Wen Warning About US Spending
76Sobering Implications of China's Economic Warnings.
Update: Tim Geithner is in China this weak begging China to buy our long bonds. If they quit buying 10 year and 30 year bonds, interest rates will rise or the fed will try to buy some of the bonds to keep interest rates low. That may keep the housing market alive but buying those bonds likely will start a major inflation inferno.
Chinese Leader Wen has warned the United States to maintain our credit rating so that the value of his county's bond investments in the US will continue to be valuable. Loss of credit rating and massive inflation due to overspending could result in the bonds being worth less, and interest rates increasing. That would make an economic recovery in the United States become fraught with peril.
Since China is the primary investor in the government credit of the United States, the United States is going to have to listen. Although it is counter-intuitive, the United States Federal Reserve Bank will purchase treasury bonds in an effort to keep interest rates low and bond prices high. This is beginning to look like a major bond bubble and may backfire on the creditors like China if the bubble bursts and rates skyrocket in the future.
No one really knows how much deflation or inflation is going to be rising in the coming years. However, it is clear to me that we must be cautious. There is a way to be more cautious and prevent a raid on the treasury of the United States. However, that way has been ignored by the kiss up Paulson-Geithner-Summers cabal that is in this for the international bankers, and not for the American people, or the Chinese leaders for that fact!
No, the answer would be for the cabal to quit raiding the treasury of the United States as I have called for previously. The pain of the deleveraging meltdown must be shared and this sharing of pain can only happen if the corporate bondholders of the banks take a haircut. This, of course, could result in international bankers losing their shirts in the derivatives that they hold (bets placed on the success or failure of those corporate bank bonds).
But the choice of the international bankers or the leader of China is a no brainer. It is time to drop the concerns of the international bankers and listen to our biggest creditor, China. It would have been better to have used less treasury money to bail out the banks. But perhaps it is too late to change the policy. We shall see.
China Wants Their Investment Protected. We May Not Be Able To Inflate! Or Maybe European Bankers Ran These Markets? Hmm.
Republicans and Democrats Are Both Wrong About US Debt
Democrats and Republicans are both wrong. Neither party cares to take on the cockroach international bankers. Neither party wants the bankers to take a bond haircut or a derivative haircut to share in the pain. The Dems want to recklessly pay for all the stimulus by raiding the treasury. The Repubs want to spend less than is necessary to fight deflation.
The only solution is for the government to spend on stimulus as the Dems understand, while the banks are nationalized like Roubini and some Repubs like Lindsey Graham have called for.
But both parties have an obligation to get the banks to share the pain of this deleveraging. If there is no demand for US bonds by the Chinese or other investors, interest rates will naturally go up big time, squelching any recovery.
This is the BOTTOM LINE, we cannot, I repeat, we cannot inflate our way out of this deflation, through any abuse of our money supply. If we do we stand the risk of China pulling their money out of our banks again, a second time, as they did in Sept 2008 when America tried to hurt their Fannie/Freddie investments.
BTW that is another reason not to buy a house. You could be selling into skyrocketing interest rates and that will be a big hit to your investment.
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My Seeking Alpha Comments
- U.S. Weekly Jobless Claims: Why You Can't Trust Them
Daryl, here is proof of manipulation of the retail sales figures. Did this myself with a little research: hubpages.com/hub/retai... - 13 hours ago
- Monetary Inflation Index Scores New High
If there is little demand at home, the wholesale folks will get creamed, unable to pass this higher cost onto a strapped consumer. Wages aren't going up so it won't happen that inflation hits our economy anytime soon. If it does people will stop buying, driving, and doing anything. Deflation is a raise, while inflation is going to kill the housing market. - 13 hours ago
- Consumer-Driven Deflation? Not Even Close
The deflation occurring in the housing industry has to do with fewer sales and less demand. Less demand is deflationary. The government is inflating but the populace is deflating. The jury is out on who will win. As an example, milk went to 5 dollars per gallon and people quit buying. When gas goes to 4 dollars per gallon people will quit driving. We are deleveraging. That is highly deflationary. So it is a race. I don't think the government can win this race. Housing is a key factor in making inflation work and housing is dead in the water. - 13 hours ago
- The FSB's Big, Bad 30
Citibank was not on the original list published by Reuters. - 34 hours ago
- The Debt Crisis Is Going Public
This means nothing. So some have saved. It doesn't do away with the debt. And it doesn't do away with what Wells Fargo has said is a certain continuing real estate decline. So much rosy talk, so little time. On Nov 29 05:55 PM bbro wrote:> The Household debt service payments plus government debt service> payments - personal savings is 8.65% of GDP the lowest level since> > 1995. - 2 days ago
- The Debt Crisis Is Going Public
Household debt is solved? Who says author? Where is your link to this nonsense? - 2 days ago
China and US Spending in the News
- Chinaâs economy reaps a golden age of weddingsThe Malaysian Insider20 hours ago
BEIJING, Dec 1 — Meng Ni and Fan Zhiqing said “I do” to each other in the same month that they said “we do” to their real estate agent. China is in the midst of a golden age of weddings, a boon for businesses from photo studios to global platinum miners. Yet nowhere is the economic impact so potentially profound as in the housing market. A flood of newlyweds such as Meng and Fan buying their ...
- China yuan should strengthenBigPond News36 hours ago
European financial leaders have urged China to let its currency gain against the euro.
- China yuan should strengthen - EUSky News Australia2 days ago
European financial leaders on Sunday urged China to let its currency gain against the euro, for the sake of the world economy and its own future growth.
- Gilley takes show to ChinaDothan Eagle28 hours ago
China might not exactly be going country, but the most populated country in the world will get a taste of American country music next year when Ronnie Gilley Entertainment takes BamaJam China to the Communist nation.
- China's Wen Jiabao hits out at 'brazen protectionism' in yuan row with EuropeDaily Telegraph2 days ago
Chinese prime minister Wen Jiabao has hit out forcefully at the growing international pressure on Beijing to revalue its currency, describing it as 'unfair' and accusing other countries of conducting 'brazen protectionism' against China.
- China's economy reaps a golden age of weddingsVietnews Online2 days ago
China is in the midst of a golden age of weddings, a boon for businesses from photo studios to global platinum miners
- Consumer spending, home sales rise in USPeople's Daily5 days ago
US consumer spending and home sales rose more than expected in October, while new claims for jobless benefits fell sharply last week, suggesting the economic recovery was gaining traction. A surprise decline in orders for long-lasting US-made goods and a second straight monthly drop in consumer confidence, however, offered a reminder that the recovery from the most brutal recession in 70 years ...
- China's economy reaps a golden age of weddingsThe Globe and Mail2 days ago
BEIJING (Reuters) - Meng Ni and Fan Zhiqing said "I do" to each other in the same month that they said "we do" to their real estate agent. China is in the midst of a golden age of weddings, a boon for businesses from photo studios to global platinum miners.
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![What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU [An article from: Journal of Banking and Finance]](http://ecx.images-amazon.com/images/I/51ETCKXBK9L._SL75_.jpg)
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What do deficits tell us about debt? Empirical evidence on creative accounting with fiscal rules in the EU [An article from: Journal of Banking and Finance]
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Clinton Begs China to Buy US Treasury Bonds
Ron Paul on US Spending
Bank Crisis, China, US Debt, International Cockroach Bankers
- The Fed Bails Out China
China happy with Bernanke Inflation. - Why the Federal Reserve Is A Threat to Little Old Ladies
Why would the federal reserve be a threat to little old ladies? Because they have decided to purchase treasury bonds out of money created from nothing. The ultimate immediate impact of these purchases is to... - http://www.cnbc.com/id/15840232?video=1062179253&play=1
Kirby Daley says China will not let the US bring her down with worthless bonds! This is a must see video. - Suspension of Mark to Market is Fraud
Every pumper of stocks is saying that suspension of mark to market is good for banks, good for the stock market, Suspension of mark to market is where the banks estimate the value of assets that the banks are... - Mark to Market Vigilantes
There are new vigilantes in town. Last summer, gold and oil rose as answers to those who believed that inflation was increasing. Now gold rises when there is a thought of deflation, as a hedge against... - Silent Run on Banks
"We have Jim Cramer assuring everyone on CNBC that the banking system is safe. If it is so safe why is it necessary to proclaim it's safety?" Bgamall A silent run on the banks is a reality. It is caused by... - Be Patriotic Stop International Bankers From Raping America
I don't really know if international bankers have always been cockroaches. But certainly after Basel II they have been pests that need to be stamped out. Now I don't believe in just killing them, unless the... - Chinese Are Likely to Halt Purchases of U.S. Treasury Debt -- Seeking Alpha
Chinese future investments in the face of massive printing of money by the US Federal Reserve. - Boycott Citibank and the Banks
Now is the time for the citizens of the United States to take our country back. Now is the time to act so that the central bankers will never again mess around with, or take advantage of, the citizens of the... - http://www.bloomberg.com/apps/news?pid=20601087&sid=a6KTPb8k2koY&refer=home
Update on Wen Warning.
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What Do You Think of This Turn of Events Regarding China Investment?
Mortgages are just like other loans, in that you owe the lot, the only difference is that they are secured on property, rather than being unsecured.
Prices aren't plummeting, but they are sinking. Which is just as well, they'd got entirely ridiculously out of whack. The flat we live in, and rent, was theoretically worth the thick end of £750k 18 months ago, which is insane. Prices in London have dropped 15% to 20% since the summer of 2007, depending on which measure you look at.
I am also thinking, Londongirl, that because it is harder to walk away from your house in England, that house prices will not come down as fast as is necessary. It could be a long and drawn out decline in London.
"I was wondering Londongirl, if you knew if there were an excess of inventory of homes in England or are people not buying because they simply cannot afford it. If inventory is low, for the US that could be ominous. It would be possible to whittle down the inventory in the US and people still not buy homes in any great numbers."
There are more houses and flats for sale than there were, and those which are selling need to cut the price, and generally have been on the market for much longer than they would have been 2-8 years ago.
Our planning laws are, I think, quite different from yours. Planning permission is often hard to get, and in the Green Belt (around the big cities) you can't usually build new houses at all. By way of comparison, I remember reading that a couple of years ago, an acre of agricultural land in Kent, about 50 miles from London, was worth about £2,000, and £200,000 if it had planning permission.
Mortgage lending is vastly down. That's mostly a shortage of funds, but also a huge caution amongst the would-be house-buyers about the economy. Why risk getting a mortgage and buying a house, if (1) it'll be worth less in a year than it is now, and /or (2) you might lose your job?
Londongirl, here is a link I wrote about nonrecourse and recourse loans: http://hubpages.com/hub/Say-No-To-Recourse-Loans
Londongirl, a recourse loan is a loan where if you walk away, you will still be responsible for the loan. In the United States most primary loans are nonrecourse loans, which a mortgage holder can simply walk away from. Helocs and other added loans do not have that protection. A nonrecourse loan means that the lender has no recourse for getting his money back.
I was wondering Londongirl, if you knew if there were an excess of inventory of homes in England or are people not buying because they simply cannot afford it. If inventory is low, for the US that could be ominous. It would be possible to whittle down the inventory in the US and people still not buy homes in any great numbers.
Tom, this is an interesting comment. I don't see how it is possible for the US to sell all the bonds coming on board, but we will see. Surely some kind of war would be advocated to prime the economic pump. As long as Americans are dumb enough to serve in all these unjust economic wars then there will be a willingness to fight and die needlessly. What a waste.
Sorry to be thick, but I'm not sure quite what you mean by a "recourse loan"?
But yes, you add up the outstanding mortgage, the legal costs, selling costs, all the rest of it. Then deduct what the house sells for. If there is money left over, the bank pays it to the ex-mortgagee. If there is money owing, the bank chases.
Great and well written Hub. If China calls in our debts, I believe that more than likely the market will crash and possibly a war could begin. We can't pay them back. We are in very deep trouble.
So Londongirl, you have recourse loans, and the bank can go after the difference between the repossession price and the price of the mortgage still owed? If that is the case, it would be risky to ever buy a house in Europe. Americans, on the other hand, can mostly just walk away. There may be recourse loans on a heloc but not on the primary mortgage which is nonrecourse.
Guess London just proves that recourse loans don't protect banks in the long run.
And Eovery, I don't know if everything I warn about will come to pass but there is a large chance they could. I hope they don't.
I forgot to add - the housing market has slowed to a crawl. Very few people are buying.
We don't have foreclosure, we have reposession. The bank / building society has to go to court and get an order for repossession. If they get it (and the judge can suspend an order to allow arrears to be paid off at so much extra over the monthly payment, it can take years to clear arrears) then they have to sell it at a realistic market price. But it's a forced sale, so the market price tends to be lower.
Reposessions are seriously up.
If you owe £100,000 on your mortgage, and the house is sold for £90,000, the bank can chased you for the extra £10k plus legal costs plus selling costs for up to 12 years, and longer if you acknowledge the debt in that time.
Thanks for the info. I have been trying to figure this grap out. Things have not been adding up for me. This helps a little.
Keep on Hubbing.
I am curious about London, about foreclosures, and about high inventories of unsold houses. Is it similar to the USA or different?
the West in general is drowning in an orgy of debt
Aya there is a solid case for possible deflation. However, the Chinese leader is concerned, as many are, that it would not be a major deflation. A lack of deflation could result in a huge increase in inflation with the spending.
But a way to insure balance is for the banks to share the pain.
Bgamall, everyone warns that there is a deflationary spiral on the way, but I don't see that at all. If we leave it to the voters and the politicians, there will be inflation on a massive scale, and the national debt will not that be that difficult to pay. The only people who might stop this from happening are powerful foreign investors, like China. Isn't it funny how ownership and responsible behavior go hand in hand? If China owns the U.S., it has some incentive to protect its investment. Americans seem less invested in a valuable dollar.
Interesting. But if China succeeds in getting their own people to buy, the party is over for the international bankers. If China spends locally on their own stimulus and refuses to carry the extra US debt, they will defeat these bankers.
I think the International bankers want a showdown with China, They have been trying to rope that behemoth in for years and haven't figured out how to beat them. A costly cold war with the US might serve their purpose very well. Already, I have noticed a lot of Saber Rattling in Korea as well as with the recent naval incident.
This tells me there are forces trying to push china into spending money on defense this would require financing.
TMG
bgamall says:
9 months ago
Because people can walk away from their mortgages as well as their houses here in the US, the rate of decline of prices is greatly accellerated.