"In hindsight, many economists say, the United States should have recognized that borrowing from abroad for consumption and deficit spending at home was not a formula for economic success. Even as that weakness is becoming more widely recognized, however, the United States is likely to be more addicted than ever to foreign creditors to finance record government spending to revive the broken economy." [1]
Everyone seems to have figured out that the one safe spot on the world’s economic "ship" is US Treasury Debt, so just about everyone is racing there. That can’t bode well for the stability of the "ship," even as the Treasury prepares to offer a practically unlimited supply.
UPDATE: Just realized something noticing the slight acceleration in Agency Debt selling over the last few weeks:
TOTAL FOREIGN CENTRAL BANK PURCHASES FOR THE LAST 52 WEEKS — AND FOR THE CALENDAR YEAR 2008 TO NOW — BOTH STAND AT A BIT OVER NEGATIVE $10 BILLION
This week’s Reuters report [2] has foreign central banks once again buying a very large $25.259 billion net of Treasury Debt. This is down only slightly from last week’s number, the 2nd largest weekly treasuries move ever recorded. This week’s figure was good enough for #4 on our Top 10 list. The report was, as usual, based on the weekly update from the NY Fed’s H.4.1 table site.[3] Here is Doom’s updated CSV version of the agencies and treasuries foreign central bank holdings data set.[4]
Similarly, the cenbanks sold a significant amount, $14.315 billion, of Agency Debt in the week. This is less than a billion lower than last week’s figure of $15.2 billion, which remains at #10 on the Top 10 list for agencies moves. The combined move was therefore a net buy of US obligations of $10.945 billion, just a bit less than last week’s figure.
The big picture shows continued divergence of rising treasuries holdings as compared with steadily declining agencies holdings.
Twist’s ratios graphs simply continue their history plunge.
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Notes and References
[1]: "THE RECKONING: China and U.S. bound themselves with linked addictions to debt and credit", International Herald Tribune, December 26, 2008.
[2]: "Foreign c.bank Treasury holdings up in week", by Burton Frierson, Reuters, December 29, 2008.
[3]: "H.4.1 Factors Affecting Reserve Balances", Federal Reserve Statistical Release (weekly), Federal Reserve Bank of New York.
[4]: The updated data set as a Comma Separated Value (CSV) file is here.
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