3. The collapse of the Anglo-American banking system obviously leads to one place: inability service government issued debt except by monetization.
Well.. so then interest rates should be soaring for the T-bills, right? We shouldn't be seeing 3 month T-Bills at nearly zero, or 10-year at 2.62%, right? TIPS should be getting bought up right and left in anticipation of soaring inflation, right?
By LOGIC, your argument should be correct, but the above facts suggest something else is going on here. China CONTINUES to buy our government debt because they simply have no where else to invest on this planet except the most liquid and transparent market in the world.. US government debt. In fact, China is now the largest holder of US T-Bills, passing Japan.
What I'm speculating on in my analysis is that while it's bad here, it's getting even worse in overseas markets. This "manufacturer financing" where countries like China subsidized our consumption by buying our mortgage and consumer bonds and ABS's, has left these export oriented economies with over-capacity that is no longer being bought up by the US consumer and these exporters are beginning to see tremendous upheaval in their economies and financial sectors because the American consumer has closed their wallets.
But they don't have a sufficiently robust, or transparent enough financial system to repatriate that capital. So they are leaving it parked here in the safest place available, US T-Bills.
This recession is global. The excesses were NOT just in the US, but around the world. Real Estate bubbles exist in Europe (Spain, Portugal, former East bloc), as well as in China. And let's not forget that just 10 years ago, it was perceived that up to 50% of all outstanding loans in China were non-performing. I'm not so sure that all of this has been resolved.
So, in sum.. it would seem that in this period of deflationary pressures and some of the lowest interest rates we've seen in history, the last thing we need is for the American people to save (though it will likely continue due to fear of future).
I wish I could concur with your analysis, but I'm just perceiving there are quite a few pieces missing in the puzzle you're assembling (not that I think I can provide them for you).
Hawk |
