyone with the ability to think freely and critically who has taken the time to do their own due diligence on research can reasonably believe the status quo isn't a farce.