Picking a fight with the country holding nearly a trillion dollars in U.S. debt is Trump's stupidest fallback
...putting aside that leaving 10% across-the-board tariffs on all countries in place, not to mention the 25% retaliatory tariffs on Canada and Mexico, would be market shattering in any normal political or economic environment, you have to ask why the White House's supposed Tariff-eve jitters about the bond market didn't give more heed to the fact that the country they were picking the largest most prominent fight with holds some $750 billion dollars in U.S. securities.
If China decided to retaliate against those absurdly high tariffs Trump announced yesterday and decided to offload U.S. securities such as Treasuries and agency bonds, the faith and credit of America could be damaged irreparably for decades.
China and Hong Kong collectively hold about $1 trillion of these securities, putting it in a unique position to damage America''s financial liquidity, effectively ending the deficit spending game that allows Congress to make extravagant budget choices like $4.7 trillion dollar tax breaks for wealthy investors to chase what remains of a neutered money market.
Yale economist Stephen Roach warned about this late last year:
Beijing's "ultimate financial weapon" may be its massive accumulation of US Treasury debt. According to Roach, mainland China and Hong Kong collectively hold $1 trillion of these securities, putting it in a unique position to damage Washington's financial health.
"China could go on a buyer's strike during upcoming Treasury auctions, or, even more extreme, it could start to unload its outsize position as America's second-largest foreign creditor," he said. "Either option would be devastating for America's deficit-prone economy and would unleash havoc in the US bond market, with wrenching collateral damage in world financial markets."
Outside of the shady pump and dump surrounding the Trump announcements yesterday that predictably sent the market soaring, and just as predictably enabled profit-taking the morning after, there was a sharp drop in that U.S. bond market in which China has such a controlling interest.
Unlike almost every economic crisis this country has experienced, yesterday saw a sharp drop in the number of investors willing to put their money in America, a drop off of countries willing invest in the bond market whose strength Trump had been pointing to selling his tariff plan.
Boston Globe:
At the end of last week, the up and down tariffs and Trump’s confusing policies were seen as a drag on the economy. While stocks fell, bonds followed the common pattern and gained. The yield on the 10-year fell from about 4.20 percent to just under 4 percent.
But this week, amid growing fear that the tariff plan won’t be quickly negotiated away, bonds prices tanked and the yield on the 10-year rose above 4.50 percent.
China has already been making noise about investing their money elsewhere. Last year speculation around China's potential "de-dollarization" strategy was intensifying. China's holdings of US Treasury bonds declined last March from over $1.2 trillion in 2017 to $767 billion.
Moreover, the reason countries invest in America is a combination of stability and value; enforcement of laws and responsible economic policy that's clear and stable so that businesses can have a good sense of the efficacy of long term investments.
Donald Trump's autocratic treatment of the nation's economic interests as his own personal piggybank where the only clear requisite is pleasing him is threatening to transform our nation into yet another liquefied asset of his that he's running into the ground.
= new reply since forum marked as read
..wonder if Elon left the key under the mat?
