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Foreign Central Banks Cut Treasury Holdings by Record

Posted by WARREN MOSLER on December 31st, 2011

And Tsy yields at record lows!

Even with $trillion federal deficits!

Even with the S and P downgrade!

Even with large foreign holdings of US Treasury securities!

Who would have thought?

;)

Happy New Year to all!!!

Foreign Central Banks Cut Treasury Holdings by Record

Holdings of U.S. Treasurys by foreign central banks has fallen by a record $69 billion over the past four weeks according to the latest Federal Reserve data. The Financial Times reports

15 Responses to “Foreign Central Banks Cut Treasury Holdings by Record”

  1. rodney Says:

    Where else are they going to put their money.

    Reply

    WARREN MOSLER Reply:

    no telling…

    and their trade flows could be turning, which means someone else is getting the dollars now

    Reply

  2. John Zelnicker Says:

    Warren — Since the Treasury is not paying net redemptions (right?), whose holdings are increasing now? Thanks.

    Reply

    WARREN MOSLER Reply:

    don’t know. never much cared about who the holders were. maybe someone else has that kind of info, sorry

    Reply

  3. Monica Smith Says:

    What’s it worth knowing the money won’t get stolen?

    Reply

  4. pebird Says:

    Lets see …

    European banks potentially insolvent

    Fed swap lines are renewed

    Foreign CBs Treasury holdings reduced

    So ..

    Wonder if private (European) bank holdings of Treasuries have increased?

    Wonder what Foreign CBs received in exchange for Treasuries?

    Reply

  5. Rodger Malcolm Mitchell Says:

    Why does it matter who owns Treasuries? Just askin’

    Rodger Malcolm Mitchell

    Reply

    WARREN MOSLER Reply:

    doesn’t matter to me

    Reply

    Ed Rombach Reply:

    @WARREN MOSLER,

    The Fed is holding $1.7 Trillion of Tsys, which means that portion of the public debt does not equate with net private sector savings. Why should this even be counted as part of the public debt outstanding?

    Reply

    beowulf Reply:

    @Ed Rombach,
    That’s an excellent point Ed. Fed-held debt screws up the public debt numbers since it should be counted in the govt sector (Tsy holds equitable title to the debt since its beneficiary of the interest income) instead of the private sector.

    Clearly the $1.6 in bank reserves is related to the $1.7T in Fed-held Tsys, since the Fed purchase of Tsys creates excess reserves just as surely as if Congress ordered Ty to spend US Notes into circulation. Of course The Fed can maintain a positive interest rate by paying 0.25% interest on reserves (they’ve also tipped their toe into issuing Fed CDs via its Term Deposit Facility).

    Since IOR is double the rate of even 1 yr T-bills (0.12%) and just shy of 2 yr T-notes (0.27%), I imagine foreign central banks are simply keeping their dollars in their reserve account.
    Not sure if its by accident or intent but the IOR rate certainly is screwing up the yield curve.

    WARREN MOSLER Reply:

    the reserves credited when the fed purchased the secs count as private sector financial assets.

    but they don’t count as the public debt, the tsy secs do.

    beowulf Reply:

    @Warren Mosler,
    “the reserves credited when the fed purchased the secs count as private sector financial assets.
    but they don’t count as the public debt, the tsy secs do.”

    Right, but when the Fed buys Treasuries, for all practical purposes (except the debt ceiling) its like Tsy redeemed them with fiat dollars.
    If Tsy spent with dollars it created for each appropriation warrant, the reserves credited when the Navy bought an aircraft carrier would count as private sector financial assets. And the reserves created are Tsy obligations since, if nothing else, Tsy promises to accept them in payment for taxes. For the very same reason, the dollars the Fed created by purchasing Treasuries are also Tsy obligations.

    The difference is when the Navy buys a $15 billion aircraft carrier, the dollars were clearly used to purchase a govt asset; but when the Fed buys $15 billion in T-bonds, the dollars are viewed as having purchased a govt liability– a unique sort of liability that, unlike aircraft carriers, actually provides an income stream for the govt (most debtors see the interest income flowing out and not back in).
    No real point to that, just think its interesting. :o)

    WARREN MOSLER Reply:

    ok, the difference between dollars in reserve accounts at the fed and dollars in securities accounts at the fed (tsy secs)
    is the same as the difference between dollars in checking accounts at commercial banks and dollars in savings accounts at member banks.

    which raises the question, does anyone ever proclaim that bank savings accounts/cd’s/time deposits are deflationary because they take away the dollars in checking accounts? if so i haven’t heard it.

    beowulf Reply:

    Well, reserve accounts are paid 0.25% IOR and securities accounts are paid 0.02% for 3-month T-bills.
    But I take your point. Typically time deposit accounts are paid interest and demand deposits are not instead of the current vice versa.

    I suggested over at Cullen’s page that you should trademark Modern Monetary Theory, MMT and the sectoral balance equation and put them on sweatshirts.
    If nothing else, sending trademark infringement cease and desist letters to anyone who disagrees with you would be therapeutic. :o)

  6. pebird Says:

    Speculating that Treasuries are being exchanged for other assets to improve asset qualiity in weak banks. Assuming Treasuries are not returning to the US, so why flow out of foreign CB’s?

    Reply

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