Just who bought all the Treasuries issued in late 2008 and early 2009? Brad Setser.
those of us who compare the U.S. now to Japan in the '90s often get shot down by critics who point to the fact that Japan had a huge pool of domestic savings, whereas the U.S. relies on foreign creditors; therefore, although the economic dynamics may be similar (aging demographics, crashed housing bubble and stock market bubble, messed up banking system, similar monetary and fiscal policy attempts (albeit with different timing), sub-potential economic growth, disinflationary if not deflationary predilections due to excess capacity, deleveraging, etc.), the interest rate outcome can't be the same; my counterpoint, influenced largely by Rosie, has been that U.S. household balance sheets have historically (VERY) low levels of bond holdings, and that the impetus to save (pay down debt and re-build retirement portfolios) left plenty of scope for domestic financing of incremental government debt; so, although the U.S. was starting from a low level of savings, that was immaterial (its not the stock the matters, its the flows) and on a prospective basis, that level of U.S. savings was bound to pick up significantly; and even if households themselves do not hold Treasuries outright in their own names, by paying down debt to financial institutions, those institutions could also be the new marginal buyers of Treasuries (what? they're going to lend out that extra cash to other households who are also trying to save? they're going to lend out that extra cash to businesses that are retrenching?).
As per Setser, the expert in the field of tracking fund flows,
Central bank custodial holdings continue to rise — just look at the last week’s custodial data. But the world’s central banks are no longer buying up all the debt the Treasury issuing. And Americans are now saving, creating a new pool of funds that needs to be lent out. Moreover, the financial sector isn’t borrowing — it actually is scaling back — which means that the household sector is lending less to financial firms, freeing up funds to flow into the Treasury market. Obviously, the price that pulls US investors into Treasuries matters greatly. But the basic sources of demand for the huge amount of Treasuries the US is now issuing aren’t really a mystery.... [W]e aggregated Treasuries held by mutual funds with Treasuries held directly by households. At the end of 2008 mutual funds were the main buyers of Treasuries. In q1 2009, though, households themselves were the main buyers of Treasuries.
Price stability and the monetary base. David Altig, of the Atlanta Fed, at his macroblog.
why anyone worries about what Art Laffer is saying, like worrying about what Ben Stein is saying, seems to me a waste of time and energy; one could just accept at face value that they live in their own little worlds and there should be little expectation of them always making sense (but guys like Felix Salmon picked up the "Ben Stein Watch" thing once Brad deLong got tired of it)
in any case, Altig felt it worthwhile to combat Laffer's assertions about what the increase in the monetary base means and whether or not the Fed is up to the task of taking away the stimulus when the time is right, most importantly pointing out that the reason to be concerned that monetary base expansion would be inflationary is if there was expansion in loan growth; but, as Altig says,
but in my opinion it is a bit of a stretch—so far, at least—to correlate monetary base growth with bank loan growth: [see his chart]... Let's call that more than a bit of a stretch.
The fiscal black hole in the U.S. and a follow-up, Limits to inflating away debt, and political commitments to future public spending. William Buiter, Maverecon.
Rebalancing the U.S.-China economic relationship. Kenneth Rogoff, Project Syndicate.
main point, just as Pettis, Roach and others have argued: if everyone is just trying to get things back to normal --- the same normal that relied on global imbalances --- then short-run stability might be achieved, but only at the expense of another (greater) financial crisis down the road
As global slump is set to continue, poor countries need more help. World Bank.
The world economy is set to contract this year by more than previously estimated, and poor countries will continue to be hit hard by multiple waves of economic stress, said World Bank Group President Robert B. Zoellick today. Even with the stabilization of financial markets in many developed economies, unemployment and under-utilization of capacity continue to rise, putting downward pressure on the global economy. According to the latest Bank estimates, the global economy will decline this year by close to 3 percent, a significant revision from a previous estimate of 1.7 percent.
Is Eastern Europe on the brink of an Asia-style crisis? Nouriel Roubini, Forbes.
China's case of the missing cars. Stuart Burns, MetalMiner.
more games being played with China's data:
There are some apparently contradictory numbers coming out of China at the moment. Take those car sales as an example. Our man on the ground tells us BYD, a noted Chinese car maker, reported 30,000 car sales of one model by end of last year, but the number plate agency recorded only 10,000 new cars of that model registered for use on the road. What happened to the other 20,000 are they running around without number plates? In a police state, I don’t think so. Our understanding is auto sales are recorded in China when they leave the factory, not when they are registered on the road, so dealers can build up inventory while car “sales” are rising.
Coming back to Mr. Setser in a fine analysis on the impact of a fall in China’s exports he explores the apparent dichotomy of falling electricity consumption, falling industrial production and yet rising GDP. Even Mr. Setser wasn’t able to conclusively get to the bottom of that one although his overall conclusion was that the economy was growing and it must largely be on the back of domestic consumption as exports and employment remain depressed.
These disconnects call into question our tendency to take official proclamations at face value, and we should also be careful about taking one or two months data and extrapolating that to a longer term trend. In a market so heavily influenced by state controls, a short term trend can be the distorted result of government actions rather than the more reliable measure of a sum of company actions taken over an unfettered economy. Growing China certainly is a trend, but how comprehensively across the economy and how sustainably remains to be seen.
Recent average CDS auction recovery rate? 10%. Tylder Durden, Zero Hedge.
so much for that 40% assumption
Thinking the unthinkable: the Treasury black swan, and the LIBOR-UST inversion. Zero Hedge again.
food for thought; as Durden says, "now that we have gotten to a point where 6 sigma events are a daily ocurrence, it might be prudent to consider all the alternatives"
Where does the public sector end and the private sector begin? Ian Lienert, IMF Working Paper.
haven't read this yet, but got to do so to see if it furthers the point made earlier (let it be resolved, there is no credit market)
*** The household driven deflation? Tylder Durden again, with some Rosenberg included.
True or false: economic stats lie? SmartMoney.
mostly about John Williams and his ShadowStats.
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