Raymond Richman - Jesse Richman - Howard Richman
Richmans' Trade and Taxes Blog
Why U.S. long-term interest rates have been rising since May 1
On or about May 1, the U.S. long-term interest rate started to rise as indicated by the interest rate on U.S. Treasury Bonds. I follow the movement of long-term U.S. interest rates on the following page:
The graph shows that around May 1, the 10 year U.S.Treasury bond interest rate turned on a dime. It had been going down from about March 11 (about 2.05%) to May 1 (about 1.65%). It has since headed up to about 2.55% today.
I have been trying to figure out the cause. There are several possibilities that could cause the U.S. Treasury bond rate to rise, including:
According to Lars Christensen, Danske Bank's chief emerging-markets analyst, China's big regional banks have been selling their Treasury Bonds because they are facing a short-term cash crunch. Here's a selection from a Bloomberg article about his explanation (Is China to Blame for Rising U.S. Interest Rates?):
Christensen's theory also fits with the fact that the yuan has risen from about $0.159 to about $0.162 since May 1. Chinese caught in the crash crunch could also be selling gold, which could explain why gold has fallen from about $1600 per ounce in mid-April to about $1225 per ounce today.
Chinese economic prosperity does not result in increased prosperity in the United States, due to China's mercantilist policy of continually growing the U.S. -China trade deficit. But a Chinese financial collapse would give the U.S. some severe short term problems by driving American interest rates up severely and driving the dollar down rapidly.
If China hits a Black Friday 1929 moment soon, the financial collapse could spread worldwide. In 1929 the United States was the world's chief trade surrplus country. It had built up its economy in the expectation that an export boom could continue forever. But, eventually, mercantilists bankrupt the buyers of their products. When they call in their world-wide loans, their boom turns into a world-wide bust.
Mercantilists can solve the worldwide problem by taking down their barriers to imports and boosting the economies of their customers. But the U.S. reaction in 1929 was, instead, to increase the height of its already high trade barriers. It is unlikely that China will be any smarter today.
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