America’s National Debt Exceeds $19 Trillion

America’s national debt has been the subject of some speculation and concern this election year. As of August 31, 2016, the nation’s total outstanding debt was $19.510 trillion, up from $18.151 trillion as of August 31, 2015. That translates to roughly $58,000 for every man, woman, and child in the U.S.

According to the Treasury Department, America has added its latest $1 trillion of debt in the space of just 293 calendar days. By comparison, it took America 205 years (from 1776 to November, 1981) to accrue its first trillion dollars of debt. By the end of this fiscal year on September 30, 2016, only 13.5% of the outstanding national debt will exceed 10 years in duration.

To put it differently, in just the past 8 years, U.S. national debt has doubled, growing by more than 104% at a rate of 9.3% a year. Whereas the national debt was $9.492 trillion in June 30, 2008, it hit $19.382 trillion on June 30, 2016. Observers have pointed to this as an worrying and unsustainable trend of debt accumulation, especially in light of the absence of a debt ceiling. However, certain analysts point to America’s high credit rating, its ability to print money, low interest rates on U.S. debt and the continued faith of investors in American debt and argue that the situation is not so dire.

“There is no magic level of debt that gets an economy in trouble,” writes Scott Brown, chief economist of Raymond James. “Research arguing that view has been discredited. The federal government currently has no problem borrowing, nor is there any evidence that it is crowding out private investment.”

Another common concern raised regarding the national debt is aimed at America’s largest foreign creditors, namely China and Japan, who respectively held $1.3 trillion and $1.1 trillion of American debt as of February 2016. China alone holds a sizeable 7% of American debt.

But the greatest holders of American debt are in fact American citizens and entities, such as local governments, pension funds, and the Fed, who in aggregate own 67.5% (or $12.9 trillion) of the debt through Treasury bonds and other public debt securities.

 

References:

http://theweek.com/articles/618419/why-americas-gigantic-national-debt-good-thing

http://www.businessinsider.com/us-government-19-trillion-debt-not-a-problem-2016-4

http://dailysignal.com/2016/02/02/the-us-debt-just-exceeded-19-trillion-heres-how-we-got-here/

http://money.cnn.com/2016/05/10/news/economy/us-debt-ownership/

http://fortune.com/2016/04/15/time-national-debt-jim-grant/

The Impact of the Russia-Saudi Arabia Energy Pact on Global Oil Prices and Supply

Oil prices surged by 3% following a major agreement between Saudi Arabia and Russia, the world’s two largest oil producers, to cooperate in world oil markets.

News of the deal, which was signed by both nations’ energy ministers at the G20 summit in China, sent Brent crude futures for November delivery up 71 cents to $47.54 a barrel, whereas U.S. crude for October delivery spiked to $45.15.

However, the gains were pared back somewhat by revelations that the two nations would not take immediate action to limit oil output and buoy flagging world oil prices. Since the epic collapse in oil prices two years ago, oil prices have rebounded to $45 a barrel, but they are still over 50% below 2014 levels.

Saudi Arabian energy minister Khalid al-Falih noted, however, that recent gains in oil prices had offset the need for an immediate production halt. “Freezing [production levels] is one of the preferred possibilities, but it’s not necessary today,” al-Falih said, according to the BBC. “The market is getting better and we have noticed that prices reflect this [improvement].”

Detractors of the move argue that freezing production at already high levels would be a superficial maneuver that does little to ameliorate the global oil glut.

Part of what has driven the oversupply of oil and depressed oil prices has been the U.S. shale revolution, which turned the nation into a massive producer of oil and natural gas. According to Rystad Energy, U.S. oil reserves (defined as recoverable oil from existing fields and future discoveries) are currently projected to be 264 billion barrels, the largest in the world. By comparison, Russia and Saudi Arabia’s reserves total 256 billion and 212 billion barrels respectively.

U.S. oil production has also been robust, on the other hand, even though oil prices are 60% lower than their 2014-levels. While the U.S. Energy Information Administration reported that field production of crude had dropped to 8.701 million barrels a day in June 2016 (revised upwards from its previous estimate of 8.6 million barrels a day), down from its June 2015 peak of 9.61 million, many industry observers believe that U.S. oil production has bottomed out and that it is due for a resurgence. Citing growing global demand for oil spurred by developing markets, Jude Clemente, an oil analyst at Forbes, argues that global oil prices are destined for a rebound, which will in turn boost production.

Furthermore, evolving technologies have increased American oil companies’ abilities to extract greater amounts of oil while driving down production costs, making U.S. oil exports competitive abroad.

References:

http://www.reuters.com/article/us-global-markets-idUSKCN11B01K

http://money.cnn.com/2016/09/05/investing/saudi-arabia-russia-oil-market/

http://marketrealist.com/2016/09/crude-oil-prices-skyrockets-almost-5-ahead-saudi-arabia-russia-agreement-talks/comments

http://www.forbes.com/sites/judeclemente/2016/08/09/u-s-oil-production-will-continue-to-grow/#b10a232665a2

 

Continued Chinese Spending on U.S. Real Estate

8.25.2016 | Continued Chinese Spending on U.S. Real Estate -Rusty Tweed team

A new report issued in May 2016 by the Rosen Consulting Group and the Asia Society showed that between 2010 and 2015, Chinese buyers purchased $93 billion in residential real estate, close to $208 billion of mortgage-backed securities, and approximately $17 billion of commercial real estate, including hotels and office towers.

Altogether, Chinese investment in the U.S. real estate market has topped $300 billion and is growing despite China’s increased currency controls and recent economic challenges.

Continued Chinese Spending on U.S. Real Estate - Rusty Tweed team

The report found that while interest from some Chinese home buyers may lessen, overall Chinese buyers usually have larger budgets for home purchases than other international buyers. It also demonstrated that from 2013 to 2015 China outspent every other country in relation to the total dollar amount spent on U.S. homes.

While direct investment from China still only comprises 10% of all foreign direct investment into the United States, the Rosen and Asia Society report is significant because it is the first independent study to show that Chinese investors rank among the top in every sector of real estate. It also reveals the staying power of Chinese investors and their ability to withstand short-term market events, said Arthur Margon, a partner at Rosen Consulting Group and co-author of the report.

“There are strong signals that there will be continued, maybe even increasing appetite,” said Margon.

Rosen’s team forecasts a minor slowdown within the next 18 to 24 months for the United States, and a further worsening of China’s economic slowdown.

Xi Jinping, China’s president, recently said he will promote supply-side reforms and concentrate on increasing the middle-class, demonstrating the pressure China is under to turn around growth rates that are the lowest in 25 years.

From economic slowdowns to terrorism to votes over European Union membership, the increasing international footprint in major U.S. real estate markets means we’re increasingly likely to witness the impact of those issues, says Ross Milroy, owner and broker at Ross Milroy Realty in Miami.

“The Miami real estate market – and I think New York is very similar as well – we’re so dependent on the international buyers, and they’re such a huge part of our market,” Milroy says.

“A lot of our real estate markets do not follow traditional patterns, and a lot of our demand is dependent on what’s going on in those home countries of our buyers.”

References:

http://www.cnbc.com/2016/05/16/chinese-investors-have-spent-300-billion-on-us-property-mbs-rosen-study-finds.html

http://www.sec.marketwatch.com/story/chinese-top-foreign-buyers-of-us-real-estate-for-fourth-year-2016-07-06

http://atimes.com/2015/06/china-tops-list-of-foreigners-buying-us-real-estate/

http://www.ft.com/cms/s/351606a8-159b-11e5-be54-00144

http://realestate.usnews.com/real-estate/articles/how-international-issues-affect-foreign-investment-in-us-real-estate/

China Tops Foreign Buyers List of U.S. Real Estate

8.24.2016 | China Tops Foreign Buyers List of U.S. Real Estate – Rusty Tweed team

Last month, the National Association of Realtor survey showed that foreign purchases of U.S. real estate had fallen by 1.3% to $102.6 billion of residential property. Contributing factors include rising house prices in the U.S., a stronger U.S. dollar and a weakening global economy.

The NAR survey showed that China continues to top the list of foreign buyers of U.S. real estate. This is China’s fourth year at the top of the table. Chinese buyers spent $27.3 billion on 29,195 properties between March 2015 and March 2016. For international buyers, the average purchase price was $499,600 per property; however, Chinese buyers spent $831,800 on average, over three times $255,600, the national average transaction price.

China Tops Foreign Buyers List of U.S. Real Estate  - Rusty Tweed team

California and New York were the most popular locations for Asian buyers, compared to Florida and Arizona for Canadians, Europeans and Latin America. In 2015, 35% of Chinese house purchases were in California, followed by 8% in Washington, and 7% in New York. Buyers from China and India generally buy in states with relatively expensive property values.

Canada came in at second in the table, with Canadians spending $8.9 billion on U.S. properties, roughly a third less than the total Chinese spend. India followed in third at $6.1 billion of purchases and Mexico ranked fourth at $4.8 billion. Britain ranked fifth at $5.5 billion in the NAR survey. Lawrence Yun, NAR’s chief economist warned this trend may not continue following the sharp decline in the pound’s value following the surprise exit vote in the EU referendum.

Almost 70% of the Chinese purchases were reported as all-cash, compared with 55% for all international purchases and 25% by US buyers.

“With the Chinese economy and real estate market slowing dramatically and a vociferous anti-corruption campaign in full swing at home, Chinese buyers have been scrambling in the past few years to buy real estate abroad,” said the Financial Times. The Chinese have become the biggest buyers of housing in many major English-speaking western cities with a good quality of life, strong education systems, a resilient rule of law and robust property rights, including New York, Vancouver, London, Sydney, Toronto and Auckland.

The FT reported that the majority of money for overseas property purchases is taken out of China illegally.

For many years, foreign investors have seen U.S. real estate as a strong choice to diversify their portfolio and benefit from the strongest economy in the world. In recent years, however, hard assets in the form of U.S. property have also become an opportunity to securely store money. “We’ve become what is today, I guess, the largest offshore location in the world,” Ed Mermelstein, an international real estate attorney based in New York, recently told Real Estate US News.

References:

http://www.cnbc.com/2016/05/16/chinese-investors-have-spent-300-billion-on-us-property-mbs-rosen-study-finds.html

http://www.sec.marketwatch.com/story/chinese-top-foreign-buyers-of-us-real-estate-for-fourth-year-2016-07-06

http://atimes.com/2015/06/china-tops-list-of-foreigners-buying-us-real-estate/

http://www.ft.com/cms/s/351606a8-159b-11e5-be54-00144

http://realestate.usnews.com/real-estate/articles/how-international-issues-affect-foreign-investment-in-us-real-estate/

The Chinese Exodus – Part 2

8.22.2016 | The Chinese Exodus – Part 2 – Tweed Economics
The History of Chinese Emigration

Ever since the period of the great emperors, the Chinese have traveled overseas in pursuit of fortune, knowledge and adventure. Sailing junks took merchants to Manila to trade silk and porcelain for silver. The largest previous emigration though, known as the Chinese diaspora, was seen from the 19th century to 1949 and was largely the result of wars and starvation in mainland China. The majority of immigrants leaving were peasants and manual labourers, described as “coolies’ (literally: “Hard Labor”) who emigrated to work in the mines and plantations of the Americas, Australia, Southeast Asia and South Africa.

However, through much of China’s history, immigration has been limited by strict controls preventing large groups leaving the country. In the 1980s more liberalized emigration policies were enacted, leading at first to more students and scholars departing to study at foreign universities; a flow that has steadily increased in recent years. The number of wealthy mainlanders has grown 23% yearly even while the country’s economy slows down. Despite their wealth, large scores of Chinese nationals continue to leave the country for overseas homes.

8.22.2016 | The Chinese Exodus – Part 2 - Tweed Economics

Where are the most popular destinations?

In Australia, one of the most popular destinations for Chinese tourists, emigrants and students, Mandarin Chinese is now the second-most widely spoken language after English. Australia is the first most visited tourist destination by China’s high net-worth individuals, followed by France, then Dubai, Switzerland and the Maldives.

In terms of those who want to emigrate, according to the South China Morning Post, Hong Kong is the most important global city, while the U.S. is the preferred destination because for a variety of reasons. In part because of its property market, medical services and friendly immigration policy, and also because it is home to most of the world’s top universities. Britain comes second, and Canada third.

Canada dismantled its controversial investor visa scheme in 2014, which in part accounts for the drop in numbers of new immigrants from China. In the US In 2015, under the EB-5 program, the government issued 6,895 visas to Chinese nationals. The EB-5 program allows foreigners to live in the U.S. as long as they invest $500,000 or above.

References:

http://www.wsj.com/articles/the-great-chinese-exodus-1408120906

http://www.independent.co.uk/news/world/asia/china-s-millionaire-exodus-as-wealthy-flee-with-america-the-preferred-destination-9069551.html

http://www.ca-soc.org/wpmu284a/documents/

http://www.scmp.com/news/china/money-wealth/article/1884376/number-rich-chinese-grows-23-cent-and-many-want-emigrate

http://www.scmp.com/news/china/economy/article/1877180/whatever-happened-sharing-wealth-chinas-fast-growing-group

http://www.cnbc.com/2015/09/02/amid-turmoil-wealthy-chinese-eyeing-the-us.html