With U.S. markets and arrogance at record highs, China thinks now is the right time to go for a king side attack and checkmate.
On the world chess board, Trump and his administration have went all-in on their persuasive strategy to attract as many investors to the U.S., verbally claiming full ownership of the economy realistically propped up by decades of Keynesian stimulus and not at all based on recent government policy.
China now makes their move, suggesting that U.S. treasuries are not as valuable as they previously forecasted, ready to stop the Ponzi scheme paying off debt with debt by raising the cost of borrowing:
China added to bond investors’ jitters on Wednesday as traders braced for what they feared could be the end of a three-decade bull market.
Senior government officials in Beijing reviewing the nation’s foreign-exchange holdings have recommended slowing or halting purchases of U.S. Treasuries, according to people familiar with the matter. The news comes as global debt markets were already selling off amid signs that central banks are starting to step back after years of bond-buying stimulus. Yields on 10-year Treasuries rose for a fifth day, touching the highest since March.
January 10, 2018
With this move encouraging interest rates to rise by lowering demand for U.S. treasuries, the Federal Reserve is next to make a move.
As stated in my previous articles, it’s a toss-up what the Fed’s next move is, but either way leads to getting checkmated. Keynesian persuasion tactics via stimulus and rate manipulation can only go so far without succumbing to economic fundamentals.
The U.S. central bank can continue to artificially keep interest rates low by buying yet even more U.S. debt. Clearly the money to finance government deficits won’t be coming from the equally indebted U.S. population through taxes, so the U.S. will have to turn on the printing press to keep rates low. But instead, they can do the right thing by letting the markets correct. It would force the U.S. government and its citizens to live in austerity in an attempt to reverse decades of undeserved spending and debt-fueled extravagance. That would mean bursting every single debt-fueled bubble and in all likelihood, usher in the next great depression.
The more devastating alternative of delaying the inevitable correction by doubling down yet again on Keynesian policy and keeping interest rates low would lead to hyperinflation in the interim. That would cause an unnecessary period of economic “purgatory” that could last decades.
Either way, it’s checkmate. Perhaps China has been waiting for peak arrogance before its persuasive move to reverse bond market psychology, just to make the downfall of the west more humiliating.
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