Monday, October 21, 2013

Foreign Treasury Holdings Down


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.

8 comments:

  1. Please do continue to keep us updated on the numbers :) Will be interesting to see whether the recent shutdown has any circumstantial correlation to the rate of increase/decrease. Rgds,

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  2. Hi Vincent,

    I saw this and thought of you. Lars is the biggest Friedman fan of all the MMists. He mentions "hyperinflation" in this one, so I thought I'd give you a heads up:

    http://marketmonetarist.com/2013/10/19/more-silliness-from-the-tin-foil-hat-austrians/

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    Replies
    1. Thanks Tom! When I see this guy, or Cullen, or Krugman go for insults instead of attacking the meat of the argument I think it is because they can't counter the argument. Currencies really do fail. To try to say this is like predicting that "the end of the world" is just wrong. This attitude is why few people bother to understand how currencies fail.

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    2. I asked Lars about that "Scam" youtube video. No response yet, but George Selgin did respond in a comment there. George is a "free banking" advocate and a fellow at the CATO institute:

      http://en.wikipedia.org/wiki/George_Selgin

      You can see him in the media sometimes (CNBC, etc). Here was what he had to say about the video:

      "Yes, the video is mostly tin foil stuff–albeit very slick tin foil stuff. The nonsense in it is made all the more dangerous because some truth is blended in as well.

      And I made it through the whole thing, though it pained me to do so."

      http://marketmonetarist.com/2013/10/19/more-silliness-from-the-tin-foil-hat-austrians/#comment-28467

      I posted a link to your page too, but he didn't give his opinion there (relax, I didn't accuse you of being a tin-foil-hatter :D)

      But perhaps you can ask George a question about your theories. It'd certainly be one worth getting I think.

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    3. ... if George was willing to spend time watching that whole video (however painful it was to him) he may be willing to read some of your stuff.

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    4. I sent him an email. Hope he is willing.

      Thanks!

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  3. Vincent, Marcus notices the WSJ is alarmed by low inflation:

    http://thefaintofheart.wordpress.com/2013/11/01/when-the-wsj-starts-writing-about-deflation-take-notice/

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  4. eToro is the ultimate forex broker for novice and pro traders.

    ReplyDelete

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