… there is still sturdy demand for Treasuries from abroad; foreigners refused to dump them even when they lost confidence in mortgage-backed debt last year. But America cannot take things for granted. [1]
The full Economist article has a lot more nuance, but the underlying message is clear. Something is up.
This week’s Reuters report [2] reverts to recent form after last week’s a trend-busting reversal. However, the total of Treasury & Agency Debt held by foreign central bank rose just $2.661 billion in the week. That’s clearly not enough to support all the contemplated T-bill sales in the medium term, so Doomers should watch over the next while to see if that number bounces back. Treasury Debt holdings did rebound to a healthy buy of $8.664 billion, but this was cut down to size by a largish $6.004 sell-off in agencies. The Reuters report was picked up by Forbes. I don’t recall seeing that one before, and it may indicate a rise in interest about this story. 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]
If you compare the above treasuries with the below agencies bar graphs you’ll see that the increase in total cenbank holdings has been barely above stall speed over about the last month. Thanks once more for all of Twist’s hard work on these charts and graphs. They add a lot of context to the bare story that Reuters usually transcribes.
Modest divergence in the raw-numbers graph has returned.
It’s possible last week’s reversal was a blip. Doomers should watch to see if recent trends re-establish themselves, or if the trends manage to shake themselves into a new configuration.
________________________
Notes and References
[1]: "American Treasury bonds: Too much of a good thing — A wave of new borrowing threatens a port in a storm", Economist (subscription), February 5, 2009.
In the trouble-tossed world of finance, the one safe place during the credit crisis has been America’s vast and liquid Treasury-bond market. No longer. Since touching a record low of 2.04% in mid-December, ten-year bond yields shot up above 2.9% on February 4th, continuing a sell-off that made January the worst month for government securities in decades.
[2]: "Foreign central banks’ Treasury holdings up – Fed", by Burton Frierson, Reuters, January 9, 2009.
[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.
John-
There is more interest in this story, and more concern that this could end badly:
I thought the rest of this "Seeking Alpha" article was a good read, if a bit sobering.
twist -
An important quote occurs just after the passage you cite:
Rollover is the official, big-time, equivalent of simple cheque kiting and is no more sustainable than the ABCP, SIV, etc. parts of the classic private credit crunch that governments are now trying to bail out.
The bottom line is that Justice Mahoney was dead right in December 1968 with what is known among internet conspiracy theorists as “The Credit River Decision.”
Nobody sings “Once to Every Man and Nation” in church anymore, but maybe we should all read the thing now. It’s becoming clear that the Moment of Truth in the present story arc was when Johnson refused to admit the unaffordability of Vietnam and covered up his economic failure by selling off Fannie Mae. Credit River almost certainly never came to the attention of then-President-elect Nixon, and he made things worse by creating Freddie a couple of years later. James Russell Lowell was protesting the Mexican-American War, but his argument mapped well into the 1960s, where it was ignored just as thoroughly (what’s funny is that at the same time exposure to Amy’s poetry was having a decisive influence on my own path).
Governments can fight against the tide all they want, but K-Winter demands a reboot of the money system over the next couple of years before the recovery starts.
… and yes, that was a sobering read.
I wouldn’t put too much “faith” in a decline in purchase of Treasuries. Both the law and the raw facts of power mean that there will be purchasers of Treasury notes. Do you really think we can shove our military strategy down everyone’s throat, but can’t shove our Treasuries down everyone’s throat? It’s absurd. Who controls world trade? Not us? Oh really? Let’s raise tariffs, change the tax laws, or even act informally (remember how JFK got the steel guys to yank back a rise in the price of steel) to make sure our Treasuries are “placed.”
Give it up. Only when the U.S. collapses completely will there cease to be a market for Treasuries–and then that will be because everything else has collapsed.
And also remember this: there is nothing in the Constitution which says that the Administration can’t simply enter on the books as “paid in,” amounts it is authorized by Congress to borrow. Then it can borrow at its leisure. And by “leisure” I mean that it could probably take five years to do the actually borrowing (Congress can’t “legislate from the grave,” the Surpreme Court has ruled, but it CAN enact laws which come into effect as far as five years into the future).
Didn’t know that, did you? There are MANY ways the power structure in this country, has to make the Federal Government keep it in power; it has many tricks up its sleeve you don’t know about.
You’re saying, it will matter once there is nothing up that sleeve. Wrong. It will matter when there is no sleeve.
John -
What you’re telling me is that we’ve got to the point where they have to use actual force and naked deceit mostly, instead of subtle deceit combined threat-of-force combined with occasional force for terror purposes. You know as well as I do that that will work for about 30 years, and then the final decline begins. Sounds about right
What do you mean we’ve “gotten” to the point? We’ve always BEEN at the point. No time for Pollyannas now.
The point? The point is that Treasuries are NOT the point. They are a charm on the bracelet of the powerful, a bauble, a knicknack. A thing of naught. Nothing. Poof!
So what’s the real story? Here is the real story, and it’s something I’ve been telling you for a LONG time now. But I get ignored.
Here’s the story, and my comment under it. This is really what is going on:
The Fed contracts
Susan Woodward and Robert Hall | Feb 6, 2009
The Fed has indicated that it plans to pursue a policy of quantitative easing, that is, expanding its portfolio by borrowing in financial markets at low rates and investing the proceeds in higher-yielding private investments. The Fed’s acquisition of large amounts of Fannie and Freddie’s debt was a notable success of that strategy, as it lowered their borrowing rates and thus lowered mortgage rates. But, as the graph below shows, the Fed has engaged in quantitative tightening over the past month, reducing its borrowing and reducing its holdings of higher-yielding investments. The line labed “Other assets” measures that type of investment. So far, no explanation for the Fed’s announcements of moving in an expansionary direction while actually contracting.
Originally published at Woodward & Hall weblog
My comment (on this story at Roubini–who himself is a little silly quasifascist corrupt dog):
I told you many months ago what is going on: Andrew Mellon’s “liquidate liquidate liquidate.” But no one paid any attention and I was booted off the site. Still interested in knowing the truth? Then read West Coast Hotel v. Parrish (1937). That never repealed “liquidate liquidate liquidate.” Which means that as the economy weakens, the Federal Government–responding to the powerful–WITHDRAWS FROM THE SOCIETY.
Several generations of idiots–weaned on the idea that when the economy WEAKENS the government INTERVENES–have gotten into their retarded heads the idea that the Federal Government has some sort of “commitment” to the society, and that this is somewhere “mandated.”
Silly, stupid, corrupt, mixed up people. Prepare for General MacArthur on his white house, and Obamavilles on the mall.
We will have a revolution. And guess what will happen at the end of it? We will have the new maintenance regime in power and we will do what I have been advocating for the last three years:
BAN HOUSING EVICTIONS.
Just read my wonderful book, The Eminent Domain Revolt.
John Ryskamp
I’m glad you’re following this. It’s ultimately very important and not too many people are.
John Ryskamp.
I’ll admit, I had to read your post 3 times before I responded. You seem to skip around to a lot of topics quickly. Some say that genius is hard to understand, but unfortunately they say the same thing about insanity.
Anywho…
You lost me with that point about banning housing evictions. Sounds like some freeman garbage that someone pulled out of the dustbin of the 70s and dusted off for the new housing bubble crash. A bunch of absolute rubbish if you ask me; property rights are the backbone of a prosperous free society. Once you start usurping property rights, you create a feudalistic society without access to recourse or civil liberties. If a bank can be stripped of its right to repo a house it legally owns, you strip all people of all rights related to property. That’s not a place I want to live. I guarantee you that if it comes to that, you’ll have 300Million fewer people living in your country.
I’m just sayin.
Chuck’s is the sort of uninformed mentality which has wrecked the country. Chuck, just read my book, The Eminent Domain Revolt.
Then maybe you will understand, when I ask you: what, in fact, is property. We know so little about what, in fact, is property, that the notion of “rights” in property seems to be what the ignorant come up with in order to disguise the fact that they don’t know what property is.
You are very, VERY ignorant. Scary.
Iryskmpr,
Free houses, free medical, free vehicles and free everything. No one has to work and and everybody gets everything. I do not think so.
Igor is right “sad”
Iryskmpr
Free The Eminent Domain Revolt books for everybody. Just send the books (including postage) to everybody for free.
Igor says “sad” again
Igor is also as ignorant as a swan–a black one. Sad. Hurtful–and other liberal b.s. terms. Clown Igor.