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Russell Napier: What Happens When Markets Realize China Is A Forced Seller Of Treasuries
One week ago, our post "China's Record Dumping Of US Treasuries Leaves Goldman Speechless" which revealed an unexpected plunge in China's foreign exchange reserves or, said otherwise, a historic sale of US Treasurys held by official and unofficial Chinese accounts, was met with unprecedented public interest, having been read over 400,000 times (a record for coverage of a nuanced, technical subject) and even forced Goldman to follow up admitting its "estimation" of Chinese reserve outflows may have been too high.
By then the cat was out of the bag, and now what is surely the biggest Chinese wildcard, not what happens to itts manipulated stock market, just how much more capital outflows will Beijing suffer before it is forced to finally end the Renminbi's peg with the dollar, is finally being appreciated by the general public.
Which leads us to today's most recent article by ERI-C's Russell Napier titled "The Great Reset - Act II", in which the former CLSA strategist, asks a simple question:
"how US Treasury bulls in the private sector would react if they knew in advance that the second largest owner of Treasuries, the PBOC, was a forced seller of Treasuries. Such compelled selling would be obvious before US markets opened each morning as downward pressure on the RMB exchange rate in Asia forced the PBOC to liquidate foreign currency assets to defend the fixed exchange rate. Would even Treasury bulls stand in the way of such a large and predictable liquidation? If they didn’t then the second phase of The Great Reset would come to pass and the decline of EM external deficits would force tighter monetary policy in both EM and DM."
For his answer, read on. Courtesy of The Electronic Research Interchange
* * *
The Great Reset - Act II
Do you love me, or are you just extending goodwill?
Do you need me half as bad as you say, or are you just feeling guilt?
I’ve been burned before and I know the score
So you won’t hear me complain
Will I be able to count on you
Or is your love in vain?
- Bob Dylan – Is Your Love in Vain? (1978)
In May 2011 this analyst changed his mind about the impact of the monetary love being spread around the world by developed world central bankers. He stopped forecasting higher inflation and instead foresaw the return of deflation.
Fresh from the battering in the deflationary storm of 2007-2009 investors did not want to hear that such monetary love would be in vain. They counted on central bankers then, just as they are counting on them now, to restore a level of nominal GDP growth that can prevent the severe burning of another painful deleveraging through default.
Central bankers, the argument goes, need to boost financial asset prices to achieve higher nominal growth and that higher growth, when finally achieved, will be good for asset prices anyway. So while their love may be for higher nominal GDP growth, the goodwill this spreads to asset prices should be priced in if it succeeds in creating inflation. However, a list of some prices that have been falling from last year --- gold, steel, iron ore, copper, crude, coffee, cocoa, live cattle, hogs, orange juice, wheat, sugar, cotton, natural gas, silver, platinum, palladium, aluminium and tin --- must raise questions as to whether there is reflation or whether this monetary love is in vain.
This analyst is told that such major decline in prices across a broad spectrum of commodities and products represents a supply shock and not the failure of central banks to spur demand! Such supply side synchronicity is highly unlikely. This is nothing less than a failure to reflate and it is due to the growing crisis in Emerging Markets (EM).
It was in a report called The Great Reset, in May 2011, that this analyst suggested the world was more likely to move towards deflation rather than higher inflation. There were many reasons for this change of mind, but key to it was a realisation that EM external surpluses had peaked.
That sounds like a rather esoteric reason to change from an inflationist to deflationist stance, and it was not one that was of any concern to investors. However, the end of a long period (1998-2011) when external surpluses, combined with exchange-rate intervention policies, forced EM to create more domestic high-powered money, while simultaneously depressing the yields on US Treasuries, seemed both important and deflationary. Crucially, The Great Reset predicted this decline in EM external surpluses would produce tighter monetary policy in both EM and the developed world despite the efforts of central bankers to prevent it.
This was not a dynamic that would inflate away the world’s record high debt-to-GDP ratio! This was a monetary mechanism, in the shape of EM exchange-rate targets, that would counteract the expansionary monetary policy of the developed world’s central bankers and thus would be bad news for global growth assets. This focus on the peaking in EM external surpluses and the impact on growth assets proved to be both a good and a bad forecast and remains essential to understanding the failure of monetary love to boost global nominal GDP growth.
As it happened, most EM foreign exchange reserves peaked in 2011, as did EM equities, EM currencies, commodities and the price of gold. Inflation rates in the developed world also peaked in 2011, with the US , the UK and the Euro area all since reporting deflation. So far so good for the May 2011 forecast with even European equities experiencing a slump in 2011 and not surpassing their early 2011 level until the end of 2014.
Crucially though, The Great Reset was very wrong about the US. US equities simply ignored the travails of Europe, EM and commodity markets and sailed ever higher. Ask any fund manager why developed-world equities ignored the deflationary trends since 2011 and they will point to the monetary love spread by The Federal Reserve, The Bank of Japan, The Bank of England and The European Central Bank. But fixating on the expansion of these central bank balance sheets has only distracted investors from the monetary tightening that started in 2011 and is now accelerating in EM as forecast in The Great Reset.
Most investors still believe that we live in a fiat currency world. They believe central bankers can create as much money as they believe to be necessary. Such truths are on the front page of every newspaper, but they may contain just as much truth as the headlines of their tabloid cousins. A belief in this ability to create money is the biggest mistake in analysis ever identified by this analyst.
The first reality it ignores is that money, the stuff that buys things and assets, is created by an expansion of commercial bank, and not central bank, balance sheets. The massively expanded central bank balance sheets have not lifted the growth in broad money in the developed world above tepid levels. Until that happens, developed world monetary policy must be regarded as tight and not easy.
The second reality that a belief in a fiat currency world refuses to recognise is the fact that the growth-engine of the world, the EMs, do not operate independent monetary policies. EMs have chosen to target the value of their exchange rates , primarily to the USD and the EUR, and thus abandon their ability to create money when they chose to. The scale of their money creation is dictated to them by the size of their external surplus. This is important to grasp when even a cursory look at changes in foreign-exchange reserves reveals that most EMs are constantly meddling to affect exchange rate targets and thus, abandoning any control they held over their own domestic money supply.
This is why The Solid Ground considered the end of the rise in EM foreign exchange reserves to be so key in shifting the outlook towards deflation and not inflation. The lack of reserve accumulation would either force deflation upon EMs or force them to devalue. The impact of either adjustment, whether through lower growth or lowered USD selling prices, would be deflationary and not inflationary.
Given the huge role China has played since its 1994 devaluation in spurring global growth, the adjustment process in China could be particularly detrimental to the stability of global prices. Events of the past few weeks are finally focusing investors’ attention on the lack of monetary control in China and thus on the lack of control generally. Local owners of RMB denominated capital have been voting with their feet since 2012 and capital has been pouring out of the country. Now even foreigners are realizing that an external deficit, and a fixed exchange rate, do not lead to more money, reflation or any form of control over asset prices by the authorities.
The Chinese authorities have attempted to shore up their external accounts by getting their commercial banks to borrow USD to fund RMB activities, ramping the domestic stock market, suggesting the opening of the domestic debt market to foreigners, lobbying for RMB inclusion in the SDR and hoping for inclusion in the MSCI equity indices. At this stage they are failing and the continued contraction in China’s foreign exchange reserves is witness to a continued external deficit.
The Great Reset , which began with China’s first reported foreign reserve decline in 2012, is now accelerating. The ultimate destination for China is either to continue to support the exchange rate and accept ever lower growth, probably accompanied by deflation, or to devalue. Either option will further exacerbate global deflationary pressures and place huge pressure on other EMs that compete with China and are linked to the USD.
So could the liquidation of US Treasuries by EMs, in an effort to defend their exchange rates, also push up Treasury yields? This was the forecast in the May 2011 paper and it was very wrong. It was wrong because the Fed was an aggressive buyer of Treasuries, but the Fed is not currently in the marketplace.
Today the yield on Treasuries is set by the actions of foreign central bank activity and the global private sector. The Solid Ground has long wondered how US Treasury bulls in the private sector would react if they knew in advance that the second largest owner of Treasuries, the PBOC, was a forced seller of Treasuries. Such compelled selling would be obvious before US markets opened each morning as downward pressure on the RMB exchange rate in Asia forced the PBOC to liquidate foreign currency assets to defend the fixed exchange rate. Would even Treasury bulls stand in the way of such a large and predictable liquidation? If they didn’t then the second phase of The Great Reset would come to pass and the decline of EM external deficits would force tighter monetary policy in both EM and DM.
PBOC liquidation of Treasuries to support the RMB exchange rate would not be prolonged. Both the US and China would recognize the dreadful dynamics inherent in such a policy if it did indeed push Treasury yields higher. Very soon China would be given the permission to devalue its exchange rate and the nature of the pain to be endured by the global system would be of a somewhat lesser and somewhat different nature. It would, however, still be a deflationary adjustment.
One day we will tell those much younger than ourselves that once upon a time there was a large economy that ran a surplus on both its current account and on its capital account for more than twenty consecutive years. We will tell them, when they’re sitting comfortably, that because it went on for twenty years everyone assumed it would go on forever, despite the fact that such a thing had never ever been seen before. Then one day it ended. And the world thought that this would pass or, if it didn’t pass, they thought that it was not of great import.
Only years later did the world realise that the end of unsustainable double surpluses in China triggered what became known as The Great Reset. It all began with the sudden realisation that developed-world central bankers had no magic wand with which to reflate the world if China was forced to deflate or devalue. The first sign that the monetary love of developed world central bankers would ultimately be in vain was the collapse of commodity prices in 2015. What came next did not involve the words ‘happily’ ‘ ever’ and ‘after’.
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Not an issue when you print money out of thin air!
Oh fuck off with that idiot response.
Wait until North Korea starts dumping their US treasuries, all $1 million of’em! ;-)
Looney
Uh-huh.....ain't socialism cool?
We should do that here.
NO CLINTON
NO BUSH
Why can't we have both?
... meanwhile ... Vulture funds demand brutal austerity measures from bankrupt Puerto Pobre ... >>> http://www.rt.com/news/311040-puerto-rico-vulture-funds/
Take away their fried tubers I say!!!!
They have been living high on the hog with their tubers and rice for too long!!!
Global physical silver investment 2011-2013 quadrupled compared to 2005-2007
http://srsroccoreport.com/what-silver-chart-has-the-bankers-worried/what-silver-chart-has-the-bankers-worried/
Whats the difference anyway. Under both families obama has had his way pretty easily. Can we just get this over with already anyway
We have events which aren't really predictable over time. So "may you live in interesting times" is the new SOP. I recommend that you expect the unexpected happening at the worst possible time and if your wrong, you can be pleasantly surprised for a change.....
You suguest this is an idiot reponse and yet by and through Beligum we are buying alll the paper back with confetti. So, explain your comment!
This is one of the best posts here in a while ... cohesively connects the depths of the Currency Wars and the lack of control these academic counterfeiters truly have. When this one seeps out to the mainstream, it will be showtime for the downside action for which ZHers have been clamoring.
Hm. Forced? Perhaps. But wait! Let's have a look at that calendar. Did the sale of all these treasuries correspond with the US sabre rattling over the Spratleys?
If so, then what would have forced the sales would have been US aggression, and the dumping would have been a counter attack aimed at the Dollar, a weak spot in US policy these days. Then, the Spratley news all dried up and, ... apparently the dumping also stopped?
Just a hunch, of course, ... Really do gotta go check that calendar for starts and ends to these curious things.
the Chinese have shown that they are not that smart. They think capitalism means buying UST's. And while they are playing this game called capitalism, they will buy UST's.
Spitzer, do you really think the "Chinese", whatever that word conjoures up for you, are really dumb?
Really? You think there aren't financial, economic, engineering, game theory, forecasting, global strategy and a host of other GENIUSES in a country of 1,000,000,000 with that much history?
Naive if you do...
It's a globally co-ordinated game, is all. There is no simple story-line of dumb and smart people lie you and perhaps many people here feel.
1/6th the world's population, probably the world's highest EVER REAL GDP, even if most of the P was plastic shit....
Good job under-estimating your opp...
I know the Chinese are REALLY good at copying shit, but yet not smart enough to NOT piss in their own bathtub.
pods
And America is? Do you recall Love canal, as one small example of the way things were only a few decades ago here?
So many hate the EPA, and even today we have dickhead politicians who want to close the agency at the behest of their sponsors. As someone who has witnessed dead steams and rivers come back to life after polluters were made to start bearing responsibility, I do not want to go back to additional poisoning of our air and water. Many industries do not feel the same way. It is not American high IQ's that protect us from pollution. It is laws and punishment for offenders, and those rules & regulations come under steady attack from industry shills.
The Chinese problem is the same as virtually every other country now in this 21st century - CORRUPTION AND COLLUSION, same as here on so many levels.
Love Canal was in operation until 1953. A bit more than a few decades ago. Also, Love Canal was lined with clay, and waste was put in there in drums.
China dumps untreated waste directly into rivers, today, in 2015.
Sure it is corruption and collusion, but that doesn't mean that collectively they are not pissing in their bathtubs. China is not going to be any world leader unless they become colonists.
I would say it is America's high IQ that has protected us from pollution. It takes smart people to realize that every action has an effect. And these effects are usually very far down the road. Certain things do not have a simple answer, like nuclear waste, but you don't have to have a PhD to realize that dumping untreated waste directly into a river might have a bad effect.
Even back when Love Canal was going on, the company involved knew there was bad shit in the dump. The city was the one that forced the sale.
pods
OK.....let's do this a different way.
Having first hand, on the ground experience in China since 1992 (last trip was 2012), and dealing with Chinese factories almost daily, I find them to be highly intelligent - on average more so than the American employees I have to deal with.
Check out this article and the below excerpt:
http://www.theamericanconservative.com/2012/08/14/raceiq-irish-iq-chines...
"Meanwhile, some equally important evidence has suddenly appeared regarding the separate question of Chinese IQ.
In my original companion article, I presented Lynn’s two dozen samples for East Asians and noted the remarkable fact that virtually all of the IQ results came in at or somewhat above 100, despite the desperate poverty and low socioeconomic status of many of the populations when tested. I also pointed out that the Flynn-adjusted national IQs remained approximately constant over the decades, despite massive changes in national wealth and development.
These patterns were totally different than those of European-derived populations, and I hypothesized that for some biological or cultural reason, East Asians were relatively immune to socio-economic deprivation compared to Europeans. Lynn’s latest 2012 book more than doubles the number of such East Asian IQ samples, and these completely follow the same same pattern, strengthening my hypothesis.
Put another way, suppose we examine the many hundreds of national IQ samples collected by Lynn and restrict our attention to those from deeply impoverished and/or overwhelmingly rural populations. Virtually every such East Asian case comes in at or well above 100, while scarcely a single such non-East Asian population scores anything close to 100. The worldwide bifurcation between East Asians and other groups seems almost absolute.
However, a closer examination of the underlying data later led me to consider that the evidence was possibly less strong than I had originally imagined. The vast majority of the East Asian IQ studies reported by Lynn include few details of the circumstances under which they were conducted, but those that do almost invariably turn out to be based upon urban samples, and hence are not necessarily representative of national scores. This raises the possibility that most of the remainder were similarly urban. Whether my IQ urbanization hypothesis is correct or whether cities merely attract brighter people, it is well known that urban populations usually tend to have higher IQ scores, so if the East Asian IQ data did turn out to be almost entirely, any ethnic conclusions would be weakened.
As a related example of this, when the international academic PISA scores were announced last year, the 15M Chinese megalopolis of Shanghai ranked at the absolute top, with scores averaging far above those of any nation in the world, drawing some attention. Since PISA scores are a crude proxy for IQ, Shanghai was estimated to score a very high 111, but as China’s most elite urban center, it was almost certainly a major national outlier, and not to be taken as a fair comparison to national averages elsewhere. (The same was true for the high IQs of Chinese city-states such as Singapore and Hong Kong). Although there were hints that China’s larger scale PISA scores were also very strong, these were merely hints.
However, that has all now changed, as blogger Anatoly Karlin has located the 2009 PISA scores for a dozen major provinces on the Chinese Internet, and published a lengthy post presenting and analyzing them. These scores are indeed truly remarkable, and completely confirm the apparent pattern of Lynn’s IQ samples, in which desperately poor East Asians tend to score at or above the levels of the most successful and well-educated Western populations."
The water was getting cold dummy.
That's why they made a second bath tub (BRICS, CIPS) so now no worries when nature calls.
You are underestimating the Chinese. I may be overestimating them. I've been saying for years the Chinese are playing a long game to take down the West. And for months I've been saying their stock market fiasco is planned. They sent it into the bubble by allowing and encouraging access to stocks by naive investors. I said at the time it was a pre-planned collapse in the making and they knew it. Then they changed the rules again to prick the bubble. Then they intervened ineffectively to destroy confidence. Why? Because they need cover for the actions they plan that will fatally destabilize the Western markets. Deliberately selling those assets without apparent need would be viewed as close to an act of war but now they will be seen running in circles saying "So solly, we don't mean to cause ploblems, but our falmers and peasants, our people they are so sad! Oh, my". I say they will be following a script, you say they will be incompetent, what difference at this point does it make?
The Chinese know that they will rebound out of the reset much better and much faster than the West and they do not fear it. Their peasants have experience with tanks in the streets, ours don't.
It is convienient what you are suggesting, but is china ready to take center stage?
You are dead right about a shift ahead but the US markets need to overheat to create the decline and we still haven't seen that yet (talking money flows not stock fundamentals here).
May have even speculated that China has been amassing gold to back up their large scale selling of treasuries (not to back the currency as many suggest)
Forced selling of treasuries would create a run in treasuries, and the US would officially run out of money to print. The real debt ceiling. In order to attract new buyers of debt, they'd have to raise interest rates... dollar bull.
Actually it seems China was using Belgium as cover to purchase treasuries. It's not the US, that will come later.
He may just be aggravated that you beat him to the first post. FWIW I thought your statement cogent, but Imuhnutjahb.
Two stupid snarks and I leave.
Nevermind, a squirrel, with a chipmonk bonus.
It's that printing money out of thin air response to deflation that will cause the final stage of hyperinflation.
When are the "other" stages of hyperinflation going to take place before the "final stage" of hyperinflation?
I don't understand your comment. Are we in some form of hyperinflation now, or is this soon to take place? How is this going to happen? Are they going to start dropping money from helicopters this week? If they do, let me know, because my rent payment is due and I'm short on cash.
They will never drop money out of helicopters, unless someone borrows it first. That is how it works.
pods
But, he said they were going to print it out of thin air and that's how it was going to happen.
The FED can print it out of thin air and buy these. That won't trigger hyperinflation. If it did, we would have already blown up due to their balance sheet being $4 trillion or so.
If currency was printed and dropped, that would blow it up and the equation would not balance as there was no debt attached.
The key is issuing unattached currency. If the debt is there, you can get inflation but not hyperinflation.
pods
So, one sentence remarks about printing out of thin air leading to the "final stages" of "hyperinflation" in response to "deflation" really is kind of a simple way of looking at things. In essence, the post lacks any substance and came way out of left field and doesn't scratch the surface of the extreme complexity of the issue addressed in the article, right?
Puerto Rico to miss August 1st debt payment, Lew says there will be no bailout for Puerto Rico!
http://www.usnews.com/news/articles/2015/07/27/puerto-rico-unable-to-mee...
http://www.wsj.com/articles/lew-says-no-federal-bailout-being-considered...
Lew says there will be no bailout for Puerto Rico!
They should come to the United States.....oh wait....they're already there.
As a concession, Lew will place a Puerto Rico women on the 10 dollar bill if they join the American Union.
Normally, Americans put 10 dollar bils on Puerto Rican women. World is upside down, I says!
Already bailed somewhat by letting squatters go in tax free from Sammy the Robber.
More BS.
Translation: There is a federal bailout being considered. Nothing is confirmed until it is officially denied. And we now have an official denial.
Unofficial translation: Ponzi no work no more, uh oh!
Ohhh great. Now Puerto Rico will leave the dollar. dammit.
The bigger question is, after China lied about its Gold holdings, where is the money from the sale of Treasuries going? Their stock market?
after China lied about its Gold holdings
You're the only person that didn't know they were buying gold?
What bank do you work for....and how did you get past the firewall?
MiamI?
There is a buyer of last resort in the markets.
They should be sated by now, equity rich and cash poor.
no, they don't need US dollars or any other foreign currency reserves to prop up a RMB stock market, they can just print RMB for that.
Everyone is lying about their gold holdings, not just China. Pretending there are any honest bankers is just dumb.
Otherwise from what I've read in the Chinese daily's...yes. Yes they are. The direct consequence of all those treasuries being dumped means all the inflation the US has been exporting will come back in a huge tsunami of floating USD that will cause that hyperinflation everyone has been talking about for years. Because that's the real purpose of treasuries, it exports inflation and dumps it in whatever country buy's US treasuries. With China being the prinicipal holder of the T-bills and also in the position they let the tribe's HFT/Algo parasites in to 'manage' their stock market, the situation requires lots and lots of liquidity to reprop up the system.
Therefore dump all US treasuries to allow the Chinese government to triage their local companies and more than likely hang the US multinationals that are also listed on their exchanges. Plus force any existing western pension scheme to buy into the Chinese stock market with a hobsian choice while their Buffet managed portfolio's are slaughtered by hyper-inflation. However even if they do buy into the Chinese market's directly with their current holdings being switched for US equities for Chinese, it doesn't help that all of the investment portfolios collectively all are currently short of their goals by trillions of dollars to be healthy or meaningful.
Because that's how a bunch of idiots built the entire system just like a a ponzi scheme and everyone here is lucky enough to see the longest and largest ponzi scheme on the planet, ever, collapse into nothing. It's just taking a while to watch it collapse.
But still, yields pretty flat .... Who's buying ? Would like to see if TBTF or Japan or someone more exotic like Luxembourg or Switzerland are buying these garbage.
The swiss red king is buying everything by silver manipulation since that is the Swiss defacto 'currency'. It is not a mistake that the paper to silver ratio is nearly 1000 to 1 (off the record) and traditionally it has always been the Silverhouses of Switzerland that manage all things silver. Luxembourg is just being used as a sock puppet to make noise while creating the situation to hang Berlin and London by proxy agreement with 'a tribe' with the swiss red king since they aren't happy with their agreements (whatever, fuck'em). Vienna is where the orders are coming from by the left hand path of Swiss throne as the puppeteer.
The right hand is already being watched closely in a full house where she sells seashells by the seashore and some random joker watch over a descendant of a Lionheart. The request has been forwarded to HQ for the 11 clubs to fetch "a crown" to remove the primary issue and an RO for carpenters to prep a glass display case in advance to add to the collection. Should fit nicely with the 7 other 'royals' of past that added value by confusing their role over their stewardship.
Then everyone can get back to fixing this mess locally instead of tripping over each other by remote manipulation. Things would progress much quicker applying regional stewards to handle regional affairs since they know what's really broken in their areas. Systems will need to be repaired so things don't fall a part completely and strongly suggestion looking into a Flurwang systems applied to community/regional cartels to offer resource swaps. Again, computer systems and bean counters are already in place everywhere to properly model the transaction value in any swap exchange of goods.
The economy otherwise, there is nothing to be done about it, it was just built to implode and they bought into it.. The options and systems are here already to transition, it's really up to the stakeholders of each sphere of influence to make their decision. Literally everything is here technology and process wise to allow that to happen.
I should point out that everyone is flat assed broke already by the math. The money at this point doesn't add any value to an exchange in any trade of goods or services except to service debt. Might as well be exchanging receipts for the value any of it brings to an economy. Since no one actually knows what anyone is really producing since the commodities management is as crooked as a politician. Believe me though when I say this, if there are warehouses of everything because of channel stuffing schemes, there is obviously an over production situation.
Once real metrics are provided on how much is really being produced to offer proper resource swaps. Just like the First nations do today and just like the Europeans used to do prior to Henry the 8th and his piece of shit, moron advisior Cromwell.
Dude, I want some of that shit you're smokin' because, well, that was just a cool post man.
But still, yields pretty flat .... Who's buying ? Would like to see if TBTF or Japan or someone more exotic like Luxembourg or Switzerland are buying these garbage.
the question should be where is the money being borrowed to buy ---
Perhaps here the answer fits: it's being created, not borrowed...
Market? What market? You mean the bolshevik lever room where everything is adjusted on the fly? As long as the stock market is propped up to keep the average hooplehead sedated, they can and will print an infinite amount via global qe to ensure the treasuries are bought by someone.
If they are forced sellers, treasuries will eventually rally hard. Same for gold
Sounds logical, but the narrative of late has been illiquidity within the US and globally. In order to rally treasuries there has to be buyers.
"In order to rally treasuries there has to be buyers."
There are.
They're called: The 'BLICS'.
the fiat reserve conundrum all built on debt. There has to be retribution one day.
China's double surpluses were built on the Reserve's ability to say : this beanstalk of US consumerism based on unlimited debt will never end;'cos we be the MAN!
Now the slave labour arb meme is left to fend for itself all based on a false paradigm. The US consumer is no longer the MAN.
http://www.wsj.com/articles/china-pushes-to-rewrite-rules-of-global-inte...
ChiCom's making a move on the internet now, and crony capitalists continue to bend knee to their masters...states/borders, communists/fascists...
What difference does it make?
SSDD/Plan accrodingly.
"but the Fed is not currently in the marketplace."
Really? Who actually believes this bullshit?
Ding Ding Ding! We have a winner!
Thanks to George Washington for having the vision to create the Fed.
Word is they gave him a nice pair of cufflinks for doing that.
I saw that too, and had a snark prepared but got distracted.
The rest of the analysis seemed level headed though.
Level headed but wrong with some conclusions. The part about rising interest rates causing a Great Reset is not conclusive. Not that there won't be a Great Reset for other reasons.
"If you wait for perfect weather, you won't be flying much."
"Rough weather makes you a better pilot."
Two -isms my flight instructor gave me as a student pilot.
Many years later he augered a mountain side with a turbo twin.
We all have days when we're not as sharp as we could be.
With regards to pleasure craft; A good captain/skipper is one without a definite departure date or an ETA.
And no particular destination. Any one of many will do.
+++
"It was wrong because the Fed was an aggressive buyer of Treasuries, but the Fed is not currently in the marketplace."
'BLICS'
I guess holding $2.4 trillion in treasuries = non-involvement? Also, $1.7 trillion in mortgage backed securities = non-involvement.
China saw it coming and that's what is behind their move to physical gold...right? Fiat currency goes to jangles and they are all still "hookers and blow" in China...right?
China saw it coming and that's what is behind their move to physical gold...right? Fiat currency goes to jangles and they are all still "hookers and blow" in China...right?
Get out of everything banker related.
Get out.
Now.
Fuck China and fuck the Chinese. They're only a very big part of the problem.
They have no brains nor guts.
Chinese are banker dick suckers, like everybody else...
China: Just another brand of ruthless statist oligarchs.
"China wants to reinvent the internet: Superpower aims to run part of the net on its own terms and police social media
WSJ report suggests China wants to exert influence over every part of the tech industry from social media to semi-conductors
Web content could be policed and effectively censored under new plans
Its move is in stark-contrast to the views of Tim Berners-Lee, the creator of the web, who has called for its freedoms to be safeguarded."
http://www.dailymail.co.uk/sciencetech/article-3178430/China-wants-reinv...
Get out of everything banker related.
Get out.
Now.
Fuck China and fuck the Chinese. They're only a very big part of the problem.
They have no brains nor guts.
Chinese are banker dick suckers, like everybody else...
What are we looking for? A sharp drop in the US dollar (loss of value/faith), a sharp drop in equities, and a sharp rise in commodities (specifically gold).
This will create a stagflation economy like we've never seen and will create the environment necessary for hyperinflation. If the government releases more QE, it will have a limited effect as the dollar goes to zero.
The Chinese needed to sell bonds to buy their fake stocks to save the market, very reasonalbe! :)
Russell... this has already been discussed during latest Bank of International Settlements annual review.
https://www.bis.org/speeches/sp150628.htm
Watch video.
Fed can print USD and buy all the treasuries that China wants to sell. AND THIS WOULD NOT CAUSE INFLATION
There is really no problem.
Re-bundle toxic debt obligations and resell on the market to kick can 6 months further. Oops.
Re-sell to whom? Pension funds? Aren't they trillions underfunded? The Fed? Isn't their balance sheet already at bursting levels? Treasury? Didn't they relinquish the right to print money ages ago? There's got to be an operation Twist somewhere in there. Where? How?
Judging by my "junkers" below, I have got this twisted in my mind somehow and don't understand the money creation pathway or bond market. So, other than taxation, where does treasury get the money to pay the Bill buyer the par value of the Bill? A creditor's Full Faith in the US Government's promise to tax its people for the Credit it has extended (interest on the Bill) is the only avenue of cash flow for reedeemption payments that I am aware of. That the US govt is already $18+ Trillion in debt, where will it raise the funds to pay? What, more debt borrowed from the Fed in the form of bonds? This is a sick joke and the article just another product of mental masturbation. It's pissing me off.
Isn't that what happened with treasuries? That is; an IOU was delivered to the Chinese for trinkets sold and now you think that when the Chinese have to sell them that they will accept another promissory note in exchange? Methinks they want to redeem them, not sell them. US dollars just won't do. We're going to have to cough up a pound of flesh, or two.
You're assuming that the Chinese will not spend the dollars they receive in return. What's the point of selling treasuries then? Holding only dollars, the Chinese would lose roughly 2% in interest.
Are you Chinese?
Or are you a fucking troll getting paid by the bankers?
And IF the Chinese spent those dollars;
Can you imagine the kind of (price) inflation a couple of trillion dollars' worth of purchasing power would cause in the real world, when unleashed upon real goods and services, as opposed to going into manipulated stock markets?
Go suck some banker cock you intellectual midget.
Sorry,
I meant,
You goddamn' Chinese.
I mean, the guy who does God's work or somethin'.
You're assuming that the Chinese will not spend the dollars they receive in return. What's the point of selling treasuries then? Holding only dollars, the Chinese would lose roughly 2% in interest.
Are you Chinese?
Or are you a fucking troll getting paid by the bankers?
And IF the Chinese spent those dollars;
Can you imagine the kind of (price) inflation a couple of trillion dollars' worth of purchasing power would cause in the real world, when unleashed upon real goods and services, as opposed to going into manipulated stock markets?
Go suck some banker cock you intellectual midget.
Sorry,
I meant,
You goddamn' Chinese.
I mean, the guy who does God's work or somethin'.
You said it! But they've got to print them first and if the treasury dooesn't have them at hand, they've got to borrow the fucking things into existence, from the fucking Fed. We're fucked and fucked.
Who cares if china sells, Belgium will buy.
That's what I have been thinking. Great way to hide the fact that treasuries are being redeemed but I haven't the data to be convinced. I guess that Tyler has postulated it somwhere in the past.
Links?
Didn't we alreasy conclude that Belgium IS China?
THIS will lead to that OR ELSE scenario right?
There is NOTHING,...NOTHING more inflationary than a whiff of deflation.
I think I can smell burning paper.
Then again I am getting a hint of someone having shat themselves.
You're smelling shredders deleting documents.
Perhaps you are half right. It may well be the smell of burning motors which are being over worked.
The Chinese have problems all right. Anyone notice that prices for goods on Alibaba are not so cheap like before? Just like Japan before them China used the cheap product dumping model to gain market share with the idea to screw the customers later on. Well now their customers are in the shitter so where does that leave them now?
Three words for you: In Fla Tion.
!
Sells to who?
its mighty convenient that the primary dealers have trisslions stashed as excess reserves at the Fed. now, will they endanger their balance sheet to soak up any excess UST paper?
Devaluation deflationary? Not internally for the EM country, and no long term effect, anyway. I dont really get the point of the article. Couldnt it just be that deflationary forces are winning, IN SPITE of monetary easing? (Easing that is unwinding globally to some extent during last months, by the way)
"It was wrong because the Fed was an aggressive buyer of Treasuries, but the Fed is not currently in the marketplace."
Oh, but its proxies surely are.
Yep, and the fed is really in the market place, and always has been. The Fed is still the #1 purchaser of US government debt. Ain't that rich?
I don't get it. If EM's reduce their foreign reserves, that money has to end up somewhere and the most likely spot for is the country of origination. If it ends up back here, that will hold off deflation, even if the rest of the world is deflationary. No?
Go back to Paul Krugman speech about alien invasion speech. They're flooding market votes.
Paul Krugman's alien invasion strategy (Real Time with ... - YouTube
Not necessarily. If the Chinese sell all their treasuries, the Chinese will not be supporting the US dollar. More than likely they won't devalue if the intent is not to buy even more Treasuries. Instead their own currency would appreciate and mean that US will have less Chinese imports, which means US consumers face higher prices through imports. This means higher inflation for the US economy, because imports are more expensive and it means Chinese have more purchasing power to buy imports and increase their own consumption. Chinese reducing exports to the US would mean those goods go somewhere else. China has a trade surplus mainly with the US, because of it's dollar peg policies that it strictly followed.
Consider this, when politicians like George W. Bush go to China, and other high level ex-officials/officals do so as well to convince the Chinese to keep buying US-Ts, makes you wonder what Chinese withdrawal fromt he dollar game would really look like. Chinese support strong dollar, while supporting a weak Yuan as a result of a policy preventing market forces judging prices of foreign exchange.
US is a country with very little savings and investment. It's a consumer economy. Chinese are people who save their money. They need to, for retirement, other unexpected expenses and actually have no safety nets that americans have. They have a comparative advantage in trade when ordinary citizens are prudent. US on the other hand, well Americans don't have much savings.
RE "If the Chinese sell all their treasuries, the Chinese will not be supporting the US dollar." that is not true. They "support" the US dollar by printing renmimbi. Remember they have a target and they print to maintain that level so they can export their garbage to th USA.
So if I'm understanding correctly, EMs face deflation if they don't devalue relative to the USD. On the other hand, there's $9T in USD denominated debt in the EMs that would become much harder to service with devalued currencies.
Sounds like deflation/defaults regardless.
Meanwhile, back in a physical world in the 3rd plane of existence...if COMEX just settles in fiat instead of physical gold how does anything ever actually make a move from a fantasy spreadsheet and get back to proper price discovery mechanisms? ...or has this world left that behind now?
Russell Napier looks like Bradley Whitford, who played the baddy in Billy Madison. (Thought I'd just put that out there :))
Reset, Great or not, implies that the same game will be played again - I doubt it. I think it will be more like a Great Reckoning when simple arithmetic hidden by bullshit and manipulation finally hits everyone in the face. Badly enough to create a completely new system to replace the old one.
It's bad enough to print trillions of dollars that are based on finite tangible assets, but doing it with fiat, backing it with untenable debts, manipulating the markets to raise the value of unprofitable organizations to keep the gamblers in charge of pension funds happy, twisting the GDP numbers every which way to pretend it's all working the way they planned, while ignoring the dole queues, the hungry, the poverty, the closed businesses and brewing anger everywhere - that is one huge recipe for disaster in the works.
I imagined that a perfect shitstorm would involve equity price collapse, treasuries sell off and devaluation of currency simultaneously. IE everything on paper losing its value. Is it happening now?
i prefer domino theory
too much liquidity in system ... it will slosh to perceived safe haven(s)
treasuries last man standing (before being carried out on stretcher)
This article seems to be taking place in some alternate dimension where the dollar isnt bleeding out as we are weeks away, it seems, from engaging Syria.
"The Solid Ground has long wondered how US Treasury bulls in the private sector would react if they knew in advance that the second largest owner of Treasuries, the PBOC, was a forced seller of Treasuries."
As a HUGE treasury bull
Yawnnnn
Many many other factors in treasury ecosystem that are/will over ride
Another banker dick sucker making his $9.95 an hour.
Sorry?
You only get paid $5 an hour?
Then ask for your bonus up the ass if it'll make you feel incentivized.
"The first reality it ignores is that money, the stuff that buys things and assets, is created by an expansion of commercial bank, and not central bank, balance sheets. The massively expanded central bank balance sheets have not lifted the growth in broad money in the developed world above tepid levels. Until that happens, developed world monetary policy must be regarded as tight and not easy."
Right historically, but wrong today. When Central Banks became direct buyers of financial products such as equities, bonds, etc including real estate, all of that changed and resulted in expanding broad money growth.
"Very soon China would be given the permission to devalue its exchange rate"
only a matter of time
"forced" selling of treasuries will then be counter productive
Stupid. We stop making Social Security payments sending the chaff into thy wood chippers.
Deflation now,,, then when it blows up, inflation... China sell all US T bills... ramp up phys selling of gold, disconnect from paper price... crush the money changers!
China doesn't need US t-bills now that US can't buy anything.... best to change this for hard assets...
Or more likely, Yuan are being exchanged for Dollars by Chinese citizens.
To buy stuff in America? or to buy America?
http://thesaker.is/oleg-tsarev-on-the-current-situation-in-the-donbass-a...
One day we will tell those much younger than ourselves that once upon a time there was a large economy that ran a surplus on both its current account and on its capital account for more than twenty consecutive years.
The mercantilist approach to economics works for a while, but often ends up in a shooting or currency war. The fixed exchange rate the Chinese use to keep their stuff cheap will go the way of the Japanese (240 to 100 yen/$). Now the Germans, hiding this issue in the Euro, have a good deal. Cheap currency and positive trade balance. Too bad for those Greeks and Spaniards etal.
The article is correct, they really did not think it would last forever, did they?
sschu
The issue to China's woe's could be solved if they just Planned Parenthooded the forced aborted babies. Imagine the profit in all those tiny Chinese baby lungs, kidneys, and brains!
Support the DNC - Abort a viable Black baby
who let you out of your cage?
Anybody who thinks Obamamerica is just kidding or trolling, check this out:
Trailer with offer for a DVD from the producers: http://www.maafa21.com/
Or, view parts 1 thru 14 starting here: https://www.youtube.com/watch?v=Ic4SpdvmdOc
The chinese should wait to sell UST when the USD is low.
Are they stupid or smart?
Neither: they are crooked.
I just keep seeing mushroom clouds...
The game is simply to obviously criminal
in nature for there not to be a violent
reaction somewhere... and sooner or later
that "somewhere" is going to use nukes.
Sooner or later is getting much closer to "sooner".
It would really suck having a 5,000 degree day.
Message to Tyler Durden:
Please have your writers define any abbreviation that they use for the first time in their posts.
Some of us are not familiar with abbreviations that may be very common to them.
Also, please, ask that chart axis and curves be labeled and the chart titled.
Thank you
The South was right!
We are just regrouping. The issue was never slavery. It was/is about being enslaved.....by the FEDS!
My great-great-great-grandfather had to sign an oath of loyalty to the Union for parole from Appomattox. I have a copy. I didn't sign any oath.
This was not a dynamic that would inflate away the world’s record high debt-to-GDP ratio!
What can you tell us about the world's "default-to-GDP ratio"?
Nothing you say?
What's the right value for inflation?
The obvious: people will dump the dollar like the plague.
Chinese are trying to support a strong dollar. US dollar policy is not strong. It's only strong relative to other currencies that reserve holders of US dollars like China. Chinese are trying to support a dollar and prevent a revaluation hike that will boost Chinese RMB value. Instability would be expected as the Chinese RMB has been devalued for many years and a swing on the upside would cause turmoil, but in the long run, they will have better conditions in my opinion. Chinese print money so they can sell at a discount to the US. Even with revaluation, Chinese economy still has traits of being comparatively advantageous to that of the US. That is the basics of savings and investment. Chinese realized pointed at the right direction by allowing the RMB to be used internationally, but recently with a global recession and easy dollar (not tight dollar) policies forced China to print up even more dollars to support a strong dollar. In the world of foreign exchange, tight, or easy is really all relative to each currency.
Jeez - is Russell finally going to call something right???
The plan is to collapse the international financial system. Golitsyn had it right. They will bring us to our knees without firing a single shot.
So do I keep my, some, savings in reminbi? Would a decoupling of rmb-usd help my rmb savings? Or am I going to lose?
I think the point is missed.
It not that China is letting UST bills mature. It is that they are not rolling it into new UST debt!
Man, that's a tough one. The Chinese government is having a race to hyperinflate the renmimbi faster than the Fed is doing with the dollar. Look at inflation in China, that will tell you which currency is being destroyed fastest.
Wouldn't it be funny if China was forced to start a stampede out of Treasuries via its own selling in defence of its stocks?
Different pockets. The chinese government can and does print all it wants to. They don'thave to sell anything to get money to prop up their broken stock market. They just print money from nothing. Just like the Fed here.
Either foreign governments buy the garbage US Government securities OR the US Federal Reserve buys the garbage US Government securities. It makes not a bit of difference. Who cares. The effect is the same. Anyone notice this article
http://www.nytimes.com/2014/02/22/business/economy/no-surprise-fed-was-b...
The only people who think this matters are idiots and our elected representatives.
Thanks! ZH's comment section is better than content!
Oh yes Russell Napier, the guy who predicted the S&P would crash to 650 in 2012...
Zerohedge rules more than San Dimas High School football.