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  • Whither Treasury buyers

    One of the CFR (and $#*) arguments has been that China must buy Treasuries in order to sterilize incoming dollars and keep the yuan cheap.

    This has never set well with me, but in looking into this further it seems there are structural issues with China (or the entire world outside of the US) being able to do so.

    Specifically that there may not be enough money at all for this action even if desired.

    1) China's trade surplus with the US is only going to be between $100B and $300B this year

    http://www.outsidethebeltway.com/arc...u_s_increases/

    2) Europe's trade surplus with the US will be somewhere in a similar range:

    http://english.peopledaily.com.cn/90...5/6660221.html

    The EU trade surplus fell with the United States from 11.7 billion euros to 4.2 billion in January-February year-on-year, and with Switzerland fell from 3.1 billion to 2.2 billion.

    The EU trade deficit decreased with Russia from 12.5 billion to 7.2 billion in the same period, with Norway from 8.5 billion to 6.0 billion, with Japan from 5.3 billion to 3.7 billion.
    Other data points:

    http://www.census.gov/foreign-trade/...t/deficit.html

    Year To Date
    Deficit in Deficit in
    Millions Millions
    Country Name of U.S. $ of U.S. $

    China -16,753.76 -67,137.50
    Mexico -4,117.02 -13,805.52
    Japan -3,217.88 -12,332.19
    Federal Republic of Germany -2,223.70 -7,934.91
    Ireland -2,115.16 -7,283.52
    Russia -1,219.35 -3,713.10
    Canada -1,216.12 -6,353.87
    Korea, South -986.91 -4,983.78
    Taiwan -985.23 -4,315.18
    Italy -982.52 -4,461.45
    Even given a tripling of these numbers, the net trade surplus for the top 10 exporters to the US would be less than $500B.

    Where's the remaining $1.35T to be bought? Net Fed monetization looks like it will have to exceed $2T this year alone.

  • #2
    Re: Whither Treasury buyers

    My guess if it can't be physically brought you have to use QE to fill the gap.
    Your assumptions are glaringly obvious, which is why we all have to expend what ever it takes to fire up the world economy.
    Trade is dying - why ? what went so wrong, that in a blink of an eye, we are all much poorer than 2 years ago.
    You have banks in the US that where effectively broke but are now sitting on staggering amounts of reserves - that is not profitable to a bank long term, so they must try to do something with it to take margin and produce a profit the only way they have ability. Consumers are frightened so they are paying down debt and keeping their wallets in the pocket. Not many will take a loan risk in this current market as the "profit" for doing so poor to non existant.
    It staggers me that some distressed hard assets appear so cheap but mergers and acquisition's are non existent (except those needed to save a company)

    The numbers are short - way short- so its QE. If only green shoots were to be seen, it would inspire some confidence.
    Fear of the future has everything frozen - this is unsupportable in a debt based, world monetary order. Interest must be paid out of profit. Borrowing to pay your bills just makes the hole deeper. But you must function somehow.

    Comment


    • #3
      Re: Whither Treasury buyers

      Now with the credit crisis easing, and the old men in the CCP are convinced that further plunges in US exports will not result in Tiananmen 2.0, there is a possibility that the Chinese have already secretly sent an ultimatum to the US government not do further QE or they join Russia's call to dump treasuries.

      If that were the case, and Geithner will have to scale back on the bank bailouts as a result, the market may be in for a shock.

      Comment


      • #4
        Re: Whither Treasury buyers

        Read it and weep it's not back on track, Credit crisis has not eased it just got liquidity back but it hasn't filtered through yet, it's just in reserve.
        Its just not the almighty US. Japan is on its knees, Europe is not far behind - look exports /trade has not kicked. It on average down 12% around the world and in japan 45%. Car sales in the US are down some 40% and that affects NOT only the almighty USA it hits Korea/japan/Europe and even Australia (yes we lost the Pontiac GTO/ G8 cars - great as they are). Food is fine as you would expect. Coal/ Iron ore is down/Aluminium/ Oil is in flood but some one wants to kick the price.
        Back to raising funds to keep you running -cant sell the Bonds abroad to buyers (who by the way followed orders and are looking to sell massive amounts to fund the pump) then you have only one option - QE - buy them yourself. there is no other out. I support QE because it keeps the system running until it is self supporting again. Think, 'life support' to keep you breathing.
        Australia is one twelfth the size of the USA - we need $300 billion to fund our share of stimulus. Multiply x 12 and what you need is about the same at $3.6 Trillion. We are not alone England Japan Europe Canada Germany in fact all the G20 have to raise funds about the same amount relative to size. Just tell me - where the F%@#k we are going to find it unless we print it. There are not enough $, pounds yen d/marks/euros/rubles/ or sea shells to go around, they have gone to the black hole / vortex of god knows what sent asset values south and put the fear of Christ into every capitalist.
        It's not available - short the readies/ no folding/ bubkas/ zilch/ busted/ crapped out/ short the green.
        Print it if it can't be sold on the open market - it is that or
        Anarchy

        Comment


        • #5
          Re: Whither Treasury buyers

          some are saying that the reserves are going to go to buying treasuries, another stock plunge will aid the effort selling treasuries domestically

          Comment


          • #6
            Re: Whither Treasury buyers

            Originally posted by c1ue View Post
            One of the CFR (and $#*) arguments has been that China must buy Treasuries in order to sterilize incoming dollars and keep the yuan cheap.

            This has never set well with me, but in looking into this further it seems there are structural issues with China (or the entire world outside of the US) being able to do so.

            Specifically that there may not be enough money at all for this action even if desired.

            1) China's trade surplus with the US is only going to be between $100B and $300B this year

            http://www.outsidethebeltway.com/arc...u_s_increases/

            2) Europe's trade surplus with the US will be somewhere in a similar range:

            http://english.peopledaily.com.cn/90...5/6660221.html



            Other data points:

            http://www.census.gov/foreign-trade/...t/deficit.html



            Even given a tripling of these numbers, the net trade surplus for the top 10 exporters to the US would be less than $500B.

            Where's the remaining $1.35T to be bought? Net Fed monetization looks like it will have to exceed $2T this year alone.

            Why do foreign governments need a trade surplus to buy US Treasuries? They, too, have central banks. Can't foreign central banks create money out of thin air, exchange it for dollars and use it to buy US Treasuries?

            Comment


            • #7
              Re: Whither Treasury buyers

              Originally posted by dummass View Post
              Why do foreign governments need a trade surplus to buy US Treasuries? They, too, have central banks. Can't foreign central banks create money out of thin air, exchange it for dollars and use it to buy US Treasuries?

              why would any foreign central bank destroy their own currency to buy US treasuries? Bernanke will need to play bad guy.

              Comment


              • #8
                Re: Whither Treasury buyers

                Originally posted by marvenger
                some are saying that the reserves are going to go to buying treasuries, another stock plunge will aid the effort selling treasuries domestically
                Marvenger, I'm pretty sure this is not your sentiment.

                But 'some' who are saying that CB reserves will be used to buy Treasuries miss out that a significant fraction of CB reserves is already in dollars - i.e. probably around 40% to 50%. Thus unless all the reserves in the world become dollars...well it seems unlikely that existing reserves of euros, gold, whatever will be switched out as these all have their purpose as well.

                Originally posted by dummass
                Why do foreign governments need a trade surplus to buy US Treasuries? They, too, have central banks. Can't foreign central banks create money out of thin air, exchange it for dollars and use it to buy US Treasuries?
                Theoretically yes. But of course the reason foreign CBs buy other nation's reserves is to provide buffers for trade and to sterilize incoming money.

                If there is no trade nor incoming money, why would they print money to buy other nation's money? At that point the subsidy is becoming too transparent - better to just ship off piles of gold or whatever for free.

                The analogy is inflation due to money printing: this form of inflation is nasty because it steals from every existing currency holder and gives it to the printing entity.

                In the US, this is the Fed and Treasury printing and giving the resulting stolen value to the big banks.

                A foreign CB printing its own money to buy some other nation's currency and bonds is then stealing from its own people and itself to give to the other nation.

                Once again, there are several points I'm trying to convey:

                1) The previous Great Depression was due to the reversal in the previous flow where all the money in the world coming into the US to serve as margin capital.

                Today our present situation is very similar in effect: most of the money in the world was coming into the US to inflate the housing bubble via currency account deficits (Asia) and purchased mortgage backed securities (Europe) and equity in US companies (Gulf nations, Singapore).

                These flows are greatly reduced or gone (CAD reduced, MBS gone, equity gone)

                2) Given the above, the amount of money which the Fed and Treasury are trying to make up via various lending/printing/QE programs isn't merely a large fraction of the US economy...it is a large fraction of the world's money.

                3) Unless the ROW is complicit, a failure for ROW to support the Fed and Treasury's program will mean these august institutions will be trying to make up for the entire ROW's financial contributions to the US economy.

                As the ROW is adjusting to their new level of economic activity, and furthermore seem to not be interested in playing the US game - except perhaps China, a failure of the Fed+Treasury program could be more catastrophic than it seems.

                Comment


                • #9
                  Re: Whither Treasury buyers

                  Originally posted by c1ue View Post
                  As the ROW is adjusting to their new level of economic activity, and furthermore seem to not be interested in playing the US game - except perhaps China, a failure of the Fed+Treasury program could be more catastrophic than it seems.

                  I don't think the Chinese will be playing this game very much longer. They are just waiting a bit more to see if massive political unrest will breakout if more factories close down.

                  Comment


                  • #10
                    Re: Whither Treasury buyers

                    Originally posted by thunderdownunder View Post
                    Read it and weep it's not back on track, Credit crisis has not eased it just got liquidity back but it hasn't filtered through yet, it's just in reserve.
                    Its just not the almighty US. Japan is on its knees, Europe is not far behind - look exports /trade has not kicked. It on average down 12% around the world and in japan 45%. Car sales in the US are down some 40% and that affects NOT only the almighty USA it hits Korea/japan/Europe and even Australia (yes we lost the Pontiac GTO/ G8 cars - great as they are). Food is fine as you would expect. Coal/ Iron ore is down/Aluminium/ Oil is in flood but some one wants to kick the price.
                    Back to raising funds to keep you running -cant sell the Bonds abroad to buyers (who by the way followed orders and are looking to sell massive amounts to fund the pump) then you have only one option - QE - buy them yourself. there is no other out. I support QE because it keeps the system running until it is self supporting again. Think, 'life support' to keep you breathing.
                    Australia is one twelfth the size of the USA - we need $300 billion to fund our share of stimulus. Multiply x 12 and what you need is about the same at $3.6 Trillion. We are not alone England Japan Europe Canada Germany in fact all the G20 have to raise funds about the same amount relative to size. Just tell me - where the F%@#k we are going to find it unless we print it. There are not enough $, pounds yen d/marks/euros/rubles/ or sea shells to go around, they have gone to the black hole / vortex of god knows what sent asset values south and put the fear of Christ into every capitalist.
                    It's not available - short the readies/ no folding/ bubkas/ zilch/ busted/ crapped out/ short the green.
                    Print it if it can't be sold on the open market - it is that or
                    Anarchy
                    Mega 2.0

                    ..........!
                    Every interest bearing loan is mathematically impossible to pay back.

                    Comment


                    • #11
                      Re: Whither Treasury buyers

                      BTW - bart was kind enough to provide some data on world liquidity to put the present situation in more perspective.

                      I'll leave it up to him to provide the pics since this data is not linked to on www.NowandFutures.com

                      TOTAL US+EU+Japan+China credit is around $60T

                      TOTAL US+EU+Japan+China broad money supply is around $37T

                      TOTAL US+EU+Japan+China cash/narrow money supply is around $12T

                      Given that these 4 areas comprise the bulk of the money in the world, the $13T the Fed+Treasury has kicked out in all directions bank-wise is a significant percentage even of total credit, much less the others.

                      Even the $2T deficit we're looking at this year is a big chunk for just one year. And there is at least one more after it with 2 smaller after that! And those are the optimistic projections?

                      Comment


                      • #12
                        Re: Whither Treasury buyers

                        They came back today.

                        Watch the Fed pull more liquidity, and we can get the 10yr back under 3% in a jiffy.

                        Comment


                        • #13
                          Re: Whither Treasury buyers

                          Originally posted by touchring View Post
                          why would any foreign central bank destroy their own currency to buy US treasuries? Bernanke will need to play bad guy.
                          I believe export nations like Japan do this all the time. The print their currency and buy US treasuries to lower the value of their currency so as to stimulate exports while simultaneously lower the cost of borrowing for US consumers and government.

                          Comment

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