Post From Currency Chatter 11-21-15
Member Questions & Discussion Part 2 of 2
Mike: Hi-five, I think the dollars fine now and will be into the future, it's the Chinese yuan and stock market that's in a lot of trouble right now.
It's no secret that China is the largest holder of U.S. debt.
So should Americans be concerned that China has started dumping some of its Treasury holdings?
After all, it raises serious questions about whether China will keep lending Washington money to help finance the federal deficit in the future.
But right now, China is selling because it's in dire need of cash. Recently, it unleashed multiple moves to support its markets and prevent its currency from a freefall, while at the same time trying to stimulate the economy.
China yanks record sum from war chest
China owned $1.3 trillion of U.S. Treasuries as of June, making it the biggest holder of U.S. debt.
But China's foreign-exchange reserves plunged by a record $94 billion in August, according to the country's central bank, leaving it with a war chest of $3.6 trillion. Analysts say it's very safe to believe a big chunk of that decline occurred due to a reduction in U.S. Treasury holdings.
The selling and the potential that China will not be buying U.S. debt in the near future raises questions on its potential to increase America's borrowing costs.
Some of this might already be happening, at least at a small scale. When stock markets are turbulent, investors usually rush to the safety of U.S. Treasurys and yields fall. However, despite August's extreme stock volatility, rates on Treasurys actually rose slightly in late August.
Part of that move is likely due to Wall Street betting the Federal Reserve may raise interest rates next week. But market participants also suspect the unusual action in the bond market was driven by China dumping Treasuries.
This time, Beijing is cutting its Treasury holdings out of a weakened position as it tries to stave off more declines in its currency. China is also propping up its stock market, which lost half its value in the span of just a few months this summer.
"Capital outflows have skyrocketed in China and the yuan is under intense selling pressure. The only thing they could do is sell Treasuries to buy their own currency," said Walter Zimmerman, chief technical analyst at United-ICAP.
There have long been concerns that China could sink the American economy by unloading its gigantic holdings of Treasuries, sending borrowing costs skyrocketing.
Thankfully, those doomsday fears don't appear to be at play here yet.
"If China's U.S. Treasury stock is a nuclear bomb, moderate sales to offset selling pressure on the yuan are unlikely to set off an explosion," Michael McDonough, chief economist at Bloomberg Intelligence, wrote in a recent report.
Still, China's sales could make Treasury yields higher than they would normally be. That's of concern because Treasury rates are used as a benchmark that set the cost of borrowing for items like credit cards and mortgages.
While it's "not the end of the world," SkyBridge Capital senior portfolio manager Troy Gayeski said higher yields could lead to a "slowdown in the housing recovery."
What's key is how much cash China ultimately needs to raise to defend its currency and stock market. No one, not even China, knows that figure.
So far, the American bond market seems to be taking the China move in stride.
The yield on the 10-year Treasury note is currently sitting at 2.22%, about unchanged from a month ago.
Demand for U.S. debt is healthy now especially when compared to the ultra-low, or even negative rates in other economic powerhouses like Germany and Japan.
Policymakers in Washington should hope that trend continues. Now that China's economy is in disarray, America might not be able to count on its No. 1 lender to gobble up U.S. debt like in the past.
"China's surplus is slowing. That gives them less firepower to accumulate Treasuries," said Thomas Urano, managing director at Sage Advisory.
skylimit: hi-five. the money is watched so the people in power can tax it. The western economies are in the process of failing because of decades of socialism which can no longer keep it's promises.
As Margret Thatcher said, "socialism's great until you run out of other peoples money". The dollar is strong right now because US is at least growing a little vs. most of the rest of the world but our crisis is coming most likely in 2017 -2019 as people lose confidence in our governments ability to lead.
You can already see this with Trump leading in the polls, people are fed up with the lies, deceit and corruption. All of the chess pieces you sense being moved in the global arena are for real as the US attempts to hold on to it's power while the rest of the world is ready for change.
Governments historically resort to wars to hold on to power but in today's world technology makes it increasingly difficult to hide their intentions. The world's systems political, energy, healthcare, education, monetary, etc. will most likely change more in the next 10-15 years than the previous 100. Get ready for one ** of a wild ride.
Mike: Agreed, skylimit, and if you think it's going to be wild here, it's going to be a circus for the rest of the world. Socialism doesn't work. The US economy is one of the largest and most powerful in the world, if we fall, the rest of the world falls with us.
Same goes for the dollar, I've been hearing and reading from the doomsday bunch about how the dollar was going to fall and here we are, thirty years later, and king dollar still reigns.
The US doesn't have to do very much to stay on top, we just have a few things to tweak. The US has the strongest economy in the world, according to many, and we'll stay that way for the foreseeable future.
From a competitive point of view, this is how the world ranks out:
The World Economic Forum’s global competitiveness survey has listed this year’s has listed this year’s best performing economies. Britain has moved up to ninth from 10th place.
Here's another good link that speaks to the US economy as it compares to the rest of the world:
America is an exceptional country, in the end, I honestly believe we'll remain at the top of the world's economy, at least in my lifetime. IMO.
Skylimit: The US will learn to share decision making in the world with other countries. By 2020 or so the world will redo the current monetary system as it no longer works under the $250 trillion in debt plus $700+ trillion in derivatives and the hopeless entitlement programs.
The restructuring in the US will be extremely painful, there is simply no money to maintain our current social programs at their current levels including pension funds. Previous Fourth Turnings in the US (i.e. Revolutionary War, Civil War, WWII) all resulted in the US moving forward to higher levels but each time it happens you never know which way society will turn.
I do see the current techology evolving to solve many of our problems but big government everywhere needs to be downsized and get the** out of the way!! This is what has become our greatest challenge.
G-Lin: Cooperation between the two Chinas oil experts and Daash
A source expert: Recently been hosting an informal act of Chinese oil experts with the necessary equipment from the team before Daash in order to invest in oil resources in the area controlled by Daash
According to the report: a 15-member team of Chinese experts "Tal Afar" entered the area in coordination with the leadership of Daash Council in exchange for huge sums of money. And the team was able to determine the geographical coordinates 6821730916 SKF 38: MGRS to a ring of oil wells.
The affiliated dealers to Daash from the sale of 36,000 liters of crude oil at $ 10 to $ 12 thousand traders Turks and Europeans.
Danny: yes, but even with all our problems, we are still great, not because of our govt, but in spite of our govt. we are great because of the spirit of our founding fathers and their thirst for freedom and liberty and their faith in god and what has been passed down to us from them.
many of us still hold on to those values today, even though those values we believe in and cherish are being threatened. those are the things that actually bind us and are holding us together against what our current leadership and the college youth of america that has been brainwashed by unbelieving college professors of the morals and values of the greatest generations of our fathers and forefathers.
we can only hope our former values will keep us strong untill we can finally get some decent leadership in this country to try to right the ship and turn our country into a new direction with a strong wind of true change in the right direction that will restore our original values and beliefs that have slipped from us and restore in god we trust back into our daily lives.
when the people who were offended in god we trust got their way and started taking that away and the ten commandments away from public places and removing prayer from schools in the name of pc, our country started a downhill spiral we have never recovered from.
those of us who believed in these things were forced to do without them, in favor of those who were offended by these things because of pc and we were forced to live by their codes and put up with their ideas which we don't necessarily believe in, but thats okay, because that is pc.
this whole world is now upside down. i have 7 dogs i love very much. they were all rescued. every day i spend with them, they make more sense to me and people make less sense. the more time i spend with them, the more i like dogs and the less i like people. life is just better, when i spend time with my dogs.
i just came from wal-mart. there were shopping carts in the store. i had to pull a couple apart to get a clean one. there were at least two that had trash in it where people had eaten stuff in the store and left the trash in the carts. people are so nasty and stupid. that is my sermon for the day.
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