Combine this with Bank of America’s warning that “the US Dollar is in trouble” and you can see that the cliff America is heading towards without brakes isn’t too far away.
Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion!
When the S&P soared to all time highs and when everyone was panicking about the 3% barrier in the 10 Year being breached and resulting in a sell-off in Tsy paper – one thing stands out. The decline in its purchases comes at the same time that the Federal Reserve is pulling back on its own purchases of government debt, a withdrawal of stimulus popularly known as tapering.
China still remains the biggest foreign holder of U.S. Treasuries.
The chart below shows holdings of Chinese Treasury’s (pending revision of course, as the Treasury department is quite fond of adjusting this data series with annual regularity.
This was the second largest dump by China in history with the sole exception of December 2011.
That this happened at a time when Chinese FX reserves soared to all time highs, and when China had gobs of spare cash lying around and not investing in US paper should be quite troubling to anyone who follows the nuanced game theory between the US and its largest external creditor, and the signals China sends to the world when it comes to its confidence in the US.
Yet what was truly surprising is that despite the plunge in Chinese holdings, and Japanese holdings which also dropped by $4 billion in December, is that total foreign holdings of US Treasurys increased in December, from $5716.9 billion to 5794.9 billion.
Why? Because of this country. Guess which one it is without looking at legend.
But other foreign countries are stepping into the breach, pushing the volume of Treasuries held outside the U.S. to a record high. Belgium actually posted an increase in holdings greater than China’s decline, while Hong Kong, Ireland, Norway, South Korea and the Netherlands all significantly boosted their holdings as well.
That’s right: at a time when America’s two largest foreign creditors, China and Japan, went on a buyers strike, the entity that came to the US rescue was Belgium, which as most know is simply another name for… Europe: the continent that has just a modest amount of its own excess debt to worry about. One wonders what favors were (and are) being exchanged behind the scenes in order to preserve the semblance that “all is well”?
Borrowing money never is a problem when lenders are still willing to lend.
But that is quite risky because all it takes is for the global markets to question our ability to pay debt back and the lenders stops lending.
We are playing on perilous ground and the only safe solution is to stop borrowing and getting our financial house in order. Because if we don’t voluntarily get our financial house in order one day the global lenders will FORCE us to get our financial house in order.