US National Debt Spiked by $1.3 Trillion in 12 Months, to $23 Tn. But Who Bought This Pile of Treasury Securities?

The Fed opened the vault in September. But others bought too.

The US Gross National Debt has jumped by $1.28 trillion as of today, compared to 12 months ago, to $23.04 trillion. And these are the good times. The economy is rocking and rolling, we’re told. How will this debt balloon during the next economic downturn? Yes, that was a rhetorical question. It’s better to not even think about it. And no one is thinking about it:

But who the heck is buying all this debt?

Every dollar of this debt exists in form of Treasury securities that someone must have bought and must own. In terms of foreign holders, we got some answers in the Treasury Department’s TIC data today, which shows how much of this debt was held, bought, or dumped by foreign investors through the end of September. And we can glue the other pieces together from the Fed’s balance sheet and from the Treasury Department’s disclosures.

Foreign holders dumped in September but are way ahead year-over-year.

All foreign investors combined – “foreign official” holders such as central banks and foreign private-sector investors of all stripes – dumped $84 billion in US Treasury securities in September. But compared to September 2018, their holdings were up by a massive $551 billion.

In the prior month, August, foreign holders had set a record with $6.86 trillion in Treasuries! September was just tick-down from that record and remains the second highest ever.

The chart below shows the holdings at the end of each quarter, in trillion dollars (blue line, left scale) and as a percentage share of total US debt (red line, right scale). In dollar terms, Q3 spiked to a new record. But their percentage share continued the uneven decline that started in 2015, to 29.8% of total US debt, as foreign investors are loading up on US government debt, but at a slower rate than the rate by which the debt increases:

The Big Two Foreign Creditors of the US.

Japan, which had become the largest US creditor once again in June, bypassing China, shed $29 billion of its Treasury holdings in September, but its holdings still surged by $118 billion over the past 12 months, to $1.15 trillion, which remains below the peak in 2014 of $1.24 trillion.

China has kept its Treasury holdings roughly flat over the past two months, at $1.10 trillion, but has shed $49 billion over the past 12 months:

The relative importance of Japan and China as creditors to the US has been declining gradually for years, as the US debt has ballooned. Their combined share has dropped to 9.9% of the total US debt:

The top 10 Also-Rans among Foreign Creditors of the US

Far behind Japan and China are the next 10 major holders, most of them associated with financial centers of some sort such as London and Belgium (home to Euroclear, which handles large amounts in fiduciary accounts) and tax havens for corporate or individual entities.

Mexico and Germany, with which the US runs the second and third largest goods trade deficits after China, are not on the top 10-behind-China-and-Japan list; They’re in 22nd and 20th positions – being a big net exporter to the US doesn’t mean that Treasuries need to pile up in the country (in parenthesis, Treasury holdings in September 2018):

  1. UK (“City of London” financial center): $346 billion ($276 billion)
  2. Brazil: $301 billion ($317 billion)
  3. Ireland: $274 billion ($290 billion)
  4. Luxembourg: $253 billion ($227 billion)
  5. Cayman Islands: $239 billion ($200 billion).
  6. Switzerland: $231 billion ($226 billion)
  7. Hong Kong: $224 billion ($192 billion)
  8. Belgium: $218 billion ($165 billion)
  9. Taiwan: $189 billion ($166 billion)
  10. Saudi Arabia: $182 billion ($176 billion)

Over the past 12 months through September, foreign investors increased their holdings by $551 billion. Over the same 12 months through September 30, the US debt ballooned by $1.203 trillion. In other words, foreign holders bought 46% of the new debt.

Who else is there? The US holders…

The Fed shed $25 billion in Treasury securities over the past 12 months. But… it had been shedding Treasury securities through July as part of its QE unwind. By September, it had ended its QE unwind and was replacing mortgage backed securities on its balance sheet with Treasury securities at a rate of about $20 billion a month. And then in mid-September, it began bailing out the repo market.

So in the month of September, its holdings of Treasuries increased by $22 billion; and its holdings of repurchase agreements of Treasury bills soared by $181 billion, for a total increase of $203 billion in the month of September, making it the biggest single buyer of Treasuries in the world in September, and bringing the combined amount of Treasury securities and repurchase agreements involving Treasury securities to $2.29 trillion.

US government entities bought $173 billion in Treasury securities over the 12 months, bringing their total holdings to $5.9 trillion by the end of September. These Treasury securities (“debt held internally”) are held by the Social Security Trust Fund and government pension funds and belong to the beneficiaries of those funds.

Other US entities – American banks, institutions, and individuals – bought the remaining $503 billion of Treasuries over the past 12 months, bringing their total holdings to $7.74 trillion, or 34.1% of the total US debt.

This includes the “primary dealers,” the broker-dealers with which the Treasury Department does business. They ballooned their holdings over the 12 months by 70%, or by $79 billion, to $190 billion.

And it includes banks that are not among these primary dealers, bond funds, pension funds, hedge funds, businesses with cash balances that they don’t want to keep in a bank, private equity firms and distressed-debt funds keeping their powder dry until opportunities arise, and individual investors via their accounts at Treasurydirect.gov or at their broker. In short, American institutions and individuals held 34.1% of the huge and ballooning pile of US gross national debt:

It was the fastest increase in the Fed’s assets for any two-month period since the post-Lehman freak show in late 2008 and early 2009. Read… Fed Goes Nuts with Repos & T-Bills but Sheds Mortgage Backed Securities

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  90 comments for “US National Debt Spiked by $1.3 Trillion in 12 Months, to $23 Tn. But Who Bought This Pile of Treasury Securities?

  1. Mike Earussi
    Nov 19, 2019 at 4:12 am

    We might as well give up hand ringing over the deficit, it’s never going to stop, it can’t, the alternative would be total economic collapse.

    This is a new economic paradigm, one we don’t fully understand yet, based on how much can be manufactured, distributed and bought, not on how much money is in circulation. As long as there’s plenty of “stuff” to buy and as long as others are willing to take our money in exchange for it the dance can (seemingly) go on forever.

    One reason for the purposeful concentration of the wealth into just a few hands is that if all the money printed were more equitably distributed, the increased economic stimulation might overwhelm the ability of the manufacturing sector to keep up with the increased demand triggering inflation, which could collapse the entire economic system, not to mention the dramatic increase in pollution that would also follow.

    But as it is now, the careful filtering of money into the lower classes creates a balance between demand and production which keeps things in check.

    “Real” money hasn’t existed since the world went off the gold standard, but it’s taken us 100 years to figure out the full implications of that, and no one is sure where this is going to take us or where the journey will end.

    • Unamused
      Nov 19, 2019 at 7:12 am

      no one is sure where this is going to take us or where the journey will end.

      The accuracy of this assertion would improve if I changed my handle to ‘No One’.

      Multivariate extrapolation could tell you where it’s going and how it ends, more than you might care to know. Of course, you won’t be able to do much about it, but you might buy some time, even though it’s bound to be unpleasant and you may not want to. It might be better than trying nothing and being fresh out of ideas.

      Contrary to popular belief, predicting the future isn’t actually impossible. It’s why people make budgets and have appointment calendars. There are many examples.

      • M. Everett
        Nov 19, 2019 at 9:23 am

        Very good Unamused. I figured out early in life predicting the future was not that hard. Like the time I knocked my little brother out of a tree with a nice sized walnut. I was too young to flee the country, so there I was faced with a most certain future and I predicted it with 100% accuracy.

        In the early nineties I started becoming nervous over the direction of our nation/economy as a whole. Today, I am not nervous at all. I feel the same panic I did when I heard that little twerp hit the ground with a loud thud. But now I am too old to flee the country.

      • Iamafan
        Nov 19, 2019 at 10:13 am

        “Multivariate extrapolation”. Isn’t that what N. Taleb would likely call the tools of a “charlatan” ?

        • Unamused
          Nov 19, 2019 at 12:31 pm

          If you prefer to believe that present trends are sustainable and not inevitably catastrophic I would be pleased to know that you have proceeded accordingly, without first checking with Nassim to assure yourself of the validity of my methods and conclusions.

        • LessonIsNeverTry
          Nov 21, 2019 at 4:24 pm

          “Multivariate extrapolation” and Taleb. Indeed he would. Nothing wrong with some multivariate analysis but we always have to be aware of its limitations, especially in the manner Unamused implies (but perhaps does not mean??) with the term extrapolation.

      • Nov 19, 2019 at 12:30 pm

        I don’t trust any chart where the largest major holder is “Other”

        • Iamafan
          Nov 19, 2019 at 12:46 pm

          Funny. In some studies, Hedge Funds are lumped with Households.

          In the same token, I would like to see many commenters support their positions with numbers and data. That way we can have a great discussion.

        • Unamused
          Nov 19, 2019 at 1:55 pm

          I would like to see many commenters support their positions with numbers and data.

          Translation: “I want proprietary information and consulting services free of charge.”

          You can’t afford me. Take the motherly advice.

      • LouisDeLaSmart
        Nov 19, 2019 at 1:51 pm

        \\\
        Dear Unamaused, it tried to figure out where the place Wazoo is (the place we are going apparently based on Wolf’s chart) but “Google Maps can’t find wazoo”. If our saviour Google doesn’t know, then…all hope is lost…Unless we find and name a random shed ,that is falling appart somewhere in the middle of nowhere, and call it Wazoo.
        \\\
        Hmmm…if one had to associate an image with the current situation and word wazoo, what would it be?
        \\\

    • Gandalf
      Nov 19, 2019 at 8:24 am

      Logic and a couple thousand years of economic history says otherwise. US debt can’t go to infinity for the simple reason that the money to buy all those US Treasuries can’t go to infinity, unless that money becomes massively inflated. The US is not Japan, with a hermetically sealed society, and it can’t do QE to infinity. Even Japan can’t do QE to infinity.

      • Todd
        Nov 19, 2019 at 9:22 am

        But it can go on to infinity, as long as the rate of growth of the economy (e.g. GDP, but that’s not a great measure) is greater than the rate of growth of the debt.

        • Gandalf
          Nov 19, 2019 at 11:40 am

          The GDP is not growing as fast as the debt already. It NEVER does, when the increased debt growth is that’s why the Laffer Curve, as interpreted by small government enthusiasts (mainly Republicans and other Ayn Rand cultists), is a total fraud.

          Cutting taxes may boost the economy (GDP) and increase revenues slightly, but NEVER increases the economy and government revenue enough to offset the original tax cuts.

          Even Laffer has admitted this fact. But the Ayn Rand cult march on, blindly, like lemmings over a cliff

        • Gandalf
          Nov 19, 2019 at 11:44 am

          *correction*
          …when the increased debt growth is mainly from tax cuts. That’s why the Laffer Curve is a total fraud.

        • Nov 19, 2019 at 12:47 pm

          Debt to GDP ratio of Turkey is about 30%, Argentina is 86% while the US is over 100%. That foreign debt is held to some extent in dollars. US states also have better fiscal probity than Washington, even the bad ones. To paraphrase Doug Noland, the periphery is winning, and how money gets from Wall St to Main St and beyond will be the biggest capital flight show ever. This is also why corporate bonds (multinationals) are outperforming even while their ratings go south. A few years ago the recession was predicated on a consumer pullback, and the analysts said “So What?” we are going for the global consumer, and they were early, not necessarily wrong.

      • Mike Earussi
        Nov 19, 2019 at 10:45 am

        Yeah, but watch them try.

    • freewary
      Nov 19, 2019 at 8:37 am

      “. . .alternative would be total economic collapse”

      Nonsense! Fearmongering!

      Did people engage in business and provide for their families before the USA’s Fed/Deficit system was invented? Are you saying people would not be interested in business, providing for their families, improving their lives unless they have an unconstitutional beastly federal govt and federal reserve lording over them? So without a Federal Reserve will everyone just stop all activity and lay down and die?

      Would it really be a bad thing for the economy if all the non-productive people who get their income and wealth from the Fed diluting the currency had to get real skills and do real work?

      End the Fed. Just do it in one day.

      • Mike Earussi
        Nov 19, 2019 at 11:08 am

        The U.S. economy is incredibly fragile, just look at how easy it was to collapse in 1929 and almost collapse in 2008. Everything is too interconnected. You break one strand and the whole thing risks falling apart.

        The Fed, and the other central banks addicted to cheap money, have a tiger by the tail and are afraid to let go for fear of the consequences. Dumping unlimited amounts of fiat money into an economic system in the past has inevitably led to hyper inflation and may do so today.

        But technology is a game changer. Information technology enabling the government to keep much better track of where the money is and who has it gives them new power to control the economy regardless of how much money is “printed.”

        Can they pull off this new economic paradigm? Who knows, maybe, maybe not. But this uncertainty won’t keep them from trying. They’re addicted to it and like any drug addict can’t quit. I actually hope they can make it work because the alternative is a total system failure worse than 1929 and I don’t personally want to go through that.

        • Bobber
          Nov 19, 2019 at 1:46 pm

          Because of the technology you mention, the economy has greater potential to recover than during the Great Depression. Things recover very quickly these days, as evidenced by recoveries after the 2000 and 2008 bubbles.

          After asset prices drop, new information spreads quickly, allowing strong financial hands to support asset prices, albeit at a lower level. It’s the drop in asset prices that causes people to invest in the future. During a period of asset price overvaluation, nobody will invest, except speculators.

          The only real solution, when the economy starts underperforming, is to let asset prices drop. There would be employment dislocations as prices find their new equalibrium, but such dislocations would be temporary. It is the fear of these temporary dislocations that is now unfairly jeopardizing future generations.

        • sunny129
          Nov 19, 2019 at 2:40 pm

          To Bobber:

          ‘evidenced by recoveries after the 2000 and 2008 bubbles’
          how?
          Along with monumental increase in the level of DEBT on debt ( public/Private) unlike any time in history! DEBT fuelled recovery and DEBT induced pseudo growth!

        • Tyson Bryan
          Nov 19, 2019 at 3:51 pm

          “Technology is the game changer”. Information technology enabling such intelligence enterprises as Apple, Google, Microsoft, Goldman Sachs, Intel, Ali-baba & Amazon etc. etc. to keep much better track of where their money is – and keep it hidden in high frequency ledgers of exchange.
          These corporations exercise their right to privacy (4th amend) & secrecy (10th amendment) to maintain the security & integrity of the ledgers.
          The money (or credit) these corporations control has super-liquidity due to vastly superior speeds of transfer from position to position. They can stay afloat and lead very long corporate lives via this higher speed / superior liquidity.
          Compared to say, gold & silver bars and paper bills which are very slow. It’s a matter of degrees of liquidity. Front running everyone else can keep you alive.

        • Happy1
          Nov 20, 2019 at 8:45 am

          Can they pull off this new economic paradigm?

          This isn’t new. Money printing results in a debased currency. It will not and cannot end well. The laws of economics have not been suspended. There still is no such thing as a free lunch in the long run.

      • Iamafan
        Nov 19, 2019 at 12:12 pm

        Bartering sounds like an ancient idea. But never say never.

      • NBay
        Nov 19, 2019 at 8:47 pm

        Us totally business/economic ignorant scientists are standing by to add an extra room to the planet (complete with natural resources) as soon as the visionary manager comes along to deem it necessary and write a proper business plan for us. BTW, Fusion power is coming any day now, we are just having some minor technical difficulties.
        We await further orders, sir.

      • Deanna Johnston Clark
        Nov 20, 2019 at 4:28 pm

        With fast food, demoralizing entertainment, the corruption in institutions Americans have been DRIVEN into sloth and cynicism.

        Some just refuse to go that way…they have a baby they love or a parent., they get up early and find some sort of job, from raking leaves to pushing grocery carts if necessary…they invite relatives to live with them…but, BY GOD, they won’t be driven into the anomie. Once you make the resolve, good things happen and God puts people in your path to help. Seen it happen to boomer hippies in the 60s and see it now.
        Takes a huge effort of determination.
        And a light heart.

    • Bobber
      Nov 19, 2019 at 11:42 am

      There are clear signals the status quo cannot go on forever.

      Debt is increasing faster then GDP. This is clear indisputable evidence of unsustainability.

      Pension payments are in clear jeopardy.

      Civil strife is accelerating. In fact, the wealth tax and basic income are now seriously being discussed.

      And central banks are being criticized like never before for unfair untested policies that make no sense, not even in theory.

      On the other hand, there is little evidence suggesting the status quo can last forever. The main argument is that it’s lasted twenty years, so there must be a new paradigm. Well, twenty years is not forever. It’s one hand in a game of Texas hold’um.

    • Alex
      Nov 20, 2019 at 7:31 pm

      It won’t stop, but you can cast your vote against this insane monetary policy of ballooning deficits and money printing by using Bitcoin – a currency governments can’t control or print at will.

    • mike
      Nov 20, 2019 at 9:33 pm

      I agree with some of your comments, but the idea that there is no solution and that this will always continue is self-defeating and not what will ultimately happen. Our military has been used to take over oil fields and protect other assets for the wealthy.

      We are spending hundreds of billions protecting the ultra wealthy’s control of and investments in foreign countries. The French revolution showed oligarchs what ultimately happens when they abuse the common people enough and put them in dire situations enough.

      While the situation is not that dire in the US, for now, the worsening budget shortfall and the $210 trillion in US liabilities, show the direction in which our current kleptocracy is heading. We can make this a true democracy again in which billionaires cannot just control our politicians by reaching for their checkbooks

      The ultra rich in America have enough money to enable the US to have a balanced budget every year. We are making a decision to enable them to hide assets in other countries (e.g., as shown in the news reporting as to the Panama papers), evade taxation on foreign investments by having foreign income not taxed until it is brought back to the US (and then forgiving part of the taxes on the worst offenders), evade paying their workers enough (so that their workers must get government help through food stamps and Medicaid), etc., and therefore, live mostly as parasites off the majority that pays a fair share of taxes.

      In the book “Winners Take All” which is discussed in MSNBC “Is Taxing The Ultra-Wealthy Punishing Success” a news organization finally has the courage to point out that the ultra wealthy have profited from a twisted system. It is not that individually all of them are bad (albeit I believe that some of them are sociopaths, e.g., the opiod, cigarette, oil, and pesticide barons.)

      Some of the ultra rich may be good people who have benefited from an unfair system: like the white men who benefited from our long time prejudice against African Americans or women and thereby received jobs that they would not have gotten but for that prejudice. Can we not take action to deprive the beneficiaries of a twisted system of their goodies, even if they were gotten through luck?

      The solution to our problem is simple: a significant wealth tax, because history shows that our income tax system can be gamed. That is clear. Having assisted in estate planning, with tax considerations, and represented the ultra rich, I can assure you that once you are rich enough, paying income taxes becomes optional: e.g., one of your friends’ banks can lend you money to live on and one of your companies can invest in that bank or some other way to help your gracious friend.

      Thus, a wealth tax (which would force the ultra rich to have to disclose their hidden wealth, which is hidden all over the world in often criminal schemes, as disclosed in the Panama papers investigation) would enable our government to force the oligarchs to pay a fair share of taxes on all of their windfall profits, since the 1980s.

      Even Republican voters are getting behind the proposal for a wealth tax. It is just like a property tax, but designed to require payment on all wealth. Why should investors in other options not be taxed like investors in real estate?

  2. Old-school
    Nov 19, 2019 at 6:36 am

    I became a big buyer of short term treasuries when the sp500 went above 2100 as a place to hide out for a while til next recession came. I am still waiting, but I am pretty sure I will get a chance to buy back in below 1500. If not I am ok drawing the 1.6% to almost stay with inflation and sleep at night.

  3. David Hall
    Nov 19, 2019 at 7:05 am

    Foreigners own a substantial share of the stock market too.

    • Just Some Random Guy
      Nov 19, 2019 at 10:19 am

      About 20%. But it’s a bit misleading since a substantial number of companies traded are also foreign. So a lot of that is foreigners owning shares of foreign companies that happen to be traded in the US.

      • Mike
        Nov 20, 2019 at 11:19 pm

        If you were familiar with how very wealthy people hide wealth, e.g., as discussed in the Panama papers, you would not be so sure ascribing a percentage of foreign ownership to any stock market. I do not think that we know who owns what in the world, except maybe in countries where foreign ownership is barred and the wealthy do not find some paper owner who will own property on their behalf safely.

        That is why I became so excited at the idea of a wealth tax, because I know that just making the very rich disclose their vast holdings (e.g., if there is a forfeiture penalty for concealment of wealth) would be a big step forward. As in the 1930s, despite the excellent legislative changes of FDR, market manipulation is still possible. Wealthy groups can still push up or down the prices of securities, because the hidden wealth is vast.

        I also wondered if many commentators in finance are not engaging in pump and dump schemes for them: e.g., talking up a particular security or “coin”, so that the wealthy later can sell it at a greater profit. Concealment of vast wealth allows the vast corruption that has taken over our politicians.

  4. unit472
    Nov 19, 2019 at 7:34 am

    Well, so far, you can buy US Treasuries and, unless you end up on the Specially Designated National list, you can sell them too so they are liquid for the time being.

    How much longer this situation lasts might be the question. China has capital controls and it looks like the EU is sliding in that direction via its ‘Green’ initiatives. The EIB will no longer finance any project involving ‘fossil fuels’.

    In the US there is concern that including China in the MSCI indices will have the effect of exporting capital to China when the US government is working to stop this.

    While all eyes are on a putative US/China Trade Deal it looks to me like the world is fragmenting into rival financial regimes and that seamless world where capital was able to move to where it could generate the highest return is falling apart.

  5. Unamused
    Nov 19, 2019 at 7:46 am

    The past is gone. The future doesn’t exist yet. Those who say There is no time like the present say a foolish thing. In fact, there is no time but the present. But that is another story and shall be told another time.

    It is easy to rob the future. Since it doesn’t exist yet, it cannot protect itself from plunder. And if you rob it enough you won’t have one. This is the present situation.

    Individually and collectively, people owe many debts. Except me. Mine are all paid for. Not all debts are financial, but those are the ones that seem to cause people the most distress, at least until the unpayable ecological debts fall due, so let’s focus on financial debt here.

    Debt can be constructive or destructive. Debt that is used constructively pays to generate economic capacity that is more than sufficient to improve life and still repay the debt. So it enhances the present, and enhances the future and does not rob it.

    A lot of the debt that’s rolling up now cannot be repaid and does rob the future. Along with the skyrocketing US national debt, there is also the skyrocketing business debt and the skyrocketing household debt and the skyrocketing debts in other countries. Using debt to pay expenses may buy you some time, but it is not constructive. That’s bad. It robs and diminishes the future. And there’s a lot of it, and it’s increasing fast, and present trends indicate it will eventually diminish the future completely.

    These are the good old days, so enjoy them as you can. Don’t worry about me. I’ll be just fine.

    Anticipation
    Anticipation
    Is making me wait
    Is keeping me waiting

    • Lisa_Hooker
      Nov 20, 2019 at 9:20 am

      Unamused, I always appreciate your comments.
      Laissez les bons temps rouler as they say.
      For myself, Eclatons-nous!

  6. Lance Manly
    Nov 19, 2019 at 8:01 am

    It will be interesting to see what happens when a central bank admits they are just monetizing the debt. My guess is the BOJ, the US is an also ran. The safe haven status seems to keep it under control and they are begging for inflation. Works for now and probably will… until it doesn’t.

    • Bobber
      Nov 19, 2019 at 12:49 pm

      When will inflation arise?

      Put yourself in the shoes of the wealthy, who have the power to spend and create inflation. Imagine you are making money hand over fist. The green stuff keeps coming like waves on the sea shore. You have monopolies, Federal Reserve policy, tax policy, legislation, media, etc., all working in your favor as an efficient well-oiled machine. You have many faithful, obsequious servants that admire and respect your position, and you are put on a pedestal as “job creator”, a person with exclusive power to trickle a modest living down to those who apparently can’t produce or invent on their own. They live to serve you.

      What do you do with all the money that keeps rolling in? You’ve already bought the Tesla, the yacht, the closet full of $5,000 suits, so you have nothing to spend on. Trading in a $20M home for a $100M home seems stupid and pointless, even though some of your buddies are doing it.

      The only challenging thing to do is build a personal empire. You try to see how much wealth you can build. The further up the ladder you climb, the more accomplished you feel. You enlist the help of Goldman, get inside information, sit on some boards, do some peddling and pandering, all in hopes of winning the game or at least reaching the upper echelon of wealth and “respect”. You are long past the cheap thrill of spending.

      You consider investing in a business venture, but all the good seats are already assigned in the current rigged regime. Until anti-trust law is enforced and a level playing field results, you milk your existing businesses and keep your money in a diverse set of passive investments, including stocks, bonds, RE, private equity, and hedges. As long as the Federal Reserve insists on artificially propping up these assets, you can’t lose. And, if the view of the Federal Reserve ever does change, you’ll be the first to know with help from your friends at Goldman, who have frequent closed door meetings with the Fed via the revolving door.

      So when will inflation arise? It likely won’t rise convincingly until the passive asset bubble pops, asset prices drop, there is some semblance of a fair market, and you feel safe investing in real business assets such as employees, research, and productive equipment. Until then, everything is put on hold, and you let the Federal Reserve continue to put more wealth in your pocket, for as long as it pursues a misdirected, futile, and stubborn policy of monetary stimulus.

      • IdahoPotato
        Nov 19, 2019 at 2:03 pm

        Talking of inflation there’s a Columbia University study that points out how income inequality exacerbates inflation inequality and vice versa.

        https://groundworkcollaborative.org/wp-content/uploads/2019/11/The-Costs-of-Being-Poor-Groundwork-Collaborative.pdf

        Increased competition to produce goods catering to the affluent drives down their prices, while goods and services that the less affluent need – like food, housing, utilities, housing and healthcare – keep going up.

        But the FED bases its decisions on one inflation measurement that averages consumer price growth for all income groups, ignoring the disparity in how it affects different groups. Whenever the FED tries to boost inflation, the negative effects on the poor and middle class are disproportionate.

        Real inflation-adjusted incomes for the bottom 20% of incomes dropped 7% from 2004 to 2018. The offically reported decline, on the other hand, is 1%.

        The average middle-income household lost about $1,250 of purchasing power through 2018 to higher prices attributable to inflation inequality, according to the study. This is not reflected in the offical data.

      • Lisa_Hooker
        Nov 20, 2019 at 9:26 am

        Kudos! Very, very cogent observation and well written.

      • Deanna Johnston Clark
        Nov 20, 2019 at 4:32 pm

        Deep down, people want to be happy…and that isn’t the way.
        Pleasure isn’t happiness…which is in the heart and mind.
        The old saying is, “People never get enough of what they don’t want…”

    • Frederick
      Nov 19, 2019 at 12:57 pm

      I’m just waiting for Deutschebank to get under 6.60 a share That’s the point Charles Nenner claims it could get a bit dicey

  7. Julius Baer
    Nov 19, 2019 at 8:14 am

    A concern is when creditors get a big say in government policy. With Trump in the WH (bankruptcy guy) creditors are sweating to appease the USgov I reckon. I think the comparison to the budget office plans wrt Trump tax cuts matters a little, and it is still in line with what was expected. Trade deficits mean that US consumers can buy on credit indefinitely, not work, not manufacture. Trump tries tariffs to stem the flow. Normally, creditors would import stuff from the USA but it is not known for quality (outside weaponry), more for bulk really so instead they invest in the US. Japan’s “credit” is a “tax-deductible business loan”: payment for the protection racket. Debt has little meaning when the worst that can happen does not involve needing to do physical work (sitting at a post all day) or get an actiual limit on a CC until it goes Ch. 7 while protecting necessary assets like a car or gets rolled through “bail outs”. It’s all meaningless really more an education issue. The trick is to see that and exploit the moral hazard. It’s just left side and right side of a sheet of paper. Debt has no more moral meaning than cereal. Stack up CC’s, park the money safely, Ch. 7/11, repeat.

  8. Kevin Willbond
    Nov 19, 2019 at 8:37 am

    This system is based, unfortunately on debt and a government who “spins” reality. Those two factors alone better wake you up, because both are increasing daily. Personally, I am debt free now. I owe no one. The world is awash in record debt and ALL Central Banks are net buyers of gold. History repeats itself and the idea that “it will be different this time,” is sheer ignorance. In short, wake the hell up and protect yourself, and think outside the box.

    • Zantetsu
      Nov 19, 2019 at 12:32 pm

      Yeah but what I can’t figure out is, is it better to maximize debt because when everything blows up your debts won’t matter, or better to minimize debt, because when everything blows up your debts will kill you. Anyone have any clue they can share?

      • Bobber
        Nov 19, 2019 at 1:24 pm

        My opinion….

        The best course of action is to stay clear of debt. Don’t get into large debts, and don’t own large debts as an investment. The safe investments are hard assets, especially those that can be used to produce wealth, such as housing (which generates rents, or eliminates your own rental payment), and quality stable businesses of all types that generate steady cash flow. Precious metals, which are highly volatile but uncorrelated to anything, are OK as a small portion of the portfolio. Having a decent share of the portfolio in short term instruments (i.e., cash-like, but with a small return) is good too.

        These assets may lose value during a bust, but remember, your financial goal over time is to gain a larger share of the total wealth pie, which vacillates up and down. In a bust scenario, you win by losing less than everybody else. The guy who goes crazy on debt, as debtor or creditor, is going to lose more than others.

        By holding the right assets, you are very well protected in an inflationary environment (by at least keeping pace) or a deflationary environment (by losing less).

        To be safe, stay clear of anything that is financially based, including banks, insurance companies, brokers, mortgage companies, mortgage REITS, etc.

        • Frederick
          Nov 19, 2019 at 2:52 pm

          How is housing not bank related? How many people can buy a house for cash today? And the carrying costs may go through the roof( pardon the pun) if they hyperinflate the money supply I’m not a big fan of buying single family houses right now

        • Bobber
          Nov 19, 2019 at 7:42 pm

          Frederick,

          Again, during a bubble period, the goal is to lose less than the other guys, so that your slice of total wealth increases. You may lose money, but your percentage of the economy’s wealth (and whatever it produces) will not decline. RE has a much lower risk profile than stocks or LT bonds, or even gold, which can lose 20-40% in year.

          The goal is to align your expected return with what the economy can sustainably provide. At this time, the economy can only provide 1-2% real GDP growth due to productivity increases. If you expect a real return that is higher than that, you are reaching for yield and can get your head cut off.

        • PINEISLAND DAVE
          Nov 23, 2019 at 10:29 pm

          I LIKE YOUR COMMON SENSE APPROACH BOBBER.

  9. nofreelunch
    Nov 19, 2019 at 8:42 am

    If it ends up with some kind of default (other than inflation), there is always some kind of settlement with creditors. When Argentina defaulted, there were hoards of lawyers worldwide impounding Argentine assets not in Argentina whenever they could get their hands on them. I for one have my eye on a nice plot of land in Yellowstone Park in case I don’t get paid back.

    • PINEISLAND DAVE
      Nov 23, 2019 at 10:30 pm

      YOU MAKE ME LAUGH NOFREELUNCH. GOOD COMMENT

      • Nov 24, 2019 at 1:05 am

        PINEISLAND DAVE.

        Please try to locate the CapsLock key on your keyboard (left side) and discover the quiet beauty of lower case letters. Thanks.

  10. Joe
    Nov 19, 2019 at 8:50 am

    Ontario, Canada is currently having a big boom in business…
    Unfortunately, it is in the personal bankruptcy. Up 26% and they can’t keep up with the demand, so more trustee of bankruptcy are currently in demand.
    Inflation has finally taken it’s toll to people who can’t keep up with it.
    And of course, the media is silent on this as they are rooting for the teachers strike and train workers strike.
    Our new normal…hmmm…

    • Prairies
      Nov 19, 2019 at 1:00 pm

      Same story in the western provinces. I have heard about foreclosures increasing in both residential and commercial markets. Mainly anecdotal evidence though, the reports show a slight uptick but it might be lagging behind a bit.

  11. Scott
    Nov 19, 2019 at 9:31 am

    My question is why don’t countries with negative yielding government bonds issue a ton of their bonds and buy U.S. bonds at 1.8%?

    • Bobby
      Nov 19, 2019 at 10:25 am

      Yes I agree. I think US bond yields have no where to go but lower. Negative yields could be just a matter of time in the US too.

      (Thanks Wolf! I sent my contribution yesterday)

      • Zantetsu
        Nov 19, 2019 at 12:33 pm

        Why do people feel the need to message their contributions publicly? It’s kinda crass …

        • Bobby
          Nov 19, 2019 at 5:51 pm

          Possibly to remind others to say, hi I support this site.

        • Deanna Johnston Clark
          Nov 20, 2019 at 4:34 pm

          It’s like leaving a conspicuous few dollars in the tip jar at a bakery…it gives customers the idea. Nothing wrong with that.

    • Iamafan
      Nov 19, 2019 at 10:41 am

      Actually even countries that do not issue NEGATIVE yielding bonds do buy US Securities (esp. Long Term). In fact, most of the countries, in TICDATA don’t issue negative yielding debt. (No telling what their inflation rates are.) For as long as they believe they can make more here or we are a safer or better bet, then they will come here.

  12. timbers
    Nov 19, 2019 at 9:50 am

    Taking a step back and looking at the big picture…

    Dispute fantastical deficits, dispute record shattering length of rate suppress, dispute a U-turn to QE4…The economy is still sucktacular and slowing down more.

    Will it every occur to the Fed it’s rate suppression and QE4 hasn’t helped the economy?

    Insanity is doing the same thing over and ever, each time expecting a different result.

    But then Wall Street does nothing but bubbulate more and therefore everything is awesome – greatest economy ever – because everyone knows Wall Street IS the economy.

  13. Just Some Random Guy
    Nov 19, 2019 at 10:12 am

    Remember Ross Perot and all his charts? And now he predicted doom and gloom if we don’t get the deficits under control? That was what, almost 30 years ago. As a naive young lad he scared the hell out of me. Here we are 3 decades later and things are humming along quite nicely.

    The economic calamity is like this recession we’ve been promised, just around the corner. #TwoWeeks

    • Nov 19, 2019 at 10:38 am

      Where is Ross Perot when we need him?

      • Iamafan
        Nov 19, 2019 at 10:44 am

        He was replaced by FRED. The only problem is FRED is self help.
        David Stockman might be similar.

      • Annon1970
        Nov 19, 2019 at 9:10 pm

        Unfortunately, he died in July. But I did vote for him in 1992.

        • NBay
          Nov 20, 2019 at 7:28 pm

          I would say,”thank you”, but today’s Democrats are not Roosevelts (either batch), so to me our whole corporate political show today makes Eisenhower look like a commie.

          I suppose they do toss out some bones now and then, though, which is better than a poke in the eye with a sharp stick.

    • Lance Manly
      Nov 19, 2019 at 11:07 am

      In those days we still had the demographics to grow our way out of the problem. Now demographics are working against us, the only thing saving us from being Japan 2.0 is immigration. BTW: The problem has gotten much worse because of the aftermath of the financial crisis https://fred.stlouisfed.org/graph/?g=py4a. Just wait until the next big recession and it will blow out the top

    • Nov 19, 2019 at 12:01 pm

      Ross Perot was the only one talking about the economy at the time, and people were interested. So interested that it changed the entire dynamic of the presidential race. Clinton took him seriously, and changed his entire economic plan because of what Perot was saying. He also followed through after he won and balanced the budget…

    • Zantetsu
      Nov 19, 2019 at 12:36 pm

      But we’ll never know how much better things would have been with a different action, obviously. Did you consider that? I think it might be one step of logic too far for JSRG …

    • Xabier
      Nov 19, 2019 at 12:45 pm

      Someone calling a calamity prematurely, like Perot, based on sound but limited reasoning, does not mean the calamity will not materialise: see ‘The Boy Who Cried Wolf’.

      In fact, we are very clearly in the collapse – rather than real growth – phase of our civilisation, and these last for decades.

    • Dan
      Nov 19, 2019 at 12:51 pm

      Too bad no one listened to Perot. Now we will pay a much bigger price. Sucking sounds all around.

    • Frederick
      Nov 19, 2019 at 12:53 pm

      SureI remember him Voted for him as well That was the last time that I wasted my time

      • Zantetsu
        Nov 19, 2019 at 12:55 pm

        There is no such thing as wasting your time with a vote Frederick. You made your voice heard just as surely as any other vote you could have made. Had you changed your vote the outcome would have been the same, except that you would have had to live with the fact that you voted for someone other people wanted to win, instead of the candidate you wanted to win.

        • Frederick
          Nov 19, 2019 at 2:55 pm

          That’s true however I’ve come to believe that politics is just a big game of smoke and mirrors and the people who are really in charge couldn’t care less who is in office

        • Lisa_Hooker
          Nov 21, 2019 at 5:03 am

          I find that voting only encourages them. Don’t be an enabler.

          Note that voting that has any real effect is limited to 535 people that don’t vote the way you thought they would.

    • flashlight joe
      Nov 19, 2019 at 5:46 pm

      Ross Perot called it by warning everyone that the swooshing sound they were hearing was their jobs being sucked out of the country.

      You should thank him for motivating you to do well. Not everyone is doing great. I didn’t vote for him.

  14. DR DOOM
    Nov 19, 2019 at 10:14 am

    Print baby print . Dow 30000+ on the way. ZIRP has created a currency sucking machine in our empire. Don’t stand in front of a bull charging at you discussing if it will stop before it runs you over. Step aside throw a saddle on it and ride. It’s all good,until it ain’t . Ain’t has not showed up yet . The fed can create any program it wants, we are nothing but bobble heads. So let’s all get on board this beast on its way to hell and bobble our collective heads as if know when to get off. If the beast is too fast to board there may be another opportunity To climb on board before the election. The big boys will be tempted to take another 10% off the top before they lay the sweet feed to this beast and awwwwway we go to Dow 30k+.

    • Memento mori
      Nov 19, 2019 at 11:05 am

      Yes, Dow 30k is coming before the election.
      The commander in chief had a short meeting with spineless Powell yesterday and discussed negative rates. Translation : negative rates are coming soon.
      Given the experience of Japan, this can go on for a very long time, decades.
      Invest accordingly.

      • Just Some Random Guy
        Nov 19, 2019 at 1:55 pm

        “The commander in chief had a short meeting with spineless Powell yesterday and discussed negative rates. Translation : negative rates are coming soon.”

        On what planet is Powell a friend of Trump’s? Powell is a deep state stooge. He will do everything in his power to hurt Trump. Remember, the Fed raised rates 1 time during Obama’s 8 years, but raised 6 times in Trump’s first 3 years. Any notion that The Fed is a Trump ally is ludicrous.

        • realistic nonextremist
          Nov 20, 2019 at 10:50 am

          Wow holy shit. both of you are insane for critisizing realistic fiscal policy. Has nothing to do with trump by design HAHA

        • NBay
          Nov 20, 2019 at 7:45 pm

          Deep State! That is one of my favorites. Please tell the rest of the story, and how this stable genius will save us all.

    • Just Some Random Guy
      Nov 19, 2019 at 11:07 am

      The good doctor understands. Don’t fight the fed and ride the wave. Hang 10 bros. Who was that guy that wrote Dow 36K? We was 20 years too late, but will be proven right in the not too distant future. I can see 36K within the next couple of years….barring some unforeseen disaster like Lizzie/Bernie winning. Then you all may get your desired 50% crash.

    • SnotFroth
      Nov 19, 2019 at 3:13 pm

      Say it ain’t so doctor. Well, even I have capitulated and moved money into stocks. I announce this as a warning to all, because no one has a better track record of making badly-timed investment decisions than me.

  15. Iamafan
    Nov 19, 2019 at 10:35 am

    Probably, one the most interesting point of analyzing the details of TICDATA is why some of our biggest trading partners like Germany and Mexico and (to some extent So. Korea) do NOT have the OVERSIZED U.S.D. Portfolio that Japan and China does. Canada’s portfolio is almost all US Corporates.

    You can easily compare here:
    https://ticdata.treasury.gov/Publish/slt1d.txt

    If you want to see just how much Foreign Governments (Official Institutions) have been dumping the dollar look here:
    https://ticdata.treasury.gov/Publish/tressect.txt

    Other Foreigners (meaning private) are still accumulating probably to escape the agony “over there”.

    • Anon1970
      Nov 19, 2019 at 9:05 pm

      Looking at your first chart, my guess is that many of the long term holdings of US$ securities are owned by US multi-national corporations or wealthy individuals seeking to avoid US income tax e.g. Cayman Islands, Luxembourg and Ireland.

  16. Iamafan
    Nov 19, 2019 at 11:59 am

    If you examine the $60b a month the Fed outright purchases of T bills from Primary Dealers, the 1st or top 3 highest amount purchased each day they buy has only been issued less than 7 days (about 1-3 days). This means that the dealers just bought them at auction and turned around and sold them to the Fed. Yup, front-running.

    In 3 occasions, they were so egregious, that the dealers sold the T-bills on a when-issued basis (CUSIP 912796SM2 and 912796TB5) or at same day it was issued (CUSIP 912796WJ4).

    I don’t think the NY Fed cares to window dress their purchases too much.

    • DR DOOM
      Nov 19, 2019 at 2:10 pm

      Iamafan : President Trump is a real estate guy. He can smell cheap money with a skunk sitting on it. He can’t help himself . Jerome better get busy looking for bigger pumps because the President of the U.S.A. Will want every penny . Putting lipstick on a pig is a real trick , getting you to kiss it is the Art of The Deal.

      • Iamafan
        Nov 19, 2019 at 3:53 pm

        Yup, I would not be surprised if majority of the large foreign Central Banks convince the Fed to buy ETFs , Stocks, REITs and Bonds to ward off the next recession. About 80% of European US Long Term Security Portfolios are in Corporates (and about only 20% in Treasuries). Any potential downturn will “wipe them out” so it should not be allowed.
        This will be the real art of the deal.

  17. NotDebtMonetizationWinkWink
    Nov 19, 2019 at 10:09 pm

    “Not QE” was simply an effort to push more cash into the system to absorb the U.S. Treasury debt, as primary dealers ran short on cash.

    Interesting to note that watching Japan and China decrease their treasury holdings follows the path or USD reserve currency status. According to Bloomberg, in the year 2000 the world was using USD for 70% of global transactions. In 2019, it has fallen to around 61%-62%. Between 2017 to 2019, it fell 3%. At the current 1.5% drop per year rate, our generation will see the U.S. lose reserve currency status, most likely to a digital-ish basket of foreign currencies. Dominating the word through tariff and financial sanctions was never going to last forever. Americans did not like China pushing our “NBA billionaires” around, yet what do you think we do on a daily basis, via sanctions and tariffs? How long did we think we could financially bully the world? Five years, 10 years, 15 years, 20??? Guess we will find out…

    • Xabier
      Nov 20, 2019 at 8:01 am

      Financial bullying + actual physical invasion, and coups creating pliable puppet local elites…….

      An excellent model for an imperial system, although it trashes the good name of all Americans as collateral damage; until it breaks.

  18. Iamafan
    Nov 20, 2019 at 8:28 am

    Things must be going back to “normal” since we have had the two largest REVERSE Repos this week. Monday 27.055 and Tuesday 26.797 (in billions).
    The banks have so much CASH (or Liquidity) that they prefer to deposit it to the Fed rather than lend the cash for repo.
    Since the Fed is now the repo then the banks have to do something with the extra cash they have.
    /sarcasm

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