Can ChiComm China weaponize its UST holdings and trade relations?

A lot has changed over the past decade

Good morning Chris. I was thinking that maybe Russia’s plan never was to go in and dominate Ukraine in a few days. Maybe I am wrong. A million things run through my head about what is happening.

I was organizing my saved articles over the years and came across this one. Do you think China could weaponize the US treasuries they hold ? You are the expert on that. What if they stop trading with us? I think we all know how much is made in China.

https://www.marketwatch.com/story/china-may-sell-treasurys-but-that-doesnt-mean-its-weaponizing-its-more-than-1-trillion-hoard-of-us-debt-says-deutsche-bank-2020-06-02

Maria

Here was my response:

Billions of dollars of UST holdings: China’s influence over the UST market has been falling, which suits the US and China just fine

China hasn’t really added to their Treasury holdings much over the past several years, and if CCP sold, the Fed could easily buy them all up via QE without major disruption in the bond markets.

Debt is rising, but the Fed has been buying up a larger percentage of the debt outstanding.

As we can see, China no longer holds a huge percentage of USTs vs. total outstanding anymore. That was taken care of when the Fed stepped in via quantitative easing. This is just an observation; QE has benefited the USG in another way as it helps to isolate the United States from foreign domination in the US Treasury markets. In some regards I can consider QE a national security issue and imperative. Currently, the United States is much less exposed to adverse foreign intervention in the bond markets than before QE, including Russia and China.

China could lose out substantially if it decided to go this route right now and dump its UST holdings. While the FED is tightening, the PBOC is stimulating. This would not serve China as it will soon be accelerating its military spending, and dumping USTs now could possibly roil their bond markets.

With regards to international trade, China currently has much more to lose from a unilateral severance in trade relations with the United States than the U.S does. China is attempting to build up their military and need the USDs to flow into their coffers. Alex Jones is totally wrong in this regard. China cannot convert its yuan into a global reserve currency. Take a look at Russia under this regime of sanctions; Russia is getting crushed here and has overestimated its strength. The CCP is taking note and proceeding with caution.

I am in agreement with you here; there are many outcomes to be considered. I’m trying to figure out if Russia could benefit from this current outcome. All I know is is that It embarrasses them. Russia is a very insecure country as is, because it has always played second fiddle to the West. Perhaps this insecurity is being played upon by the US Globalists to lure the Russians into harshly retaliating. The longer the Ukraine conflagration rolls on, the more harshly Russia will eventually have to respond.

Please note; I see all the above analysis as proof that Russia/China will eventually be forced to resort to some sort of catastrophic means to subdue the US. The USD-based system is devilishly stable.

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16 thoughts on “Can ChiComm China weaponize its UST holdings and trade relations?

  1. Germany unveils fuel subsidies, discounted public transport

    https://www.independent.co.uk/news/world/europe/berlin-ap-germany-green-party-europe-b2043148.html

    Germany also wants to replace gas and oil furnaces with electric heat pumps for housing. Any government subsidy, whether for energy or for spending in general, has the effect of raising prices for everything. Restrictions placed by governments in the building codes for housing, regardless of the intent, has the effect of restricting supply and raising prices for everyone.

    In a linear environment, these German government programs and initiatives have the effect of raising price inflation, rent, and house prices.

    Governments can never leave anything alone and are always intervening. The people who lose out are those who are dependent on a wage. The only ones who benefit are those who own the income generating assets.

  2. I come across this interesting article regarding the institutional single family rental home ownership and its auspicious prospects.

    https://www.perenews.com/when-will-single-family-rentals-reach-institutional-scale/

    The institutions should own at least 40% of all sfr properties by 2030… We will own nothing and be happy. The Rothschilds will own your rental house and the rent will be brutally expensive.

    I look at the price performance of REITS like INVH and TCN and they don’t seem to mind higher mortgage rates all that much.

  3. Benzinga
    The Way People Invest In Real Estate Has Changed – What This New Strategy Means For Investors

    https://s.yimg.com/os/fontserver/YahooSans/Bold.woff2

    These large institutions are going to price single-family housing the same way they price large commercial properties and skyscrapers and the cap rates will go that route. Which means they are going lower.

    The large institutional money can gain access to billions of dollars of funding at advantageous pricing. You and I have no shot of obtaining this type of money. Perhaps by 2030, private equity and institutional money will own a large percentage of the housing market. We will rent back from them and be happy.

    While rental house purchases may seem rich when initiated, the cap rates will rise as the rents increase.

    I think a lot of real estate economists will be mystified as house prices continue to rise with a regime of higher mortgage rates.

  4. Imagine this scenario; home prices continue to move higher, interest rates continue to move up and the yield on 30-year conforming mortgages closes in on 5 and 6%, and home sales virtually dry up. It’s going to happen and it’s going to be brutal for many people. It’ll be brutal for homeowners as well. Brutal brutal brutal.

    Rents will move up and become punishing. The world will turn out to be just like Soylent Green.

    Recall that Soylent Green took place in 2022. That’s this year. The movie was filmed 50 years prior and released in 1973.

    People can no longer afford housing or sleeping in the stairwells and in cardboard boxes. They also started to eat Soylent Green.

    It will be punishing.

    1. That nightmare scenario sounds plausible.

      Do you think the stock market will continue to go up as well? The stock market is much more democratic, with minimal barriers to entry. I can see the SoS deciding that it’s too much of a free lunch to have the stock market consistently go up over 10% a year. The stock market also doesn’t require annual taxes like property does.

      1. Good point here. We ran numbers some time ago that showed the top 10% of balance sheet wealth now owned 89% of the stock market. I don’t recall the numbers from 2008, but the stock market was different in the 80s, 90s, 2000s. It was less concentrated.

        People do pay a lot in cap gains taxes with equities. It will be interesting to see how this progresses, but if the markets have done this well with war and inflation, what is going to stop it?

  5. BBBY – I sold off my remaining core at 24.50 this morning in the free market after the bullish news on GME. I just bought back much of it at 22.45.

    The story on GameStop was a bullish sign to sell trading positions on bbby.

    I will continue to accumulate shares of bbby at a slightly higher level than before. Anything near 20 will be a good pickup level. I suspect that short-term support will be at about 19 to 19.50.

    We always need to create opportunities for ourselves. The world may be falling apart and will eventually lead to a nuclear annihilation in the west, but there’s nothing we can do about that. Keep making hay while the Sun is shining.

    1. I doubled the core of BBBY at 22.65. I added here as GME responded well to the upsized 13G filer accumulation. I suspect BBBY will eventually have a similar fate. GME and AMC doing well today.

      I will hold this and add on weakness. down to floor of 19.50

      I bring this up as people have asked me about my trading in BBBY.

    1. In my area the price appreciation is about 30% compared to last summer. What could be bought for $1M last year is now selling for $1.3 – 1.4M. I am blaming it on all the people fleeing CA. It is impossible to predict how much longer this will continue and how much more these people will be able to bid for housing.
      I am planning to sell my house, downsize and cash out, but it is getting near impossible to buy anything, and it is getting very risky to sell without first buying another place to live in.

      1. You bring up some excellent observations here. High prices are what kills the market, not the other way around. If you try to sell your property and cash out think of all the costs you will incur. Some married folk would even have capital gains considerations since the cap is at 500,000. Single folk are only shielded from the first 250, 000. It is very expensive to sell and then buy something, even if you’re downsizing. This is why people are just elected to stay put. The higher real estate moves versus incomes the less likely people are to sell.

        To make matters worse I take a look at what the 10-year Treasury yield has been doing, and this could be the big wild card that could cause a cascade of problems. If this continues we could see the 10-year yield approach The five-year high watermark.

        If the trend doesn’t stop, the yield on the 10-year is going to have a big impact on asset prices and the cost of living. I suspect inflation is going to continue elevated as yields rise and we could see real estate continue to move higher like the decade of 1975 through 1985. When we throw War into the mix, high prices could really surprise on the upside.

        Hi real estate prices are only a benefit to those who own more than one property. The property taxes around here are beginning to soar.

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