Just two weeks before QE2 ends, Russia becomes third major country to announce it will dump U.S. Treasury holdings
posted at 8:21 am on June 19, 2011 by directorblue
[ Economics ]
Tyler Durden asks, “Are we and Bill Gross (and certainly not Morgan Stanley) the only ones to see a problem with this“?
Just in time for the end of QE2, when the US needs every possible foreign buyer of US debt to step up to the plate, we get confirmation that yet another major foreign central bank has decided to not only not add to its US debt holdings, but to actively sell US Treasurys… The WSJ reports that “Russia will likely continue lowering its U.S. debt holdings as Washington struggles to contain a budget deficit and bolster a tepid economic recovery…”
Well, with Russia out, at least we have China and Japan continuing to buy US debt…. Oh wait, China is contemplating dumping two thirds of its debt you say? And the biggest buyer of Japanese bonds is now in the process of selling Japanese bonds in the open market for the first time (so not really in the market of US bonds)…
Well, surely US households will step up to the plate. After all they all have so much “cash on the sidelines” courtesy of the RecoveryTM ©® that they can’t wait to dump it all into paper yielding less than 3% a year, and has negative real rates of return. Wait, what’s that: according to the Fed, in Q1 US “households” sold $1.1 trillion annualized in Treasurys to the Fed?
So, let’s get this straight: China, Japan, and now very much openly Russia, the three countries with the largest financial reserves in the world, are threatening, if not already dumping US bonds, just in time for US households to sell their holdings of US paper to Brian Sack. And this is happening 2 weeks before QE2 ends… Um… Are we and Bill Gross (and certainly not Morgan Stanley) the only ones to see a problem with this?
Those rumbling sounds you heard in the background are Ben Bernanke’s printing presses preparing to initiate Quantitative Easings III, IV, V, ad infinitum…
Got Weimar?
Cross-posted at: Doug Ross @ Journal.
Blowback
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In the world of addictive-compulsive behavior, what America’s borrowers are doing would be called an intervention. But it’s also pretty well-known that it’s all but impossible to help someone if they don’t recognize they have a problem and are willing to help themselves, amd when the core belief of the Krugman wing of liberal economists is the recovery efforts won’t succeed until we spent a ton more money, it’s going to be at least until the fall of next year before things change (and that’s only if Bernanke sees the handwriting on the wall and suddenly wants to suck up to the impending new Republican president).
jon1979 on June 19, 2011 at 8:37 AM
So this will cause us to have to increase the interest rates to attract new buyers negating the loss of value of printing money. this is what you call being checkmated. China, russia and Japan just told the US to stop devalueing their money by running the printing press. If interest rates shoot up can you say $2 $2.5 trillion defiects….
So the fed and the USa gov has three choices. Stop spending reducing the need to borrow and thereby keeping interest rates low. continue to print money Qe3 and watch all other nations dump USa bonds d riving up interest rates. Or stop printing continue spending and allow the market to drive up interest rates.
2 out of three leads to total monetary collapse (see Greece) only way we get out of this hole is stop digging and start backfilling…..
unseen on June 19, 2011 at 11:31 AM
hammer:nail::shovel:hole
And they are so in love with that danged shovel.
chemman on June 19, 2011 at 12:48 PM
We can do either of two things with this: we can use this to force us to get our spending house in order OR we can destroy ourselves economically at their behest just like the Soviets destroyed themselves at our behest.
njcommuter on June 19, 2011 at 6:01 PM