Dear Mr. Trump:
Mr. Trump seems not to know the situation well. I know the reason is that a lot of experts who don't want to help this regime. I am afraid to say that is a truth. The basic idea why the Obama administration keep the Treasury yield so low is that the US government wants to have a lower cost to service (its debt). Of course, we love to see the Fed trims down its balance sheet to bring down the scale of US government debt. But the consequence is the action may raise the yield rate so much. The basic idea behind the yield rate is that the 10 year US Treasury yield is the base rate for everything. People buy a car and ask a loan where the loan rate is the 10 yr Treasury yield plus some markup. So are the mortgage and the credit card debt. If the yield rate of 10-yr US Treasury goes too high, people may expect the probability of bankruotcy of lower credit US corporates goes even higher. It will raise the funding cost of lower credit US corporation. Mr. Trump should know better that a lot of lower credit US corporates are those ones related with the shale oil industry. It may hurt the capacity of US own shale oil industry and bring up the oil price. A lot of other nations may love to see that, especially those countries with oil output such as Russia and Middle East nations.
We have mentioned that the 10-year US Treasury yield should not go too high because the US already has 20 trillion government debt. The other reason is that a too high yield may increase the funding cost of US ccorporates. A lot of lower credit rating US corporates are related with the energy industry, especially the shale oil. If the US 10-yr yield rate goes too high, the cost the US government has to face is to pay more cost to service its own debt. There is the 20 trillion US dollar debt this time.
Also, one trillion infrastructure plan in the US needs lower cost to build and support. The Trump administration should think hard about how to bring down the 10-yr US Treasury yield this time when people get excited about the US stock market and leave the US Treasury market behind. It is the cost Trump administration has to face when people get excited about the future. Too much pleasure may bring some disasters we may not foresee. Mr Trump has promised to those people in the election to have a decent life. Truely, they are a lot of votes there.
Aother question that the reason why we have to support the high yield market of Asia is attributed to a personal reason. HC's Brothers put too much money in China who are afraid they could not get the money back. From the standpoint of Holding Company, their money are all borrowed from stakeholders. That are their employees and their stockholders. It is the reason why we have to support the market in order to help ourselves. I really hope we could get some understanding from the US and all American people. A lot of Taiwanese invest too much in China and could not get the money back. The Chinese Cummunist Party implements the capital control on their foreign reserve lately to stop capital flighting. Three trillion foreign reserve of PBOC is not quite enough for all Chinese people living in China because there are more than 100 trillions RMB circulated in the country. Could you imagine if all the money, 100 trillion RMB of course, wants to exchange to other currency? They may need at least 17 trillion US dollars for the exchange. The truth is even the US does not have that much US dollars. It just reveals the truth that China brings out some hyperinflation worries. A lot of Taiwanese have nowhere to go this time when their money is stuck in China.
In 2018, we may see a lot of conflicts between the US and China and between Russian and the US. Even we stand on the US side, we still have to make a living. People just put too much money in China. We need to face the problem. And we need some understanding from American people for the support of China's financial market. 2018 is a special year when a lot of conflicts may be resolved from the financial market changing. The market mechanism may shows its own power to the world. China has to face the music that it could not service its own debt by monetization (money printing without guarantee) endlessly. Or we may see hyperinflation happens in China, just like the story in Venezuela.
To me, China is a horrible story. It is a horrible story we will never ge rid of and forget.