Quote:
Originally Posted by PamelaIamela
Yawn...
US debt is still the 'safest haven' in town, even if it is downgraded.
It's like the camper who hears a bear in the middle of the night and frantically starts to dress.
His tent-mate screams 'Don't you know that you can't outrun a bear?'
Scrambling out he replies 'Of course I do... but I can outrun YOU!'.
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I don't know about that anymore. This is what I wrote in another thread:
It probably depends on how fast interest rates rise. The problem is the pressure that the Chinese 10 year is putting on the US 10 year. Chinese debt is looking more attractive, particularly as it has higher yields, and will likely lower interest rates in the event of a global recession which may occur. The Chinese have a good reason to have a strong yuan because they are starting the petro-yuan, with the intention to purchase commodities.
As dollars outflow from the US into China, the yuan will appreciate against the dollar. China will put pressure on the US by driving commodity prices up and they will be able to do it because they will use gold to back their oil futures, and they are strategically opening their market to foreign investment at a time where their rates and credit are very attractive.
This is important because if interest rates in the US rise too fast it will disrupt what is actually a very fragile economy.
While the US economy doesn't appear fragile from the outside, consider that credit card debt is at an all time high by a significant margin, personal savings rates are down to 2007 levels, houses have never been more unaffordable according to the Case-Shiller home index, student loan debt and auto debt are at all time highs, and retail and commercial real estate are on wobbly legs to say the least.
Also, China is going to stop its purchases of treasuries and sell what it currently has, which will force interest rates up higher. China will also put pressure on the US economy by driving oil prices up through purchases as the dollar declines in value.
Additionally, let's say there is a global recession, which is what I expect. China will recover faster than the US. Capital is flowing into Chinese bonds, so China will lower rates, which will help its business recover faster than US businesses.
In contrast, the US will have to raise rates, which is bad for business.
China set us up. It was brilliant. I don't think people realize the brilliance of what they did.
If the US dollar drops, and the Chinese pile up on crude, China will make a huge power move to overthrow the petro-dollar with the petro-yuan. The implications of this are enormous. First, less countries will hold US reserves because its no longer necessary to purchase crude with dollars. They will go to the Chinese market instead. Secondly, since there is less demand for US treasuries, the US will not be able to continue spending.
This is why I say our politicians stole everything from us. They left us with nothing.
Now it's China's time.
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