An increasingly important question, because someone always has to buy this debt – and it’s not just the Fed. But the share of foreign holders is waning.
By Wolf Richter for WOLF STREET.
The Incredibly Spiking US National Debt has soared by $3.75 trillion since March 1, powered by stimulus and bailouts, and by $4.2 trillion over the past 12 months, to $27.3 trillion, after having already spiked by $1.4 trillion in the final 12 months of the Good Times. Trillions are zooming by so fast it’s hard to even see them. But these are all Treasury securities, and someone had to buy them:
With the Treasury Department’s Treasury International Capital data through September 30, released Tuesday afternoon, Fed’s balance sheet data released weekly by the Fed, bank balance-sheet data also released by the Fed, and the Treasury Department’s data on Treasury securities held by US government entities, we can piece together who bought those trillions of dollars in Treasury Securities over the past 12 months.
The share of foreign holders is waning:
Foreign central banks, foreign government entities, and foreign private-sector entities (companies, banks, bond funds, individuals, etc.) increased their holdings in the third quarter by $32 billion from the second quarter, which brought their holdings to $7.07 trillion.
Compared to Q3 last year, this total was up by $147 billion (blue line, right scale in the chart below). But their share of the Incredibly Spiking US National Debt at the end of Q3 declined to 26.2%, the lowest since 2008 (red line, right scale):
Diminishing importance of Japan and China: Japan, the largest foreign creditor of the US, increased its holdings in Q3 by $15 billion, to a total of $1.28 trillion. Over the 12 months, its holdings increased by $130 billion (blue line).
China (red line) continued to whittle down its holdings in Q3 by $13 billion, and over the 12-month period, by $40 billion, to $1.06 trillion, following the trend since 2015, with exception of its capital-flight phase:
Over the past five years, Japan’s and China’s combined holdings of US Treasuries has been roughly stable, with some variation in between. At the end of September, their combined holdings amounted to $2.34 trillion, down just a tad from their holdings at the end of 2015 of $2.37 trillion. But their combined share of the of the Incredibly Spiking US Debt fell to 8.7%, the lowest share in many years:
Next 10 largest foreign holders in September. This list is top-heavy with tax havens and financial centers, including those where US corporations have legal entities that hold US Treasuries, such as Apple in Ireland. In others words, some of these “foreign” holders are US entities, such as Apple, that are holding Treasuries registered in their foreign mailbox entities (the amounts in parenthesis indicate their holdings a year earlier):
- UK (“City of London” financial center): $425 billion ($413 billion)
- Ireland: $315 billion ($274 billion)
- Brazil: $265 billion ($303 billion)
- Luxembourg: $262 billion ($252 billion)
- Switzerland: $255 billion ($231 billion)
- Hong Kong: $246 billion ($242 billion)
- Cayman Islands: $232 billion ($250 billion)
- Belgium: $218 billion ($215 billion)
- Taiwan: $213 billion ($189 billion)
- India: $213 billion ($161 billion)
Germany and Mexico, among the countries with which the US has the biggest trade deficits, are much further down the list: Germany in 20th place, and Mexico in 24th place.
Diminishing importance of US government funds.
US government funds – the Social Security Trust Fund, pension funds for federal civilian employees and the US military, and other government funds – added $16 billion in Q3 compared to the prior quarter and $22 billion over the 12-month period, to $5.92 trillion.
While the dollar amount has been increasing gradually (blue line, left scale), their share of the Incredibly Spiking US National Debt has declined from over 45% in 2008, to just 22%, the lowest since dirt was young (red line, right scale):
The Federal Reserve became a huge factor.
In Q3, the Fed added $240 billion to its Treasury holdings, bringing the pile to $4.44 trillion (blue line, left scale), a record of 16.5% of the Incredibly Spiking US National Debt (red line, right scale). This is the portion of the US debt that the Fed has monetized. Over the 12-month period, the Fed added $2.4 trillion in Treasuries to its holdings, most of it since March, doubling its pile, and increasing its share of the US debt from 9.3% in Q1 to 16.5% in Q3:
US Commercial Banks pile it on.
US commercial banks piled $116 billion in Treasury securities in Q3 onto their balance sheets, and $269 billion over the 12-month period, bringing the total to $1.19 trillion, according to the Federal Reserve’s data release on bank balance sheets. This amounted to 4.4% of the total US debt:
Other US entities & individuals
The holders of the remaining Treasuries – after all foreign holders, US government funds, the Fed, and US banks – are by definition US individuals and institutions such as bond funds, pension funds, insurers, cash-rich corporations, hedge funds that use Treasuries in complex trades, private equity firms that are sitting on cash, etc. During the chaos earlier this year, they piled into Treasuries, adding $800 billion in Q2. But this settled down in Q3, when they added only $95 billion, bringing their pile to $8.31 trillion, which amounted to 30.9% of the Incredibly Spiking US National Debt:
And here they are, this monstrous pile of Treasury securities, all combined into one incredibly spiking chart, by category of holder as of September 30:
Credit-score algos got fooled by forbearance. Weirdest economy ever where no one knows what’s going on anymore. Read... No Payment, No Problem: In Rosy World of Forbearance, Official Delinquencies Plunge, Credit Scores of Delinquent Borrowers Jump
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Hi Wolf
It seems that around the World, Government debts are spiraling out of control, with each country buying another country’s debt.
On the basis that the central bankers cannot be stupid, do you think there is a plan at some stage to have a global “debt jubilee” where each owner of debt agrees to write off a percentage – so taking a hit on their investments, but getting relief from their debts ?
I cannot see another way out !
“global “debt jubilee”
Why else send Yellen to the Treasury (which hasn’t been able to cover its Bills for 50 years) rather than the Fed (which has been paying Treasury’s Bills for 50 years…).
Treasury handles the official international negotiations.
The Fed only handles the secret ones…
It’s possible that the countries with the biggest debt will have to pay with their LAND. Maybe Californa will become Chinese!.
Why is China steadily reducing its US treasury holdings? Looks like a very steady trend downwards.
US threat to monetize China’s reserves into a US Covid relief fund.
The US can monetize but that doesn’t single out China it f’s everyone over, including domestic holders. The only way they could single them out is by partial default, which however would have to be counted as a full default by rating agencies.
Domestic holders got relief funds for Covid-19.
Because they are not stupid!
Wolf,
I appreciate all the hard detail work, but “C’mon, man.”
There is essentially no evidence from the last 20 yrs of gvt policy that the G has any intention/plan other than Treasury-to-Fed pocket pool monetization of any level of existing/future debt.
As US productive capacity/share further erodes, there is less and less rationale for foreign exporters to trade for US goods.
No need for US goods means no USD proceeds to foreign exporters, so no need for foreign exchange sterilization by foreign gvts, so vanishing foreign demand for US Treasuries.
That leaves US savers and Fed’s Really Not Funny Money.
USD savers, 20 yrs ZIRP’d, see the writing on the wall and are looking for the exits.
That leaves the Fed as only source of US Treasury funding.
Not today.
But soon. And then very, very fast.
What if America held a liquidation sale and nobody realized it for 30 years.
They are mortgaging our country! We will eventually be owned by foreign entities.
Just joking, but somewhat serious, it is all part of the New World Order. The world is being taken over by corporations/the 1% and the individual governments have less and less control over what is actually occurring.
When has it ever been otherwise ?
“Being taken over”? That already happened quite some time ago.
Time to watch the original “Rollerball” again…
“Jonathan, Jonathan, Jonathan!”
Why would an increase in U.S. exports increase the demand for U.S. treasuries? U.S. dollars, yes, but why treasuries?
An increase in *Chinese* exports *to* the US has for the last 20 yrs created a massive demand for US Treasuries, because of the way in which China manipulates their domestic economy in order to defeat reciprocal trade (in the interest of building up Chinese domestic productive capacity).
1) Chinese exporters sell goods to US consumers.
2) Chinese exporters get USD in return
3) Key Step – Chinese exporters forbidden by Chinese government from doing *anything* with those USD, other than exchanging them for CCP controlled Yuan (which allows CCP 100% control over Chinese macroeconomy)
3a) The CCP’s “capture” of their exporters’ USD proceeds prevents the use of those USD for reciprocal purchase of *US* produced goods (leading to astronomical trade imbalance for 20 yrs).
Chinese consumers and US exporters screwed, but CCP has now built world dominant production base.
4) Now the CCP has a shit ton of USD it has essentially confiscated from their exporters (in exchange for Yuan, whose supply/interest rate the CCP controls to build up Chinese productive capacity instead of US goods for Chinese consumers).
5) That shit ton of USD has to go someplace…the CCP has poured it into US Treasuries, to buy off perpetually indebted US government and to make sure Yuan stays weak relative to USD, so that FX rates don’t undo Chinese trade advantages.
6) Pt of First Post – But once US productive capacity is degraded enough, and China’s strong enough…the CCP does not have to bother as much with the manipulation described above…China’s productive capacity has become world dominant (pretty close today). Once our goods are of zero interest to China (because they can produce their own, much cheaper) they don’t have to engage in the trade manipulation of the last 20 yrs (above).
7) So Chinese “demand” for laughable zero yielding DC Treasuries (IOUs from a multi decade deadbeat) vanishes…since it was only ever a temporary tool of trade manipulation.
8) DC looks like a goat sodomized for 20 years by an elephant.
US ends up with used ocean of transiently underpriced electronic goods. And a 100%+ Fed debt to GDP.
China ends up with all the factories capable of assembling electronic goods (or surgical masks, nasal swabs, cell phones, furniture, etc ad infinitum).
Cas127: Great analysis, thank you. Really scary for us U.S. citizens though.
And the Chinese consumers . . .?
China is bad. America is good. Three trillion is gone.
Pogo,
Chinese consumers?
Transiently screwed, as CCP manipulated macroeconomic levers (forced USD to Yuan conversion, related repression of Chinese interest rates, related investment boom, etc.) to divert what might have been Chinese consumer purchases of US exports (2000 to yesterday…) to low interest loans to massively and quickly build China’s *own* productive base.
But in the long run, the Chinese consumer will win (net of massive CCP skim) because the country has built a near world dominant industrial base in less than 20 years.
All it cost was 10 to 20 yrs of some consumer sacrifice.
In the long run, it is the guys with the factories, not the products, that win.
Because they can always make more products.
“Consumption-led” countries (US) end up with little more than their d*ck in their hand.
Cas127
I have a son who got a doctorate in economics at Yale, I have always argued for more than 20 years and I came to the same conclusion as Cas127.
Today he doesn’t even argue anymore !!!
That’s as Good as Money, Sir. Those are IOU’s.
Well I am glad we in NZ don’t hold any of those IOU’s because I doubt any one is going to be paid back. Hate to say it but the USA seems to be in a downward spiral.
Fyi.
New Zealand has a national debt of $82 Billion (USD) or $17K per citizen (USD) or about 43% of GDP.
About where America was in the Bush II Administration, not that long ago…
Agreed, but considering what will happen when this greatest, mother of all (mostly dollar denominated) bubbles, the EVERYTHING bubble crashes, the rest of the world is coming with us no matter how much US debt they do or don’t own. Please note the worldwide effects of the US originated sub-prime crisis.
what can’t be paid back won’t be
and I for one will declare 100% of u.s. govt debt NULL AND VOID
because it was issued fraudulently by the bankster cabal
You nailed it, Hans. When a Country is in governmental gridlock and unable to even process an election……. The word ‘stability’ does not come to mind. NZ is a good place to live and so is Canada.
Hard assets paid for, and then add on the preps and stores + cash. That is what individuals need to do and what countries should pursue. Sure, Covid survival means borrowing for now, but populations need to understand there will be belt tightening to pay the bills some time down the road.
What are the big money makers these days? Social media accounts? Twitters and Facebookers? We are so screwed.
Hard assets. Cash. No IOUs, thank you very much.
Paid-for hard assets which produce goods for household or local consumption.
P,
“When a Country is in governmental gridlock and unable to even process an election…”
Don’t be a Pelosi.
The history of America’s government sponsored financial ruin did not start with 4 yrs of Trump…DC has been energetically and idiotically pursuing it for well over 60 years despite endless warnings.
Paulo, have you forgotten about the bunds? China does not buy your bunds when you buy their stuff, but rather buys your tangible assets, ergo, no debt from a bund for Canada. But doesn’t it make sense for them to do this? Or don’t you understand? And that you get inflation of these assets?
I hate to say it also, AND I’M AN AMERICAN. “Fall of the Roman Empire” should be required reading in all Schools in the Banana Republic of America.
“The Decline and Fall…” isn’t pertinent to our situation. We live in a global economy with autonomous centers. The few US troops overseas represent a token force. Roman technology, paper and roads, is antithetical to the global communication network. American economists would find it quaint that the money supply might be diluted when they can no longer find enough PM to support an expanding monetary base (empire). They had paper but they didn’t have the printing press…
@Ambrose:
The Romans did not have paper money but they had an earlier version of printing works, ie smelting works, they did dilute the value of money through mixing higher and higher percentage of copper into their coinage achieving the same result of debasing the currency.
The Chinese invented paper money ( and running the printing works on overtime). The same did Sweden when they introduced paper money into Europe …
So what’s the cost of living in NZ, and how’s the weather?
The cost of living is tolerable, although not as low as in armpit parts of the USA.
The weather is fantastic. Warm, comfortable summers, chilly, rainy winters. Best weather I ever experienced.
It’s weather for people who can’t stand anything other than direct sunlight all day every day. If you like that weather, you should stick to the brown, dead, dessicated states like Arizona.
Oops meant to say “it’s NOT weather for people who can’t stand anything other than direct sunlight”. An edit feature, again, would be nice.
ZANETSU
Everyone has an opinion, especially when it comes to weather – and yours is respected.
That said, I escaped the “greatest weather” in the world (So Cal) 18 years ago to the more temperate mountains and winter wonderland desert of Arizona. If you are out-doorsy (and I am), my opinion is this is the best place in the world to live, economically and for natural beauty.
Sorry to impugn your state Beardawg. I am sure that Arizona has beautiful spots. I just can’t forget the cross country trip I took a couple of years ago filled with natural green beauty until I got to southern AZ and drove to San Diego, it was the ugliest stretch by far (in my opinion) of the whole trip.
Some of this is the contrarian in me. I get tired of hearing all the time about how places that have no weather except all sunlight have “the best weather”.
“Sorry to impugn your state Beardawg. I am sure that Arizona has beautiful spots. I just can’t forget the cross country trip I took a couple of years ago filled with natural green beauty until I got to southern AZ and drove to San Diego, it was the ugliest stretch by far (in my opinion) of the whole trip.”
Hey Z, you haven’t been through NV have ya? Hours and hours of arid land and sagebrush. No trees, people or cars in sight. No redeeming qualities.
Understatement of the year.
…might want to hang on to that one.
Even Greenspan – bank lobbyist and bankster finger puppet extraordinaire – testified to Congress that the US will never have problems paying back its debts. But that the dollars used to do so won’t have the same buying power.
Here comes the Greenspan Wheelbarrow of rapidly rotting Greenbacks to buy that loaf of bread a la Weimar Germany!!!
Meh, no.
Weimar hyperinflation occurred because of the Versailles treaty.
The US, at worst, will have a 100% to 150% devaluation.
At least in the next decade or so.
And it could be all at once or over a period of time.
60%+ of world trade is still denominated in US dollars – this provides a huge pool of non-American spending power to dilute the dilution caused by profligate debt issuance.
It wasn’t the Weimar hyperinflation that destroyed the young democracy in Germany and paved the way for Hitler. Until 1928, his party gained a mere 3% of the votes. In 1930, it was nearly 20%, and 33% in 1932. So, it was the credit crunch after 1929, that led to unemployment.
@Tanstaafl
I am amazed that you can somehow separate the economic misery caused by the Versailles treaty – part of which included the hyperinflation – and the rise of Hitler.
c1ue, the maestro, along with Larry Summers and Robert Rubin, were the major, major players who helped SET UP the looting of America
Dr. Spock:
+1000
(Alan Greenspan the “I was wrong capitalist!”)
I disagree.
The looting of America is accomplished through more specific means.
The largest single category is health care: $2 trillion to $2.5 trillion of extra spending *per year* due to nearly double per capita health care spending compared to all other 1st and 2nd world countries.
In contrast, the entire Defense budget, including VA, intel agencies etc is in the $1T a year range – and arguably some of it is legit.
The second category is the offshoring of jobs. China has been the biggest beneficiary but there are plenty of others.
Victor David Hanson – a Stanford professor and Hoover Institute fellow who is also a 5th generation San Joaquin Valley farmer – has talked about how the EU subsidized Greek and Turkish farmers to kill off the US raisin farming industry. Prices (in the 1980s) went from $1200/ton to under $400/ton literally overnight.
Sir, this is a Wendy’s.
Argggh…Wolfstreet’s Treacherous Threading…
“That’s as Good as Money, Sir. Those are IOU’s.”
Sir, this is a Wendy’s.
Berkshire Hathaway has right at $120 billion of t-bills. For the guy that is one of the best capital allocators to park that much money in t-bills tells you all you need to know. Fed has blown an asset bubble.
Warren Buffet understands that sometimes return *of* money is more important than return *on* money.
WB understands that getting back 80% of gvt inflation debauched dollars is better than rolling dice on equities overvalued by 250%…
No, WH understands that not losing money is more important than anything else. Nominal vs. real is irrelevant.
Cash and cash equivalents are only 25% of BH, as of June, and they have been putting money to work.
OMG. We are eating ourself alive and people are cheering for more.
The Fed owning so much is like the serpent that eats its own tail.
And I wonder what all the holders of that dollar denominated debt feel about the Fed promoting inflation (2-2.5%) that rips 22% to 28% respectively off the dollar in just ten years?
It is easy to see why cyrpto currencies are gaining traction. The game played by central bankers is looking like a Thelma and Louise ending.
Funny thing here, is that the FEDRSV+USA_TREAS can “ReCall” all the USTs they have OnHand.
Too bad the FEDRSV are Private Rentier-Bankers.
Lucky for them, SWIFT, PetroUSD, Corporate-CarpetBaggers, and MIC are dominated by Muricans.
IMHO,
These trends shall continue until the PetroCNY-Au and Non-SWIFT Settlement Exchanges slowly dominate the G20Sphere.
Cheap and easy money massively enriches those first in line.
The unber wealthy, government and big corporations.
Those in the back of the line get $700,000 crack shacks and $75,000/year communications majors.
Anyone I know who works for a living wants it to stop.
2banana, Americans who work for a living may want cheap and easy money that enriches the uber wealthy and big corporations to stop, but they do not act accordingly. It is not their fault completely though.
Sixteen days ago, all of the U.S. House and about one third of the U.S. Senate were elected. Granted, there’s not much choice outside the two party duopoly, but did those who work for a living vote red or blue for Congress?
As Wolf has written many times, Congress is the only authority that the Fed answers to.
Check out the lyrics to The Who’s ‘Won’t Get Fooled Again’, and ask yourself if this will be just as true in another 49 years as it is today, and as it was on 14 August 1971 when the song was released. Ironically, that was the day after Nixon met @ Camp David to pull the dollar off gold and the day before it was announced.
An analysis that defines the problem as red v. blue is unsophisticated. Deficits and debts have gone up hugely under the watch of both parties.
That was my point point Bobber. It is not red vs blue. It is red & blue together vs sound economic policy that needs to come from outside the two party duopoly.
Perhaps I did not make myself clear enough, but that was what I was getting at.
Oops. Two points are for a basketball shot.
“…Meet the new boss – same as the old boss…”
Love the Who.
2banana
I retired at 51 (58 now), living off the cashflow of passive income and I helplessly watch purchasing power die. No different than 65+ folks on SS and pension annuities. I realize asset values will inflate, but having to “bank” on that presumption keeps me up at night….a lot.
@Bearawg
‘asset values will inflate’
NO prices of assets will inflate but (intrinsic) value remains the same. Reversion to the mean will bring them closer, periodically as evidenced in the 200+ yrs of US mkt history.
Price is what you pay and the value is what you get – W.Buffett
Yep, the Cantillion effect.
Second graph is the US bank one, but the text is talking about foreign holders.
MarMar, you win the trip to Buffalo this coming February!!
Thanks. Fixed. Yes, that’s a problem when I post stuff late at night when my brain is even deader than normal.
Hey, Wolf, you could work the night shift at the FED!!!
“Who will buy this wonderful feeling? I’m so high I swear I could fly. Me, oh my! I don’t want to lose it. So what am I to do, to keep a sky so blue? There must be someone who will buy…” – Lionel Bart, from Oliver
I was at a dinner party in early 2007 when the conversation turned to what was then considered to be the impending doom. The initial concern was our country’s increasing impotence to deal with the China threat since we depended upon China to buy our debt, which up to that point they had been doing regularly since the ’80s. I ventured to the table the hypothetical question of ‘who would buy’ in the event the Chinese decided to stop. The question got tossed around the table at first in dread but slowly turning into whimsical delight as it found it’s way to the chorus of ‘Who Will Buy?’ from the musical ‘Oliver’. A wonderful moment, especially if you happened to have spent many nights in uncomfortable chairs at rehearsal absorbing the many lyrics even though your children were just basically props in the play. But it occurred to not a one of us that the answer was, of course, ‘we’. Buy our own debt? The answer still seems foreign to this day, doesn’t it? How could we have missed that ‘QE3’ rhymed with ‘We’?
Nowadays there is no such thing as a dinner party any more which is just as well, I suppose, since several years ago the question changed from ‘who will buy?’ to ‘who will pay?’ to more of a stunned guilty silence produced as a truth soaks in – a truth draining the flavor from the food with the realization that to maintain our standard of living we must keep increasing the debt and we are faced with the nightmare of what my Boomer generation has done to the dreams and opportunities of our children.
“Who will buy my sweet red roses?” In the coming years there will be millions desperate to sell but only a few with the ability to buy – many of whom fronted the money for the roses to begin with. “This is the portion of the US debt that the Fed has monetized.” We say it so easily today, don’t we, ‘monetize’, as though it is a nice little remedy, an answer to all questions. Pity. There are so many good things to build, things we need, things producing honest profits benefiting a greater equality to a more dispersed and wider group of the economy. Instead we bicker about this and that, using talking points of division provided down to us just a assuredly as our consigned sweet red roses. And as we do, our children sing:
“Who will tie it up with a ribbon, and put it in a box for me? So I could see it at my leisure, whenever things go wrong. And I would keep it as a treasure, to last my whole life long.”
There are those here who believe when the correction comes they will be unaffected, that they have planned well and the strong waters of change will pass them buy untouched. This thinking is a fool’s paradise, the result of putting our problems in a box with a ribbon on top and handing it to our children. You know, just a little something to remember us by.
Well said Chester…
The box with the ribbon on it is the balance sheet box, stuffed with debt and shoved under the bed.
So many “intellectuals” speak of environmental concerns such as clean energy, water, etc…
But what of the “financial environment” being left to coming generations?
We are leaving them a cesspool of debt.
Central bankers are insulated from the ill effects of their inflating policies due to the fact WE give them inflation protected pensions for life. But what of US?
ECB BOJ FED…. all have painted themselves into a corner…and they want more paint.
In WWII this country went out to raise money by selling war bonds. Now the idea would be laughed at. Just print the money, and we did, to fund the 20 year wars in the Middle East. How would Iraq war bonds, Afghanistan war bonds sell?
The Fed must be revealed for what they have created.
Bernanke promised, when he began QE, that it would be unwrapped when things returned to normal, and unemployment dipped below 6.5%. We got more QE as stocks went from then 9K to 29.5K (Dow) and unemployment went to 3.5%, all time lows.
We did learn one thing last decade. Instead of the usual obfusticating FED verbiage we’ve caught them in outright lies. Fool me once, …
CChester-apropos your final paragraph (the whole gorgeously conceived and written, btw), the effect of the comet’s impact bodes ill for all of us saurians…
that being said,
may we all find a better day…
Interestingly, the primary premise in this article, that someone needs to buy these Treasuries, is false. These Treasuries don’t fund federal spending. You see, debt is not intrinsic to funding federal spending. Congress creates new currency when it pays a bill. No debt is required. The Fed could write down it’s holdings to zero, if it wished. As for the other holders of this debt we never needed to issue to begin with, the Federal Reserve chairman has already said the Fed can let the existing debt roll out over time. Most of that debt is there as an insurance policy for the immense savings held around the world by global capitalists. It is a subsidy. It funds nothing. The only need for the debt is probably to provide liquidity in dollar denominated international trade.
Chris…
” Most of that debt is there as an insurance policy for the immense savings held around the world by global capitalists.”
an insurance policy, or the reason “why” there are immense savings around the world by global capitalists? Our new debt seems to be balanced off and the cause of those “immense savings”.
Debt may no longer be the proper term for what the Treasury and the Fed are doing.
Debt suggests a repayment sometime in the future, or a retirement of the obligation. This is now all open ended. Toxic.
That’s MMT, which is an economic religion that makes zero sense to people who don’t believe in this wondrous MMT god. Preach that religion to the faithful, not here.
Wolf, perhaps a layman’s understanding of your quote,”This is the portion of the US debt that the Fed has monetized” would suggest that MMT has some relevance. That monatised debt is out of the money system no longer available for asset appreciation, inflation, and the general use of anyone or Country. Perhaps I’m wrong but loading the deck with aces during certain times then eliminating them leaves the deck as it was. Another thought here, is the increased purchasing by private American’s is similar to what Japanhas been going thru for decades now, as their citizens now hold a more substantial portion of Government debt. Perhaps the good side of this is if this continues the U.S. dominance in political and economic world affairs would be lessened. Just a thought.
Sorry Wolf. I’m a reader of your work, which is excellent. But MMT simply describes the way our Congress finances its spending already. It’s not new. What is new is that MMT puts the fiscal tools front and center. Also, MMT addresses inflation directly, because it ties spending directly to resource availability. You cannot buy that which is not for sale. The federal deficit simply adds wealth to the private sector. If you think there’s too much money sloshing around, fine. Tax it away. That’s what taxes are for. Spend in, tax out.
For those interested in excellent analysis of our Fed, DEBT, fiscal policies vs monetary policies++ there is a very good and TIMELY, ‘lengthy’ discussion by William White, former chief economist of the Bank for International Settlements (A Canadian. He worked for central banks for almost fifty years, most recently for the Bank for International Settlements in Basel, where he was Chief Economist until 2008. Back then, he was one of the few officials who had warned of a looming financial crisis”
“They have pursued the wrong policies over the past three decades, which have caused ever higher debt and ever greater instability in the financial system”
former-bis-chief-economist-central-banks-keep-shooting-themselves-foot
@ZH
(Last paragraph from Bill White)
Mark Twain:
It ain’t the things that you don’t know that get you, it’s the things that you know for sure, that ain’t so!
Never forget: We think we know much more than we really do.
I should add that the debt we do need to worry about is private debt, which has ballooned even further than the unnecessary public debt we issue as a gift to the super rich. The Fed could ‘buy’ all the debt it issues, if it wanted to. Just have Congress approve putting the new currency into bank reserves. Left pocket, right pocket, same pants. But why do even that? It’s all a stupid bookkeeping convention, not at all required to fund government spending. The international dollar trade liquidity need is probably no more than $7 trillion. Total. Read Stephanie Kelton’s new book ‘The Deficit Myth.’ We do have real deficits, but this isn’t one of them.
If the economy grows 2% on average and we accept 2% inflation, the central bank could in theory fund budget deficits of up to 4% GDP by just printing money and handing it to the government. HOWEVER, you would also have to move to full reserve banking, i.e. taking away money creation power from commercial banks, otherwise inflation would soon spiral out of control.
I think this is where we are heading in the coming years. All major central banks are now working on digital currencies that are base money that can be used for direct funding whatever they want. They are not commercial bank liabilities like the ‘money’ that we use now. Many get distracted by the word ‘digital’, but what exact shape it gets is unimportant. The important part is that it is sovereign currency and that it enables direct funding by central banks. That is crossing a massive Rubicon!
So I believe we are going to move towards (eventually) a full reserve fiat system with sovereign money, where the government doesn’t have to borrow as long as deficits are below ~4%. Everybody will have an account at the central bank, though commercial banks can still act as an interface to customers. It will probably earn 0% interest and is totally risk free, since your balance isn’t a commercial bank liability anymore. It’s like a checking account at the central bank. No bank is too big to fail, they are now just an interface.
Interest rates will cease to be the primary policy tool. Instead, they will target money in actual circulation by directly handing out this digital central bank money to government who will directly spend it.
If you want to earn some interest, you can still get that at a commercial bank. But it will be risk bearing (like a bond – no deposit protection). And the bank cannot create money out of nothing. Lending will have to come out of actual savings. But this should be no problem, as the money supply will grow by 4% per year. As long as debt doesn’t grow faster than the economy all will be fine. If it grows faster, interest rates will rise because money have to be lured out of the safety of the risk-free central bank account to a risk-bearing deposit.
Most of what I wrote is speculative, but these digital central bank currencies are real and will be the enabler to implement this if they choose to do so. I think this is what the central banks are going to do to get out of the corner in which they have painted themselves. I see no other way. Nobody wants to really trash the currency. Nobody wants hyper inflation.
All the stimulus etc that we have seen this year was only possible because the currency is still seen as credible. Lose that and we are toast. Central banks are well aware of that and are looking for a way out.
So we go back to QTM and Nicolaus Copernicus, John Locke, David Hume, Jean Bodin, and Milton Friedman/Anna Schwartz? Give up Keynesian economics? Sure we will.
YuShan,
Sounds pretty interesting and would like to hear more (sometimes restatements help clarify concepts for readers).
In particular, I don’t think I saw much on the inflation aspect or private property aspect.
If this “impacted/embedded printing” technique is used by the G (and it is snakey/sneaky, so quite possible) what happens when essentially automatic G spending increases outstrip productive growth?
Inflation, same as old system, as far as I can see (currency/productivity ratio math doesn’t change just because the G changes *how* it manipulates money supply).
And, in the US, we have a core Constitutional principle protecting private property…the proposed system actively embeds the systematic dilution (down to destruction) of those rights.
So the new system really apparently won’t change the economic dynamics of recent decades, simply the mechanics of its operation (making it electronic and more Day One).
Simply speaking, if productive growth of the economy increases with say 2%, you’ll need 2% more money in the system or prices will drop. So you can print 2% extra money without it getting inflationary. Everything that the central bank prints on top of that will be inflationary, so if you want 2% inflation, you can print 2% extra on top of that, so you could print 4% per year.
Regarding your point about protecting private property, don’t forget that the money creation today is mainly been done by commercial banks. They create the money into existence when they make loans (the limits being determined by bank capitalisation and reserve ratios).
Therefore, if the central bank wants to directly fund the government, they should restrict money creation by commercial banks, eventually leading to a full reserve system (banks then need to borrow every doller that they lend, because the central bank will be the only creator of currency).
So if there is a problem with property rights as you state, this is already happening. The only difference is who is doing the printing. Now it’s mainly commercial banks, then it will be the central bank.
The resulting system if implemented correctly (a big ‘if’ indeed) could actually be more stable because bubbles are less likely to form (they would be stopped in their tracks by rising interest rates). There is also less need for big interventions because the central bank targets spending/ inflation much more directly. And banks are allowed to fail without risk of bringing the whole system down.
Whether you like this idea or not, central bank digital currencies ARE being implemented as we speak and they will be sovereign money (i.e. not commercial bank liabilities) and be therefore direct financing of whoever receives them. Whether the central banks are going to use them in the way that I describe, I’m not sure. They will probably wade in slowly at first. But given where we are now it looks almost inevitable that we are heading in that direction.
The Founders of the USA made property rights the third subject in the Bill of Rights.
One of my friends has specialized in eminent domain issues & litigation in his profession as an attorney. There is a fine line of justice in taking private property for ‘public good’, and in determining fair value for said confiscation.
Don’t believe everything you read, especially from academics. They tend to be able to make any theory sound good, but the real world is a Mike Tyson punch in the face.
It is interesting that at this moment, despite of all the QE, the Fed still owns “only” 14% of the total government debt. The other 86% is owned by people/ institutions etc that get f*cked by currency debasement and negative real yields. That must be great for the economy.
Are you seeing some ‘currency debasement?’ As for negative real yields, I’ve always longed for the day when we ‘euthanize’ the rentiers. Maybe that day has finally arrived! They can always launder their money buying art. Or park it offshore where no one can see it. Then there’s the ‘transfer pricing’ dodge. Who pays taxes anymore, anyway? I’m seeing debt deflation, not currency debasement. I’m seeing some asset inflation, i.e. stock, bond and property prices. But the ‘bubblelicous’ always get pricked.
I sounds nice, “‘euthanize’ the rentiers”. But you are talking about ordinary peoples pensions and savings here. I would argue that the real rentiers are property owners and landlords financed with lots of debt. And as we have seen over the years, they benefit from inflationary policies.
A guy like Trump is $340 million in debt, against a huge property portfolio. That means a -1% real yield is a subsidy to him to the tune of $3.4 million per year, which is essentially paid for by your grandma’s savings account earning a negative real yield and perhaps your own pension plan too.
Also, what many people forget is that with a $7T Fed balance sheet, all these $7T printed dollars have to be held by SOMEBODY! It’s not that the money magically “flows into” stocks or real estate. Sure, it bids up the prices, but for every buyer there is a seller and after the transaction somebody has to hold these $7T and they are losing when they are debased.
As for currency debasement, I think this is very clear if you look at house prices. For some mysterious reason rising asset prices are seen as something different than inflation, but a house is no different than a car. It is something that you need and it loses value when you don’t maintain it. In case of housing it is even a basic need for survival, like food.
Chris Herbert,
“Are you seeing some ‘currency debasement?’”
Yes. Only someone willfully self-blinded by MMT cannot see it. Look at housing. it now takes 28% more dollars to buy the same house (Case-Shiller Index which compares the same home over time) than it took 5 years ago.
So in terms of housing, which is a huge item in people’s budget, the dollar has been debased by 28% in five years.
And that process has sped up in recent months (which is not fully reflected in the Case-Shiller yet since it lags so far behind).
Houses, eduction, healthcare – pffft! But the important items – Blatz beer, toilet paper, porn subscriptions, pizza – if the prices of these essentials rachet up too much, then we are talking revolution.
WOLF
Your distaste for MMT opinions is clear. I read the Investopedia history on MMT and I understand the USA is not structured with a central Fed lending direct to biz / individuals, but rather, the Govt (Treasury) borrows from CB at (currently) super low interest and then sells those low-yielding treasuries to the world at large. The differences are more than that, but I, and maybe others, would love to see an article comparing what we DO have vs historical MMT experiments and why the USA is unlikely to go to MMT in one form or another. Please consider. :-)
From the day I started this website, I had MMT trolls here. One of them was an old guy in Australia who needed a little extra money, and he got paid to paste this stuff around the internet. I’m so sick of this crap. Crypto trolls too. Oil trolls… you name them. There is a whole industry out there for this “influencer” stuff. By now the MMT stuff has spread around and lots of people are trolling who’re not getting paid to do so; it’s just their religion, and they’re proselyting.
There are lots of things I don’t allow here. Proselyting is one of them.
That’s inflation. Inflation reduces debt. It eats away at a nation’s credit score too but international finance knows that and international finance supersedes nations since it is global and not really obstructed by borders. Nations are called jurisdictions in international finance and just lists of rules in computer programs.
Inflation reduces purchasing power of the dollar. That’s all it does.
For workers and consumers, inflation reduces the purchasing power of their dollar-denominated LABOR. They can buy less for the same amount of labor, including housing.
For companies, inflation increases the prices they can charge for their products, and increases their revenues and profits without having to sell more.
Inflation is good for companies and bad for workers/consumers.
I’m not in disagreement. Asset price inflation is the precursor to debt deflation. That’s what financial bubbles are made of. Rentiers are property landlords AND those who have accumulated huge mounds of financial assets, mostly in the FIRE sectors (private debt). This is not all that productive. That’s why the classics called it ‘unearned’ income. They were correct. They are still correct. MMT promotes full employment and productive investment. I think both are fine policies. The US doesn’t do either.
Chris Herbert,
“MMT promotes full employment and productive investment.”
No. MMT promotes the destruction of the currency, pure and simple. Everything that is valued in that currency, including labor, gets crushed along the way. Look where it has been practiced for decades: Argentina, whose central bank is part of the ministry of finance and issues money to pay for state outlays. Now, inflation (destructioin of the currency) is so high that when you sign a lease in Argentina, the rent amount is denominated in US dollars, payable in pesos at the exchange rate effective at the time of the payment. That’s the result of MMT. And it’s always the result of MMT. There are no free lunches.
Free lunch has been reduced to pickled eggs and salted peanuts. Eat more salt, buy more beer. More Money Today (productivity comes later, … maybe).
+1
Add to that misery, the rate of wage growth for median income for an American wage worker ( a rentier!?) is stagnant since late 80s! The standatd of living for most middle class, is supported by taking more & more of household debt
Wolf,
An interesting bright side-take of DEFLATION over Inflation ( Fed won’t or unable to comprehend!)
“…There are periods of low inflation or outright deflation that ought not to be of concern for central banks. If prices want to go down because of productivity increases: What’s wrong with that? Productivity increases give you higher profits and lower prices, which is the way productivity gains are shared between the entrepreneurs and the consumers. There is a raft of pre-war literature on the topic of benign deflation, but our central banks have forgotten about it…”
Former Chief Economist for BIS – William White
ZH
With regards to the Fed and foreign CB’s buying up UST’s accomplished via the money-for-nothing priniting press, no productive activities enabled the creation of this money that is used to purchase UST’s.
With regards to UST purchasers reallocating paper profits from assets propped up by CB induced low interest rates and asset purchases, again, little to no productive activities enabled the creation of this money use to buy UST’s.
regarding the person in Tennessee putting bumpers on new Hondas who invests part of his/her savings in UST’s, productive activities have enabled the creation of the money used to make the purchase. But under a UBI or other scheme where the Fed direct deposits money into individuals’ bank accounts, and that money is used to buy UST’s, no productive activities have enabled the creation of this money.
If the creation of money is dissassociated from productive activities to an increasing degree, what then?
And why is the issuance of sovereign debt needed at all then?
They say the universe if about 74% dark matter, 21% dark energy….so I’m guessing the remaining 5% must be central bank bull-sheet?
So this seems to be the game.
America prints a bunch of debt. A bunch of foriegn governments buy that debt with a bunch a debt that they just printed.
Replace America in the above sentence with nearly every other country in the world (with a few exceptions).
We can’t have a ‘Carrington Event’ soon enough.
Considering they occur circa. every 150 years, then we are certainly due one.
It occurs probably every year somewhere (there are 170+ countries in the world).
Just like when you read that a city/state just had a 100 year flood. OMG!!!
That means some state, every two years on average, has a 100 year flood.
Let’s get patriotic. Buy Uncle Sam! Go Long baby!
Everybody has to make assumptions. Hussman if I understand him correctly says if you assume it’s going to take 30 years for 10 year treasury to get to 3%, then if you are going to buy a major asset class it should be t-bills. Stocks at these levels are too pricey unless you have about 25 year time frame. Ten year treasuries can’t outperform t-bills unless rates are just inching up less than a tenth percent per year.
Or you could just dump the DC degraded USD and look for something else to hold the bulk of your savings in.
Cas-but, but, the loads of increasingly-reworn dirty shirts appear to now seriously outnumber the capacities of the remaining ill-maintained and worn-out washing machines…
may we all find a better day.
No member of the US Senate shall trade stocks under penalty of law? Or would that be mean?
Massive asset inflation is here to stay. Like I said back in March, buy assets with both hands and feet. Buy stock index funds and real estate at every dip, or you’ll be sorry. You’ll be very, very sorry.
Real estate?
You mean like lodging (24% of CMBS delinquent/in default) or retail (15% delinquent/in default)?
Buy quality, or make it easy, buy the S&P 500 index instead. Just don’t sit on cash while the Fed prints and buys treasuries to no end. Wolfe’s charts show it, talk in the media about MMT show it. This is not a drill. This is not a bubble. This is real asset inflation taking off. Don’t be fooled by cheap goods out of Asia. Don’t be fooled by fiat currency gamesmanship.
The broader point is that,
1) if you start with fictional ZIRP’d interest rates (via Fed money printing)
2) then you end up with increasingly volatile asset values,
3) since the net present value calculation of those assets
4) is much, much more tied to the phony interest rates than the real world cash flows of the asset.
OMG! Buy now or be priced out forever. Been awhile since I heard that one.
w/ food lines that can be seen from space, the stimulus of wrath playing on a loop for the holidays (ty js) and the only progressive jobs created are sweeping up behind the parade, nasa wants to build a nuclear plant on the moon by 2026. i guess the only obvious question is .. how are they going to get the whales up there?
oan, nice effort mr p, brightly feathered.
“how are they going to get the whales up there?”
Via their mountain of bullshit.
As long as the post WW2 vassal countries keep taking our dollar we can stay at home buy from Amazon and have companies in the S&P 500 with a 1,000 P.E. I say un-load more dollars while we can. If we are lucky the chumps will stay brain numb in their E.U. Fantasy and we can pay them back at .001 cents on the dollar. Dow 40,000 , BTC $100,000 and $150 silver and $15,000 gold would indicate that we have kept the debt fiat party going. PT Barnum would be proud. Wow, all of sudden I feel the need for a new fleet of Strategic Bombers.
If the debt is more and more in USA and less and less outside the country, it s a good thing for USA I think
It is only a good thing for uncontrolled US inflation.
DC has shown for two decades of ZIRP that its only escape plan from the insane levels of debt it incurred was for the Fed to print unbacked money with one hand and pass it to the the perpetually broke Treasury in the other.
This process does not create one single inch or ounce of productive assets…simply worsens the ratio of currency to productive assets…ie, inflation.
At what point does servicing the debt consume more than the total income of the government from taxes?
At 0% interest, a very long time.
Of course, your apartment will cost $5000 a month…
Also, at 0% interest, all those pensions are getting more and more underfunded all the time. Some require as high as 9% to make the retirees’ payments. And people’s IRA’s and 401K’s are not growing, unless they are invested in Internet nonsense and vaporware. Also, this also inflates the insane housing market. These days, in order to “save” money for retirement, you must be complicit in a multitude of scams, Ponzi schemes, and 21st Century Tulip Manias.
The Fed knows they have to do whatever it takes to keep confidence going. It’s like a bank run in 1929, you can’t let people hear people are standing in line at the bank.
Once the selling starts, the Fed is going to have to print and buy the assets no matter how many and how long rates are going to be repressed. Money printing promotes leverage and gambling and get rich quick schemes. Bitcoin and Tesla being just two.
“Bitcoin”
Alternative currencies are wholly a reflection of the vanishing faith of savers in the USD.
Stick this in your search engine: FYOIGDA188S
Interest as a percent of GDP is about half what it was during Poppy Bush’s recession.
Inert:
Prognosticators may wish to also compare and ponder:
Federal Debt: Total Public Debt as Percent of Gross Domestic Product, Percent of GDP, Seasonally Adjusted (GFDEGDQ188S)
Now do employment-to-population ratio 25 to 54.
Or federal debt to GDP.
If you divide employment-to-population ratio 25 to 54 by
Real Disposable Personal Income: Per Capita, Chained 2012 Dollars, Seasonally Adjusted Annual Rate (A229RX0)
You see our economy has fewer people involved in creating much of anything that has value, thus, more people using credit, taking on more debt and no realistic way to add value to their future. Our current economy is amplifying the reality that there is no growth, except in areas that are providing super efficiency, i.e., online retail that strips jobs from local economies or online commodities that thrive on AI and robotics. The pandemic has sort of nailed the coffin closed for small independent businesses that don’t have the scale to be profitable.
Martha-elegantly stated. Draw line back to 1980.
may we all find a better day.
Since 2010, countries running trade surpluses with the US are secretly buying up our tangible assets rather than our debt.
With the massive amount of “stuff” from China coming here with the empty boats returning that Wolf just reported, is this all for US consumption? Or is this a last hurrah for Trump wherein we “export” some of it and designate it as US manufacturing exports. Yes, this maneuver does not change the trade deficit net, net, but in a stretch of fantasy, it is a US “manufactured export”.
I hear that line a lot– that foreign holders of US debt are using it now to buy up American-based tangible assets instead.
Who’s got a chart that or list that breaks that down in meaningful data over time? Or is it more rhetoric than fact? Are the Chinese really buying up large amounts of our real estate/agricultural land? Hmm.
“Foreign investors now own more than 23 million acres of American farmland—roughly the size of Ohio. ” This article from 2019 provides some statistics responsive to Heinz’s inquiry. Foreign entities own a small but fast-growing percentage of U S farmland. China owns little so far.
Should foreigners buy much more, the natives, if paying attention, can retaliate by revoking some of the tax breaks that farmland owners get in every state.
The only export “asset” holding up the US/China trade deficit is crude oil but those numbers might be dropping. China is pulling back from US treasuries, (will they continue to stock their oil reserves and take T bonds in currency reserve?) after US threatened to take those Reserves for a Covid fund. https://www.reuters.com/article/us-column-russell-oil-china-idUSKBN27X0GB
The Fed will always buy treasuries, 100% of them if they have to. It was just announced that single family home prices are up 15.5% YOY. Massive asset inflation has kicked in, get out of cash, or you’ll be sorry.
Listened to a zoom conference yesterday by Bernank and he essentially said that Fed balance sheet is not even at @25% of GDP compared with 100% in Japan and that Fed has a long way to go and should purchase more assets. He basically thinks Fed is not being aggressive enough.
Memento mori,
Bernanke started this whole QE idiocy. He’ll never admit, and he can never admit, that he destroyed how the US economy functions best and that he saddled the US economy with this huge overhang rather than letting the economic processes work out the housing excesses, debt excesses, and other issues at the time. So now he’s clamoring for more of his own idiocy to validate his own disastrous QE decisions.
An econ PhD can do far more damage than an army with advanced weaponry.
Unfortunately more QE coming. Just needs an excuse.
The Fed slapped meth out of the already tweaked-out-economy’s hands and handed it pure heroin.
These thugs aren’t economists, they’re drug dealers. The Fed isn’t a central bank, it’s a cartel.
We had him yesterday on Marcus & Millichap, he is overconfident that mortgage rates are going to stay super low for years to come and the Fed can basically own all government debt and MBS without any consequences. In his opinion the current balance sheet is nothing compared with where he sees it in the coming years.
I never understood their rationality for inflation though, basically they say we need to have high inflation so when a recession comes it gives room to the Fed to lower rates and jump start the economy. I dont understand how such circular logical fallacy is never challenged in the academia and its now Fed policy, basically we must screw things up so we can get a chance to fix them, crazy.
Wolf, you got to give Big Ben credit for convincing the World that Q.E. was temporary and that the Fed would normalize rates quickly. Talk about jawboning. He’s made a killing front running the Fed at Citadel.
“Zimbabwe Ben” Bernanke.
History will look back in amazement at how such self evident horseshit gained semi-permanent purchase.
1) Because it pandered to the perversions of the ruling Political Class (“Here’s money, go buy votes with it”)
and, more importantly,
2) the necessary resultant inflation initially came in the guise of “financial asset” inflation, before ultimately bleeding out into “real asset” inflation (“You mean people use houses to live in too?”)
It all seems to have started with the Asian financial crisis in the late 90’s, LTCM, and the IMF bailouts. Then Greenspan repeatedly cut the rate in 2001-2004 to a rate not seen since 1955 (3.25%). Bernanke was another academic and never in touch with reality. Money for nothing. I’m still waiting for my free chicks. Should’a learned how to play them drums.
Wolf,
Mr. Barnake was unable to explain how really QE works. But ingeniously he claimed it works in practice! Atlantic mag called HERO for having ‘saved’ the Economy had his picture on it’s front cover.
Some one said ‘it was an experiment out of seat of his pants’!?
QE had no prior record or research supported data. Before 2009, Fed had NEVER bought the MBSs in it’s entire history since 1913. Nor the Corp bonds like this spring.
Reality sets in when you see the name of J Yellen being discussed as Treasury Secretary if and when JB takes over the WH.
LoL LoL LoL
Time for a reread / watch of the Big Short, Margin Call, et al…
?️?️
Just curious, why do you think she would bring back reality?
Sorry…..She won’t, doesn’t know how. Might as well bring back Bernank or Greenspan.
What we need is to kill the Kinseian world we have been in for decades.
Noticed the Wells Fargo ATM machines here in the Washington DC area now allow $1000 cash withdrawals just by pushing a button. Just 6 months ago the limit was $500. Then it was upped to $700 just 3 months ago. The option for $20 bills was overshadowed by a button for $50 bills only. Next we will see $100 bills dispersed as a rule. This is starting to resemble the Weimer Republic in Germany in 1923. Inflation is already completely out of control but the public is the last to find out because they are bombarded and brainwashed with bogus government stats on the CPI. Just like the bogus stats on the unemployment. Lies, Lies, and more lies.
Yes! Great observation. I saw this too with Wells and US Bank here in Left Coast (Cali). It used to be $300, now I saw $500. I have to go to the ATM today and will check if increased. I’m still trading the markets, but continue with the metals and bitcoin as a hedge. One plus one must always equal two not negative one million which is how these politicians and economists think. That funky math is going to kill us and the Chinese know it.
Bernanke should go back to waiting on tables like he used to.
Bernanke, in WSJ July 2009, promised an unwrapping of the QE once things returned to normal. He mentioned when unemployment dipped below 6.5% they would begin to unwrap the stimulus.
At the time, the Dow was circa 10,000. The all time high had been 14,000.
The markets ripped through the old highs, and unemployment went to all time lows (3.5%) and what happened? Just the opposite of that which was promised….MORE QE, MORE Stimulus.
Now Ben is on the lecture tour.
@ historicus
During 2013, Barnake brought issue of replacing QE with QT )quantative tightening) the mkt taised a tantrum and that discussion closed!
Now the Fed is trapped and dictated by Mkt since late 2018 to the present.Investors want more (2nd stimulus) easy-peasy bucks, so that stocks can keep climbing up!
Wolf, what I would really like to see is a comparison to other countries/blocs. The money has to go somewhere, and my impression is TINA, the US is still the cleanest shirt. Of course other factors like geopolitical are also in play.
Putin has demonstrated that he does not need a shirt, clean or dirty. Is this significant?
Has he found an alternate to SWIFT to Russian international transactions, yet?
Besides Oil/Energy, and missiles. does Russia produce anything ‘ to compete in the global commerce?
Yes but Fed got here buying treasuries in the open market during the March meltdown. Now they need to do that number again in new issues? This is the Drunkenmiller warning. There is still a huge overhang in the deficit. They must get ‘EU foreign buyers’ on board. Japan follows China, across the Sea of Japan. Russia collapses, Europe celebrates, but who turned off the gas? Patriotic thing to do is buy US bonds, even if you aren’t an American.
It is starting to feel to me like we are literally riding a head and shoulders pattern.
1st drop from COVID and lockdown. Rising to a new high on stimulus and debt. Another drop when the government programs aren’t extended because of rising inflation, low GDP growth, and the above shrinking demand for US treasuries. Then we have a second mini-bear market. But, we climb back up as vaccine gets dispersed and maybe there is some infrastructure spending. However, if people who needed the stimulus default on their new houses and new cars, we will see a credit crunch and the fed will be called upon even though rates are already 0. How much incentive do banks have to loan at 0% in a high default environment?
I don’t get the sense that institutional money has left the market yet…the whales are letting people run it up and down on their own and making money just by playing with gamma.
Chinese private sector bought a ton.
Chinese private sector is included in “China.”
Valuation is such a stupid concept. Since 2003, stocks have been perpetually undervalued, according to Fed stock/bond valuation models, at least that’s implied by Yardeni’s latest update. Thus, almost immediately after The Dotcom crash and all-through The GFC, equities were a safe bet, and therefore, even safer today, due in large part to things like the 2-yr Treasury yield being at 0.16%. That in itself is funny, because Yardeni has previously implied that the 2 yr Treasury yield is a proxy for where the 10 yr rate will be, a year from now — once again, implying that equities will be going straight up for the next year, because stocks are undervalued. That’s all wonderful for valuation concepts, but what about the other concept that there are business cycles and economic cycles that go back several hundred years, which demonstrate that cyclicality is comprised of ups and downs, a sort of universal time clock, that is wave-like, versus some new trend that’s different and somewhat nonlinear, like a tsunami that crashes towards a shore. Perhaps this pandemic is like a tsunami wave, but at some point, it’s reality will unfold and we will observe that that the tide will hit shore and then recede, versus being a non-stop sustained flow of endless energy.
The game of asset evaluation with zero interest rates is nearly impossible.
And that is why the Fed is mandated to “promote moderate (not extreme) long term interest rates”.
But they don’t.
1) US gov debt is piling up vertically to $26.5T in Q2 2020, up $3.3T from $23.2T in Q1, but M2 lost it’s pulse, after a waterfall plunge. It’s slightly up from 1.10 in Q1 2020 to 1.14 in Q2. This is the lowest level in the last 60 years.
2) Since Q4 2016, US debt is up $6.5T from $20T to $26.5T, or 32%.
3) Import from China is growing, but China reduce it’s US dollar debt, because Brent coming from China enslaved nations lost it’s value.
4) USD/CNY is down to 6.58 in the last six months, since May 24 2020 @ 7.18.
5) The LT trend is up. USD/CNY is down from 8.7 to close the 1993/94 gap.
In 1791, Federal debt was $75 million
218 years later in 2009 it was $9 Trillion. Up $8.9925 Trillion in 218 years.
11 years later it is $27 Trillion….up $18 Trillion in 11 years. UP $18 TRILLION in 11 years, and it aint over yet….
Global wise:
“..In 2008, the ratio of global household, corporate and government debt to GDP was 280%. Early 2020, this ratio had grown to 330%. And it’s not just the quantity of that debt, it’s the quality. Most of the new corporate debt is BBB-rated, covenant light, low quality stuff. The reason for that is the ultra easy monetary policy we have seen post-2008…”
William White – Former Chief Economist at BIS
MMT ( More Money Today) will save us all. right?
According to SWIFT the Euro surpassed the Dollar in settlements. The same thing happened 8 years ago . Significant ? Dunno, above my pay grade.
Could you provide links or articles backing that claim? Thank you.
The USA today resembles Austria-Hungary in the spring of 1914. I could list all the similarities but it would take me over the the word limit of this blog entry. Mark Twain once said “History doesn’t repeat exactly but it does rhyme”. We are as divided as ever and nothing is going to bring us together. Its going to be every man for himself. A sudden spark either here or abroad could ignite a conflagration the likes of which we have never seen.
I’ve moved all my assets into a ladder of 1 year CD’s at the local credit union. Not much yield but at least I can sleep at night.
Mad-don’t necessarily disagree, but if it does become ‘every man for himself’, what keeps a credit union solvent/accessible in the consequent havoc you foresee?
may we all find a better day.
“How did you go bankrupt?” Mike asked.
“Two ways. Gradually, then suddenly.”
[Hemingway: The Sun Also Rises.]
Correction: Mike was the respondent, not the questioner.
CRS virus in play: Can’t Remember S#it
Currency printing as we know has led to increasing inflation creating (temporary) wealth for those who own shares, property etc. We all know who suffers. Physical gold cannot be printed particularly with the clean-up of the Bullion Banks’s unbacked sale of paper gold called Comex futures. The so-called Reset World Economic Summit set for Q2,2021 may well lead to a competing World Currency backed by a % of Gold in the participants Foreign Reserves. Gold in $US can only go up.
Investor: “I’ll trade you this gold coin for that sack of potatoes.”
Farmer: “No thanks. I’ve got all the gold I need. We just may eat those potatoes next week.”
More important than holding gold is a reliable way of converting gold into a currency for obtaining necessities.
I’ve solved that conundrum by growing Yukon Gold potatoes in my garden. Still have a few left in the cellar …
Always bake or grill an extra in order to add some hash browns at next day’s breakfast, eh?
Yes Dan. I always bake several extra potatoes as they keep for a few days after being sterilized at 500*F for an hour. Chopped potato and onion fritata with mushrooms and pimentos.
Jeffrey Gundlach just tweeted the following: “Mnuchin is declining to extend most of the Fed’s emergency credit programs beyond year-end & asking the Fed to return all unused CARES Act risk capital.”
Big if true. That’s another support pillar removed from the market. I am guessing we rally or remain stable till Tesla gets added to the S&P. After that it’s fireworks.
The great Fed balance book shall not go to waste! Never! We shall use it for a grand feast at Milliways! I invite you all! Let them eat cake I say!!!!!!!!!!!!
91B20 1stCav (AUS)
Nov 20, 2020 at 12:49 am
Credit Unions were first introduced in rural Germany in the 19th Century. They’ve survived two World Wars, Famine, Pandemics and depressions. I’ll go with credit unions in times like this. I’ve also got some short term muni bonds. They also survived the depression. If you and other suckers want to gamble your life savings in Wall Street be my guest. But don’t come back wining to me when you lose 40 to 50% or more of your capital in that crooked casino.
Mad-don’t get me wrong, i’ve never gambled, and never will in the aptly-named ‘crooked casino’ (we are in total agreement on that!). As a combat medic who dealt with too-many casualties from a shooting war long ago and far away, ‘every man for himself’ implies to me an approaching violent disintegration of our national society, without a Western Alliance apparent who would be willing and able to pick up the pieces subsequent to the carnage i think you implied. Perhaps i misunderstood, and if not as dire as i perceived, i, of course,have zero quibbles with your strategy. If i didn’t misunderstand, i admire your faith and hope it is rewarded.
Peace, and-
may we all find a better day.
Instead of paying taxes corporations are buying treasuries. It is a captive relationship: if they were to stop funding the treasury this way their taxes would have to go up.
91B20 1stCav (AUS)
Nov 21, 2020 at 1:05 am
I thank you for your service. I support the Vietnam Veterans of America as my main charitable donation. My main point is that a country that has lost its virtue will not be able survive as a civil society for long. Without a civil society bad things will happen as they are today. Look what happened to the two great industrial countries of Germany and Austria-Hungary as a result of getting sucked into the WWI because of a regional dispute in a backwater part of Europe. Their leadership, major institutions and media failed them. Just finished reading three great books which explain it all:
A Mad Catastrophe by Geoffrey Wawro “The out break of WWI and collapse of the Habsburg Empire
Ring of Steel by Alexander Watson “Germany and Austria- Hungary in WW I
The Sleepwalkers by Christopher Clark ” How Europe went to war in 1914″ Better that “The Guns of August”
Of course they won’t allow the reading of books such as these in the public schools today as they don’t follow a simplified narrative to brainwash our children and everyone else.
You know the “debt” can has been kicked down the road since the Continental Congress first used script, making it out of thin air, just like Our laws are created. The debt danger is supported by those who profit from it, that’s all.