Monday, October 21, 2013
The monthly report on foreign Treasury holdings shows that they declined again this past month. Over 4 months they are down from 5721.8 to 5590.1 for a total loss of $131.7 billion. This is an average of about $33 billion per month.
In the prior 8 months foreign holdings went from 5381.6 to 5721.8 for a total increase of $340.2 billion or $42.5 billion per month.
It is too early to say for sure, but there is a chance that foreign holdings have peaked and might keep going down from here. Going from an average increase of $42.5 billion per month to an average decrease of $33 billion per month is a $75.5 billion per month change.
This is on the order of the Fed's $85 billion per month monetization. In fact, you could imagine that most of the Fed's buying over the last 4 months is just compensating for this change. If the Fed had stopped buying, and foreigners kept buying instead of selling, the supply/demand situation would be similar to what it is now. So if this change by foreigners is ongoing, it is a big change.
There is a good article on this topic.
The Fed is now buying more bonds faster than the Treasury is making new bonds, so someone had to be getting out of bonds. It seems it is foreigners.
It could increase into a panic at some point. It is worth watching these numbers each month. It seems to indicate less foreign confidence in the dollar and less desire to use it as the global currency. The Triffin Dilema has long predicted the end to an unbacked reserve currency. We may be seeing the start of this.
Friday, October 11, 2013
I believe that with some practice a set of polling questions could be developed that could provide an early warning for hyperinflation. Below are some possible questions:
1) Imagine a 90 year old friend/relative has $5,000 and the current cost for casket and funeral services is $5,000. Would you recommend that this person pay the funeral home in advance or put the money in a saving account to be used after their death?
2) Do you think it is better to hold onto your gold jewelry or to sell it now and put the cash in the bank?
3) How important to you is it to have your salary indexed for inflation?
4) Do you feel the prices on necessities are going up faster than other prices?
5) Would you advise a friend/relative to buy long term bonds in a retirement account that only permits changes once a year?
6) If you personally own any bonds do you plan to roll them over? Y/N/na
7) Do you expect interest rates to go higher?
8) Do you expect inflation rates to go higher?
9) Do you plan to buy any gold or silver coins?
10) If you had the option of having your salary specified in the local currency or a foreign currency of your choice, which would you choose?
11) Do you know of people moving their wealth out of the country?
12) Do you feel the government budget deficit is out of control?
13) If you had extra money at the end of the month do you think it is better to buy extra things you will use in the future or just save the money?
14) Do you have confidence in your countries bonds?
15) Do you have confidence in your countries currency?
16) Do you have confidence in your countries central bank?
17) Do you have confidence in your countries government?
18) Do you think the central bank needs to create more money?
19) Do you think the current level of government deficit spending is sustainable?
20) Do you think inflation will get bad enough to hurt economic growth?
21) Do you think your currency will be a safe store of value over the next decade?
22) Do you think some more inflation would reduce the government debt burden?
23) Do you think politicians have too much/little influence over the central bank?
24) Do you think it is ok if they print new money to pay off bond holders?
25) Do you think the central bank is funding the government deficit spending?
26) Does your government have too much foreign debt?
27) Does your government have to pay for too many imports?
28) Are bond prices high?
29) Do government employees get inflation raises faster than others?
30) Do you feel that the government has protecting the value of the currency as a higher priority or creating jobs as a higher priority?
31) Are you afraid prices will go up faster and faster?
32) Is the government paying out money to too many different special interests?
33) Have you seen or do you expect price controls?
34) Do rising prices cause the government to print more money?
35) Do you think the same currency will be around 50 years from now?
36) Has the central bank been buying bonds for a long time?
37) Does the government need to borrow money to pay the interest on the debt?
38) Do you think the central bank will reduce the rate it is making new money in the next year?
39) Do you think that central bank interest rates are a good deal for big time borrowers given the current inflation rate?
40) Do you keep a bigger stock of canned food than you used to?
41) Do you think it is easy or hard to get a job now?
42) Is your government stable?
43) Do you think there is a danger of an economic crash?
44) Have you noticed any new gold dealers in the last few years?
The idea is to poll a bunch of different countries that seem to be at risk for hyperinflation each month. After awhile if some do get hyperinflation, then you could look at the data and see if there were some questions that seem to be good predictors. Then you keep refining and repeating this and you get better and better at predicting hyperinflation.
This is a post that I expect to update from time to time.
Sunday, October 6, 2013
This post is to collect together some information on Japan and to point out a confusion that I and I think some others have from the Japanese numbers.
Video's on Japan situation
OtterWood video on Japan.
Kyle Bass video on Japan.
My posts on Japan
Japan will soon be zooming past their inflation target of 2%.
Japan is already printing money at hyperinflationary rates.
Japan to be First Currency Domino.
I was commenting on Sumner's blog and he pointed out that my numbers for Japan did not look right. The Japanese ministry of finance web site made it seem like national debt service was already about 25% of expenditures and 50% of taxes, even at near zero interest rates. However, Krugman says this 25% includes principle for bonds coming due.
It is not clear from the MOF web site how much is spent on interest. Kyle Bass, and someone trying to rebut him, say that interest is about 25% of taxes. This would mean half of the reported "national debt service" is interest and half principle.
Sumner also says that for hyperinflation it is only the net debt to the public that matters. He says for Japan this is about 100% of GNP. It does make sense that net debt is the correct number to use. This also explains why Japan could get debt over 200% of GNP without hyperinflation.
An article in the economist has Japan's net debt at 114% of GNP in 2010. This article has net debt, years to maturity, and primary budget balance. These all are important factors when looking at the chance of hyperinflation.