Tuesday, August 07, 2007

Pawned

It's not about Marin housing per se, but still...if it's true...

China threatens the US with the economic version of the "nuclear option":
The Chinese government has begun a concerted campaign of economic threats against the United States, hinting that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation.

Described as China's "nuclear option" in the state media, such action could trigger a dollar crash at a time when the US currency is already breaking down through historic support levels.

It would also cause a spike in US bond yields, hammering the US housing market and perhaps tipping the economy into recession. It is estimated that China holds over $900bn in a mix of US bonds.
So, will someone please remind me again of just how badly China really needs us?

13 Comments:

Blogger Jamie said...

OK, I'll bite. Remember that little trade imbalance we have? We are their largest export market ( check that here http://uschina.org/info/analysis/2007/june-trade-performance.html ). We need each other.

Aug 8, 2007, 9:02:00 AM  
Blogger GetMeTheHellOutOfCA said...

The usa is really a 2nd or 3rd world country posing as a developed nation primarily by borrowing heaviliy from countries with real economies like China and Japan. Best thing that could happen for the US long term is if the Chinese dumped dollars. This would force america to live within it's means. On a second note, American naivity and greed have caused the ascension of China and the decline of the USA. American politicians have this naive view that the world will be a better place if we just convert them to capitalist democracies. On the other hand, all american consumers care about is buying cheap things regardless of quality or consequence. These factors have resulted in a weakening America with a hollowed out economy supported by burger flipping, real estate flipping and massive infusions of foreign capital funsing fderal debt.

Aug 8, 2007, 9:54:00 AM  
Blogger fortunateone said...

The usa is really a 2nd or 3rd world country posing as a developed nation primarily by borrowing heaviliy from countries with real economies like China and Japan.

How do you figure? The GDP of the USA is more than FOUR TIMES that of China or Japan.

Aug 8, 2007, 1:43:00 PM  
Blogger SEE YOU said...

I thought China was our friend...? Most favorite trading partner... Does this mean I can't get that liver transplant I ordered? Don't worry they get the organs from healthy political prisoners. They also guarantee a match!
http://en.zoukiishoku.com/

They even admit on the website that they get the organs from prisioner!!!

Aug 8, 2007, 8:25:00 PM  
Blogger Circus Act said...

Yes, China and the US need each other, but who holds the greater leverage in this relationship? Clearly China. It will much, much easier for China to change fiscal policy than for the US to change trade policy. China wouldn't even have to sell treasuries to start turing the screws, they could simply stop buying more. The federal gov's increasing budget deficit requires increasing more investment in our debt. If China stops buying, someone else will have to pick up the slack and interest rates will likely have to increase to make the debt more attractive to these new investors.

If trade is the stick that we wield against China, it's far more bark than bite. Impose tariffs on Chinese-produced goods? How loud would the computer industry start yelling when Apple branded goods or Cisco branded goods made in China were suddenly slapped with tariffs. The US toy manufacturers association acknowledges that 80% of all toys purchased in the US is made in China. There would be a lot of angry parents if Dora and Thomas the Train were suddenly 40% more expensive. Add textiles, food, heavy equipment, auto parts, and the list goes on and on and on, it's very clear that there would be no cohesive way to use trade policy as an effective weapon to blunt China's growing financial clout. In a very real way, they own us.

The fix to this problem is a simple one - eliminate the federal budget deficit and start paying down the debt.

Aug 9, 2007, 8:44:00 AM  
Blogger marinite2 said...

There would be a lot of angry parents if Dora and Thomas the Train were suddenly 40% more expensive.

Rising prices are a good thing. The more unaffordable the better. That's the lesson of the housing bubble and the talk of your typical housing bull.

But on a more serious note. Looks like some in the UK are calling their subprime mess way worse than ours (it's amusing to me only because housing bulls on this blog about a year ago were often seen using the UK housing situation to justify their wishful thinking):

http://tinyurl.com/2hctkm

Aug 9, 2007, 10:01:00 AM  
Blogger marinite2 said...

Oooh. Just saw this. This cake is so baked...

Wall Street fell sharply again Thursday after a French bank said it was freezing three funds that invested in U.S. subprime mortgages

A move by the European Central Bank to provide more cash to money markets intensified Wall Street's angst.

The Federal Reserve Bank of New York added $24 billion in temporary reserves to the U.S. banking system.

The ECB's injection of money into the system is an unprecedented move, said Joseph V. Battipaglia, chief investment officer at Ryan Beck & Co., adding that it offers evidence that the problems in subprime lending are, in fact, spilling into the general economy.

"This is a mini-panic," he said. "All the things that had been denied up until this point are unraveling. On top of this, retail sales were mediocre, which shows that indeed, the housing collapse is affecting the consumer."


Source: http://tinyurl.com/2qlejk

Aug 9, 2007, 10:13:00 AM  
Blogger marinite2 said...

“‘This downturn is very different. It is the first one in my 41 years in the business that’s occurred when you have an up stock market, low unemployment, decent job growth and a very decent economy,’ said Robert Toll.”

In other words, "it's different this time" but not different in the ways housing bulls like to wish.

Source: http://tinyurl.com/398wlt

This has been so obvious for so long. I cannot believe these buffoons are only now figuring it out. No, they talked up the market (and gave false confidence to the bulls) while they used the time to dump their stocks.

Aug 9, 2007, 10:21:00 AM  
Blogger marinite2 said...

“Nothing illustrates the swift collapse of the home-loan market better than Luminent Mortgage Capital of San Francisco, which is teetering on collapse the week after it assured investors it was fine.”

Shisters in SF.

http://tinyurl.com/2sydag

Aug 9, 2007, 10:30:00 AM  
Blogger Holland said...

After hour news according to WSJ:

Countrywide Financial Corp. faces "unprecedented disruptions" in debt and mortgage-finance markets that could hurt earnings and the company's financial condition, the Calabasas, Calif., lender said in a regulatory filing.

Aug 9, 2007, 5:20:00 PM  
Blogger rdm said...

Well I for one felt reassured this morning while driving to work I heard "W" at a press conference say he felt the housing market was headed for a "soft landing", mission accomplished.

Aug 9, 2007, 6:49:00 PM  
Blogger Lisa said...

Is anyone else worried about a bailout? I'm starting to worry again. The mortgage market is all but frozen because the secondary market has vanished. Dow down almost 400. Hedge funds going belly up every day.

Everyone on this blog saw this coming. But will the govt stand back and let the market take its course, or will we see some bailout of the FB's and their irresponsible lenders?

I would love to own a home again, but I simply REFUSE to do it at these prices. I couldn't sleep at night with all that debt.

Aug 9, 2007, 10:20:00 PM  
Blogger Marinite said...

Lisa,

A bail out of the banking system, lenders, hedge funds, etc. is a foregone conclusion. Not all of them will get bailed out; just the ones that matter. As distressing as that is, what I would find most distasteful however is if property buyers ("FBs") got bailed out.

Aug 9, 2007, 11:07:00 PM  

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