Goldman Charts the Currency Wars

[verdo]

Re: Chimerica---going strong?

I think that is a vital question about China: do they still need a trade surplus with the USA?

If they do not, they can threaten to sell T-bonds and crash the dollar. That would be some leverage . . .
an American "Suez moment".

EJ has made some argument that China needs it's USA trade surplus less than they used to.

I don't think they could dump T-bills on a dime like that. For one thing, I believe Obama has the power to freeze the treasury market if need be. They will continue to pay their debts owed, but they have ways to prevent that kind of mass selling by China. Plus, a sell off of that magnitude would only make the Yuan shoot to the moon (I would imagine). So if they pull that card, it will come with one hell of a cost, financially and politically

[shiny!]

Re: tax changes

Do you think the shift will be to property taxes or sales tax/VAT ?

You could change quite a lot by taking out the absurd loop holes.

That would be the death of politicians. It won't happen until we get term limits. Thus it won't ever happen.

[llanlad2]

Re: tax changes

Do you think the shift will be to property taxes or sales tax/VAT ?

You could change quite a lot by taking out the absurd loop holes.

Well here in the UK VAT is already 20% so that only leaves property. There has been lots of articles mentioning increasing property rates for higher valued properties known as "the mansion tax" and it's definitely gained traction. Another thing, if you own a second home here (eg holiday home) you get a rebate for it being empty, this will definitely be changed and there is some suggestion that you will end up paying more. The UK does have a genuine shortage of houses especially in London.

An example of the council tax bandings (the only property tax) is below. Bare in mind that a 27sq m flat in Westminster costs £200 000! The cheapest house will set you back £700000 so basically everyone in Westminster pays £755 a year property taxes.

My mother in law lives in who works part time in a shop and is a pensioner owns a £200 000 house in Wales. = Her council tax is £1300 a year ie double Westminster's. Iniquitous doesn't begin to explain it.

A	251.83	202.00	453.83
B	293.80	235.67	529.47
C	335.77	269.33	605.10
D	377.74	303.00	680.74
E	461.68	370.33	832.01
F	545.62	437.67	983.29
G	629.57	505.00	1,134.57
H	755.48	606.00	1,361.48

The bands and their values are as follows:

A	Up to £40,000
B	£40,001 to £52,000
C	£52,001 to £68,000
D	£68,001 to £88,000
E	£88,001 to £120,000
F	£120,001 to £160,000
G	£160,001 to £320,000
H	More than £320,000

[GRG55]

Re: Chimerica---going strong?

I think that is a vital question about China: do they still need a trade surplus with the USA?

If they do not, they can threaten to sell T-bonds and crash the dollar. That would be some leverage . . .
an American "Suez moment".

EJ has made some argument that China needs it's USA trade surplus less than they used to.

I am going to ask you the same question I have asked everybody on this site who has made that same statement over and over and over again with time...Just who is it that you think is going to buy those Treasuries that the Chinese dump?

So far nobody has given us a cogent answer to that question. And until I hear one I am certain the Chinese cannot sell that large volume of Treasury bonds. Period.

[bart]

Re: Chimerica---going strong?

The Fed can buy those Treasuries, probably at a discount.

By the way, Fed (Agency) custodials have continued to drop after the revaluation last November.
http://www.nowandfutures.com/images/...s_agencies.png

[GRG55]

Re: Chimerica---going strong?

The Fed can buy those Treasuries, probably at a discount.

By the way, Fed (Agency) custodials have continued to drop after the revaluation last November.
http://www.nowandfutures.com/images/...s_agencies.png

The Fed can. But the Fed doesn't need to.
The Chinese are stuck unless they can find a willing buyer for that quantity. I don't see why the Fed would ever be motivated to accommodate them.

[bart]

Re: Chimerica---going strong?

The Fed can. But the Fed doesn't need to.
The Chinese are stuck unless they can find a willing buyer for that quantity. I don't see why the Fed would ever be motivated to accommodate them.

I suggest that the Fed has a huge motivation to buy them, that being to avoid having available and unsold Treasuries on the market. The hit to the confidence level of both the dollar and Treasuries themselves if they didn't would be gigantic.

[charliebrown]

Re: Chimerica---going strong?

do they have to dump them? What if they just didn't buy any more and let the portfolio mature away. Ergo, there treasury account would now be stuffed with electronic FRNs instead of electronic treasuries. Would that be effectively the same as a dump. Someone needs to buy the new treasuries the the treasury needs to sell. I guess this would be a slow burn rather than a big thud.

[GRG55]

Re: Chimerica---going strong?

do they have to dump them? What if they just didn't buy any more and let the portfolio mature away. Ergo, there treasury account would now be stuffed with electronic FRNs instead of electronic treasuries. Would that be effectively the same as a dump. Someone needs to buy the new treasuries the the treasury needs to sell. I guess this would be a slow burn rather than a big thud.

That's the more likely scenario. The Fed becomes the last remaining buyer of new Treasury issues.

[thriftyandboringinohio]

Re: Chimerica---going strong?

.. The Fed becomes the last remaining buyer of new Treasury issues.

Wouldn't that be the same as just printing the money to cover the annual budget deficit?

[GRG55]

Re: Chimerica---going strong?

Wouldn't that be the same as just printing the money to cover the annual budget deficit?

That's about it...the Fed is lender of last resort...

[lakedaemonian]

Re: Chimerica---going strong?

I am going to ask you the same question I have asked everybody on this site who has made that same statement over and over and over again with time...Just who is it that you think is going to buy those Treasuries that the Chinese dump?

So far nobody has given us a cogent answer to that question. And until I hear one I am certain the Chinese cannot sell that large volume of Treasury bonds. Period.

What's the chances of a deal between China and GCC?

China sells GCC US T-Bills over a decade+ in exchange for a shift in superpower sponsorship from US to US/China to China, as well as maybe some help in keeping Iran/Shia off it's back.

How far would the US go to prop up Saudi leadership?

Would it be willing to go as far as the Chinese supported bloodbath in Sri Lanka with the destruction of the Tamil Tigers?

Could the House of Saud liquidate Saudi Shia by the hundreds of thousands if it felt compelled to do so for regime survival without it leaking and without high risk of losing US political support?

Would GCC need to buy any/much Chinese owned T Bills to get China onside....or would it's natural resources alone be enough to guarantee it?

[don]

Re: Chimerica---going strong?

At some point, will T-Bills to seen by the Chinese as the price of doing business with the US, eventually (and quietly) written off as such.

[Polish_Silver]

No buyers for UST---Exactly!

I am going to ask you the same question I have asked everybody on this site who has made that same statement over and over and over again with time...Just who is it that you think is going to buy those Treasuries that the Chinese dump?

So far nobody has given us a cogent answer to that question. And until I hear one I am certain the Chinese cannot sell that large volume of Treasury bonds. Period.

That's the whole point. No one will buy them at anywhere near their "book price", which will mean the UST and USD value will crash. If there were many ready buyers, the Chinese decision would have no effect.
China would not be trying to make a profit on the T-bonds. They are economic and political leverage over the US. The vulnerability of the US is shown by the fact that we need geopolitical cooperation to keep the debt machine rolling. I am just wondering when someone will throw a wrench into those cogs.

It's just like Britain during the Suez crisis--Eisenhower threatened to dump the British debt. Since no one could buy it, the Sterling would have gone into the toilet, causing great depression II in Britain. Main difference: GBP was no longer the world reserve currency. But the days of $USD are numbered.

[Polish_Silver]

Re: Chimerica---going strong?

I don't think they could dump T-bills on a dime like that. For one thing, I believe Obama has the power to freeze the treasury market if need be. They will continue to pay their debts owed, but they have ways to prevent that kind of mass selling by China. Plus, a sell off of that magnitude would only make the Yuan shoot to the moon (I would imagine). So if they pull that card, it will come with one hell of a cost, financially and politically

I agree there would be some cost to China. So they would only do it if there was something important to be gained.
As for freezing the T-market, I think that would create a run on treasuries. The dollar is as strong as it is because of our "deep and liquid" bond market. If you freeze it, you destroy liquidity and confidence. It would be an emporers new clothes moment. The fed could buy in any amount, but Peter Bernholz has stated it is high volumes of CB purchases that lead to high/hyper inflation.