Trade War with China

Tam said:

Holding Treasuries is also a reserve wealth. Destroying Treasuries is like as good as burning wealth.

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It is indeed, but one man's wealth is another man's debt. If clearing debt is the primary concern, then the ones holding the debt are going to have to take one for the team.

Tam said:

This idea will lead to rampant inflation and devalued currency.

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It has the potential to. I think the closest analogue to what I'm proposing is the controlled burning done in forestry management. For a long time the thought of intentionally setting fires to fight fires was considered crazy - now it's a standard practice. I think the same idea needs to spread to banking.

Chinese article predicting US moves.
美国的算盘是这样的：

第一步，先把台湾牌亮出来，逼中国对美国妥协，放弃制造2025。

第二步，如果中国不听话，就继续挑动台独搞事，为战争制造机会。

第三步，只要中国大陆发动统一战争，美国就会以此为由，煽动整个西方对中国进行制裁。

第四步，若制裁生效，中国经济必然举步维艰。而美国必然会提出，只要中国愿意在贸易战方面妥协，美国就会放开制裁。

第五步，如果中国不妥协，美国就煽动更广泛的制裁。届时，中国必然会因为进出口贸易骤降而陷入经济危机，不论是改革还是产业升级，都会陷入进退两难的僵局。

The American abacus is like this:
The first step is to light up the Taiwanese card and force China to compromise with the United States and give up manufacturing 2025.
In the second step, if China does not obey, it will continue to provoke Taiwan independence to create things and create opportunities for war.
In the third step, as long as the Chinese mainland launches a united war, the United States will use this as a reason to incite the entire West to impose sanctions on China.
The fourth step, if the sanctions take effect, the Chinese economy will inevitably struggle. The United States will inevitably propose that the United States will release sanctions as long as China is willing to compromise on trade wars.
In the fifth step, if China does not compromise, the United States will incite broader sanctions. By then, China will inevitably fall into an economic crisis because of the sudden drop in import and export trade. Whether it is reform or industrial upgrading, it will fall into a deadlock.

ZeEa5KPul said:

It is indeed, but one man's wealth is another man's debt. If clearing debt is the primary concern, then the ones holding the debt are going to have to take one for the team.

It has the potential to. I think the closest analogue to what I'm proposing is the controlled burning done in forestry management. For a long time the thought of intentionally setting fires to fight fires was considered crazy - now it's a standard practice. I think the same idea needs to spread to banking.

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I view it from another analogy. Runaway money supply is the out of control forest fire, and Treasuries is the water to douse it. If you use the water to douse the fire, both are destroyed in the process, eliminating the oversupply of both. When the government sells Treasuries, the public gives the money back, reducing money supply. When the government buys Treasuries from the public, the government gives money to the public, increasing money supply.

If you threw away your reserve water supply, and suddenly there is an out of control wildfire going on, with no water to put it out, guess what will happen.

If Treasuries mature, money has to be paid back to the holder. Government has to pay that with its surplus, which is why you increase taxes, or you print money to pay it back. The printed money and the bond are all decreated in the process. However, whats going to douse the excess liquidity? This is why paying bonds with a government surplus, created by increasing taxes and reducing government expenses, is more desirable, since you take the existing money supply and use it to cancel out both destroy both bond and cash. Taxation is also a way to remove excess liquidity from the market. But of course, you cannot destroy money supply to the point of economic contraction. All steps need to be measured precisely.

ZeEa5KPul said:

I've thought about the problem raised by breaking "the full faith and credit" and in the case of an economy like the United States at present and China in the future, I don't think it's as serious an issue as it may seem at first blush. Zimbabwe and Argentina certainly can't get away with this, but America? Suppose that a hypothetical investor sees America just blithely proclaim one day that it won't make any further payments on some set of bonds, what does he do after his initial panic? There's by and large nowhere else to go. The American bond market is without peer, so he'll just tell himself that this was a one-time thing or find some other rationalization.

The argument about loss of confidence assumes that there is some alternative investors can turn to if they lose their confidence. There is no alternative.

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Um, no. The world is vastly oversupplied with financial products, with government Bonds only one of many many options.

Indeed, government bonds tend to attract risk adverse investors who are willing to tolerate lower yields for higher security.

As such, the capital flight that might result from any fall in confidence of the issuing government’s credibility could be exponentially worse than for the sector in general.

What more, the big problem with modern money markets is that any small shock could very quickly snowball into a full blown domino effect. Whereby panicked flight by some investors causes the value of government bonds and the entire currency to fall, which causes more investors to dump their holdings and before you know it, they whole system is crashing down around your ears.

It would not be an automatic, or even most likely outcome, but given the catastrophic possible harm, on balance, it is not something any sane economist would dream of risking. Especially since the currency system works fine enough as is.

Besides, the problem of massive US government debt and overspending is not something creative accounting could solve. That would just be addressing the symptoms without dealing with the underlying cause.

Even if someone invented some complex new financial product/arrangement that would allow the Fed to effectively shove their US treasury bonds down the garbage disposal without spooking the markets, you will just end up shifting the problem somewhere else since you are doing noting to address the real cause.

Chinese export is still doing well in July
Jamie Dimon Warns of 5% Treasury Yields

Cormac Mullen, Joanna Ossinger 13 hours ago

Not content with a investors should brace for U.S. yields of 4 percent,Jamie Dimon went one further at the weekend, suggesting 5 percent was a distinct possibility.

The JPMorgan Chase & Co. chief executive officer said Saturday people should be prepared to deal with the benchmark 10-year bond yield at 5 percent or higher.

“I think rates should be 4 percent today,” Dimon Saturday at the Aspen Institute’s 25th Annual Summer Celebration Gala. “You better be prepared to deal with rates 5 percent or higher - it’s a higher probability than most people think.”

The 3 percent level is still providing stiff resistance for the 10-year Treasury yield this year. It briefly rose through the mark last week before falling back for the fourth time this year. That’s despite a U.S. jobless rate below 4 percent, economic growth above 4 percent, and a rare surge in late-cycle government borrowing.

More from Bloomberg.com:

The current bull market could “actually go for 2 or 3 more years” because the economy is still doing quite well and markets usually turn right before the economy, Dimon said.

Cyber attacks are “probably the biggest risk” to the U.S. today, though banks are quite well protected, Dimon said.

“We’re very, very protected,” he said.

The JPMorgan CEO reiterated comments made last year on Bitcoin, calling cryptocurrencies a “scam” and saying he had “no interest” in the world’s largest digital currency. He suggested governments may move to shut down the currencies, because of an inability to control them.

Dimon had urged investors to prepare for higher rates in an , given the possibility growth and inflation could prove fast enough to prompt the Federal Reserve to raise interest rates more than anticipated, and the increase in financing by the U.S. Treasury.

China's July exports growth still seen holding up despite U.S. tariffs: Reuters poll
Reuters 7 hours ago

BEIJING (Reuters) - China's exports are expected to have maintained solid growth in July despite new tariffs on billions of dollars of shipments to the United States, though the outlook has darkened as both sides raised the stakes in a trade conflict that has rattled financial markets.

China proposed retaliatory tariffs on $60 billion worth of U.S. goods ranging from liquefied natural gas (LNG) to some aircraft on Friday, following a proposal by the administration of U.S. President Donald Trump for a higher 25 percent tariff on $200 billion worth of Chinese imports.

The increasingly heated rhetoric between Beijing and Washington has rattled global markets worried about the impact on world trade and growth, with few signs either side is willing to make significant concessions.

Economists say that tariffs on $34 billion of China's exports to the United States, which went into effect on July 6, so far are not having a significant impact on overall Chinese exports.

July exports are predicted to have risen 10 percent year-on-year, according to median estimates from 37 economists, compared to 11.2 percent growth in June. While July's forecast does not point to any sharp slowdown, economists do see headwinds mounting for China's massive export sector.

"In addition to the tariffs impact, there might be some impact from front-loading of orders in previous months," said Betty Wang, Senior China Economist at ANZ in Hong Kong.

"There will be some gradual impacts that could be seen over the following months, as this is the first month the tariffs were implemented."

ANZ forecasts China's exports rose 6.4 percent in July.

tidalwave said:

If no buyer followed to pick up China load dump, (japan already said it maxed out already in US treasuries)US government will unable to pay its bill, it will default and its credit rating will goto junk status that will prompt more countries to dump. Like a stock market sell off.

Nothing sophisticated here, just common sense

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Limitations On Surplus Funds.

1. In General. The aggregate amount of the surplus funds of the Federal reserve banks may not exceed $10,000,000,000.
2. Transfer To The General Fund. Any amounts of the surplus funds of the Federal reserve banks that exceed, or would exceed, the limitation under subparagraph (A) shall be transferred to the Board of Governors of the Federal Reserve System for transfer to the Secretary of the Treasury for deposit in the general fund of the Treasury.

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Translation : All profit made by the FED has to be transferred to the treasury as income.

So the FED can keep unlimited amount of treasury IF the inflation is low .

But if the inflation is high then the US can collect money simply by taxation. : )

Anlsvrthng said:

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Translation : All profit made by the FED has to be transferred to the treasury as income.

So the FED can keep unlimited amount of treasury IF the inflation is low .

But if the inflation is high then the US can collect money simply by taxation. : )

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Oh yeah, care to give a past event that demonstrated what you preached?

tidalwave said:

If no buyer followed to pick up China load dump, (japan already said it maxed out already in US treasuries)US government will unable to pay its bill, it will default and its credit rating will goto junk status that will prompt more countries to dump. Like a stock market sell off.

Nothing sophisticated here, just common sense

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Can you name a country that failed to meet its obligations in his own (fiat) currency ?

I mean, I know a lot of country that failed its foreign currency obligations, like Mexico , Russia, Korea, Argentina , Brazil, Ukraine, Poland,Bolivia, Chile, USA and so on, but all of them had foreign currency debt, or gold based debt.

Any example , when a sovereign country defaulted in his own fiat currency ?

tidalwave said:

Oh yeah, care to give a past event that demonstrated what you preached?

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(b) Transfer For Fiscal Year 2000.

1. In General. The Federal reserve banks shall transfer from the surplus funds of such banks to the Board of Governors of the Federal Reserve System for transfer to the Secretary of the Treasury for deposit in the general fund of the Treasury, a total amount of $3,752,000,000 in fiscal year 2000.
2. Allocated By Fed. Of the total amount required to be paid by the Federal reserve banks under paragraph (1) for fiscal year 2000, the Board shall determine the amount each such bank shall pay in such fiscal year.
3. Replenishment Of Surplus Fund Prohibited. During fiscal year 2000, no Federal reserve bank may replenish such bank's surplus fund by the amount of any transfer by such bank under paragraph (1).

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Check the page 4 , at the "Earnings remittances to the Treasury" line for 2016/17 data at the