Kentucky senator explains controversial proposed legislation that would subject Federal Reserve‘s monetary policy powers to outside scrutiny as it gets new life under a new administration – and may stand its best chance at becoming law.
SHANGHAI — Keith Bradsher Chinese officials cheered on the country’s stock market when it reached heady new highs, offering hope that it could become a new source of money to fix China’s economic problems. Then, last year, the market crashed.
“China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further.”
Now another fast-growing part of China’s vast and increasingly complicated financial market is showing signs of distress: its $9 trillion bond market.
Prices for government and corporate bonds have tumbled over the past week, a sell-off that continued on Tuesday. The situation has spooked investors, prompting the government to temporarily restrain some trading and to make emergency loans to struggling financial institutions.
“The adjustment has not yet finished. It will continue and normalize until money is put where the government can see it.”
— Miao Zuoxing, a partner at the FXM Brothers Fund
The price drops have resulted in higher borrowing costs at a time when more Chinese companies need the money to cope with slowing economic growth. Yields reached new highs again on Tuesday.
In part, China is reacting to financial shifts across the globe. With the Federal Reserve raising short-term interest rates and many expecting the presidency of Donald J. Trump to lead to heavier government spending, investors worldwide are selling bonds.
“Due to recent, relatively large market fluctuations, our company decided to cancel the issue of the current bond, and will reissue it at a chosen time.”
— Jiangsu Sumec Group
But China is struggling with its own balancing act. The Chinese bond slump also stems from Beijing’s efforts to wring excess money from its financial system and to stop potential bubbles that may lurk in shadowy, hard-to-track corners of its economy. Should it continue with those efforts, bonds could fall further.
“The adjustment has not yet finished,” said Miao Zuoxing, a partner at the FXM Brothers Fund, a Shanghai-based investment fund that trades stocks, bonds and futures. “It will continue and normalize until money is put where the government can see it.”
At least 40 companies have said they would postpone or cancel bond offerings rather than risk being forced to pay high interest rates to sell the bonds — or being unable to sell them at all. Among them was the Jiangsu Sumec Group Corporation, an industrial trading house that exports items as varied as gardening tools and auto parts; the company said on Thursday that it would not go through with the sale of $130 million in short-term bonds.
“Due to recent, relatively large market fluctuations, our company decided to cancel the issue of the current bond,” Jiangsu Sumec Group said in a statement, “and will reissue it at a chosen time.”
China has particular reason to worry. As the world’s second-largest economy, after the United States, it relies on a rickety financial system that is mired in debt and susceptible to hidden stresses. Higher overseas interest rates could also prompt more Chinese investors to move their money out of the country, either to chase higher returns elsewhere or to avoid what some see as China’s growing problems.
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Loose Money Party Peaks, Hangover Anticipation Looms.
“Central banks get most of the credit for the calm and upward-moving market over the summer, but I don’t think we can depend on that going forward.”
— Jeff Layman, chief investment officer at BKD Wealth Advisors
Markets in Europe and Asia retreated Monday amid signs the world’s central banks will be less accommodative than previously expected.
“Bourses in Asia closed with steep declines, with shares in Hong Kong off around 3.3%, Shanghai down 1.9%, Japan down 1.7% and Australia down 2.2%.”
“Central banks get most of the credit for the calm and upward-moving market over the summer, but I don’t think we can depend on that going forward,” said Jeff Layman, chief investment officer at BKD Wealth Advisors.
The Stoxx Europe 600 shed 1.9% early in the session, while futures pointed to a 0.6% opening loss for the S&P 500 after its biggest daily drop since the U.K.’s EU referendum.
Bourses in Asia closed with steep declines, with shares in Hong Kong off around 3.3%, Shanghai down 1.9%, Japan down 1.7% and Australia down 2.2%.
Stocks and long-dated government bonds sold off on Friday after comments from Federal Reserve Bank of Boston President Eric Rosengren heightened expectations for an interest rate rise later this year. Read the rest of this entry »
Cruz just had a very interesting hour-long interview on CNBC this morning with Joe Kernen, Becky Quick and Andrew Ross Sorkin on the Squawkbox financial program. The CNBC gang hit Cruz with everything from Japanese and German basis points, to negative global interest rates, to bank bailout policies, tax reform, economic effects of climate change proposals, opposition to various kinds of VAT taxing, instability of commodity prices, Fed monetary policy, etc.
Reagan administration economist Arthur Laffer, one of the architects of Cruz’s tax plan, weighs in for an extra helping of tax and quantitative easing wonkishness.
…This is a much more in-depth discussion than the stump speech snippets we’ve all heard many times…(more)
Factory activity cools for fifth month running as overseas demand for Chinese goods continues to fall
A further slowdown in China’s vast manufacturing sector has intensified worries about the year ahead for the world’s second largest economy.
“Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century.”
The latest in a string of downbeat reports from showed that activity at China’s factor ies cooled in December for the fifth month running, as overseas demand for Chinese goods continued to fall.
Against the backdrop of a faltering global economy, turmoil in the country’s stock markets and overcapacity in factories, Chinese economic growth has slowed markedly. The country’s central bank expects growth in 2015 to be the slowest for a quarter of a century.
After growing 7.3% in 2014, the economy is thought to have expanded by 6.9% in 2015 and the central bank has forecast that it may slow further in 2016 to 6.8%.
A series of interventions by policymakers, including interest rate cuts, have done little to revive growth and in some cases served only to heighten concern about China’s challenges.
Friday’s figures showed that the manufacturing sector limped to the end of 2015. The official purchasing managers’ index (PMI) of manufacturing activity edged up to 49.7 in December from 49.6 in November.
The December reading matched the forecast in a Reuters poll of economists and marked the fifth consecutive month that the index was below 50, the point that separates expansion from contraction. Read the rest of this entry »
Gene Healy: ‘Early American Political Culture Held that Anyone who Seemed to Relish the Idea of Wielding Power Couldn’t Be Trusted with it. No Longer’Posted: November 3, 2015
It Doesn’t Matter If Campaigning For President Is Fun
Gene Healy writes:
….There was a time, however, when we approached presidential selection with the sobriety a serious choice demands. In a penetrating 2003 article, “The Joy of Power: Changing Conceptions of the Presidential Office,” political scientist Richard J. Ellis explains that Americans used to look for a very different demeanor when assessing potential presidents.
“You’d never catch that guy grinning, nor, prior to the twentieth century, any of the others.”
‘My God: what is there in this office that any man should want to get into it?’
“In the beginning,” Ellis writes, “the presidency was envisioned not as an office to be enjoyed, but as a place of stern duty.” In fact, “one would be hard-pressed to find a single president between George Washington and Grover Cleveland of whom it could be said that he appeared to have fun in the exercise of presidential power.”
Early American political culture took it as self-evident that anyone who seemed to relish the idea of wielding power over others couldn’t be trusted with it. Our first president set the standard for presidential bearing: “dutiful and reluctant.”
“Over the course of the twentieth century, thanks in part to the two Roosevelts, cultural norms shifted, even as the executive branch grew radically in size and power.”
As Washington put it: “I can truly say I had rather be at Mount Vernon with a friend or two about me than to be attended at the Seat of Government by the Officers of State and the Representatives of every Power in Europe.” Or, as Cleveland once moaned, “My God: what is there in this office that any man should want to get into it?”
“Presidents today are supposed to take pleasure in the job. Those who dislike or at least complain about it are assumed to be psychologically suspect.”
— political scientist Richard J. Ellis
Throughout the nineteenth century, the public norms surrounding political power mandated a “low-energy” campaign, in which the candidates “stayed home in dignified silence, ready to serve if called by the people.” Even Andrew Jackson, the first candidate to style himself the champion of the popular will, refused to hit the hustings: “I meddle not with elections; I leave the people to make their own president,” he said.
[Order Gene Healy’s book “The Cult of the Presidency: America’s Dangerous Devotion to Executive Power” from Amazon.com]
You’d never catch that guy grinning, nor, prior to the twentieth century, any of the others. In the popular images of nineteenth-century presidents, Ellis writes, “it is difficult if not impossible to find an exuberant or smiling president.”
Enter the Self-Styled Larger than Life
Over the course of the twentieth century, thanks in part to the two Roosevelts, cultural norms shifted, even as the executive branch grew radically in size and power. “Presidents today are supposed to take pleasure in the job,” Ellis writes, and be happy warriors on the campaign trail. “Those who dislike or at least complain about it are assumed to be psychologically suspect.”
“Since the 1990s, federal workers have enjoyed faster compensation growth than private-sector workers…The federal government has become an elite island of secure and high-paid employment, separated from the ocean of average Americans competing in the economy.”
Federal workers’ pay and benefits were 78 percent higher than private employees, who earned an average of $52,688 less than public sector workers last year.
The study found that federal government workers earned an average of $84,153 in 2014, compared to the private sector’s average of $56,350. Cato based its findings on figures from the U.S. Bureau of Economic Analysis (BEA).
But when adding in benefits pay for federal workers, the difference becomes more dramatic. Federal employees made $119,934 in total compensation last year, while private sector workers earned $67,246, a difference of over $52,000, or 78 percent.
“Since the 1990s, federal workers have enjoyed faster compensation growth than private-sector workers,” according to the study, written by Chris Edwards, the director of tax policy studies at Cato. “In 2014 federal workers earned 78 percent more, on average, than private-sector workers. Federal workers earned 43 percent more, on average, than state and local government workers. Read the rest of this entry »
Japan’s purchases will help soothe lingering concerns that U.S. bond prices could decline as China slows its buying.
“China is currently the 800-pound gorilla in the U.S. Treasury market. However, it is not the only gorilla in the jungle.”
In reclaiming its status as the largest foreign creditor to America in U.S. official data, Japan is reasserting itself as Beijing holds its Treasury portfolio steady amid a weakening Chinese economy.
“U.S. debt bears higher yields than government bonds offered in other rich nations, thanks to the perception of stronger U.S. growth prospects and to central-bank bond purchases that have driven yields near zero across Europe and in Japan.”
Private investors and official institutions in Japan owned $1.2244 trillion of U.S. government securities at the end of February, compared with $1.2386 trillion at the end of January, according to the latest monthly data released by the Treasury on Wednesday.
China held $1.2237 trillion of Treasury debt at the end of February, compared with $1.2391 trillion a month earlier.
Over the past year, Japan has boosted its holdings by a net $13.6 billion, while China’s holdings dropped by $49.2 billion.
“The single largest holder of U.S. long-term debt is the Federal Reserve, with more than $2 trillion. The amount has surged from $755 billion at the end of 2007, fueled by Fed purchases of long-term securities in response to the financial crisis”.
The Treasury data, released with a two-month lag, don’t capture all of the Treasury-bond holdings China may have parked at middlemen in places such as the U.K. and Belgium. Many analysts and investors believe China has considerable holdings bought through such intermediaries. The Treasury notes on its website that “it is difficult to draw precise conclusions about changes in the foreign holdings of U.S. financial assets by individual countries” from the capital-flow data.
“The shift also reflects changes sweeping China. The world’s most-populous nation has in recent months largely held its Treasury portfolio in place, reflecting a slowdown in the growth of its $3.73 trillion foreign-exchange reserve, the world’s largest, and an effort to shift those reserves toward higher-yielding assets.”
The Japanese purchases have helped drive long-term U.S. bond yields near record lows despite an economic expansion that averaged 2.7% annually over 2013-14. Those low yields have, in turn, helped keep down interest rates for Americans on everything from home loans to credit cards. Read the rest of this entry »