There is a part of the Puplava article quoting Doug Gillespie, that addresses some of my points of late about the heavy hand of central banks in price fixing the US securities market. He uses the term "foreign "investors" in his data, but I would seperate off the 2004 data for FCBs (*). I think you can add petrodollar recycling (The mysterious London ratline)
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to this, which doesn't show up in custodial holdings. This illustrates a price fixing regime whereby the US exports vastly overpriced securities (A)in exchange for goods (B). There is a feedback loop to doing so, the goods we exchange for debt securities gets inflated as well: net net inflated financial assets feeds into inflated everything else. (A) (credit spigot of overpriced debt securities) will have to be deflated (rate and credit risk spike), before (B) (inflation spikes) can be contained, it's all tied together. I don't see the theory of rationale consumer behavior (more savings, less borrowing and spending), as valid, especially in an historic Bubble. They will engage in speculative, consumptive behavior as long as they can. Charles Kindleberger called this behavior "loading", people will maintain their perceived standard of living by any means until there is a crisis.
During 2004, foreign investors absorbed an extraordinary 98.5% of all Treasury issuance, a net of $357.2 billion acquired, versus a net of $363.5 issued.
Foreigners absorbed almost as large a proportion of the issuance of US agency securities, 93.7%, a net of $129.6 billion acquired, versus net issuance of $138.3 billion.
Thus, combined foreign purchases of Treasuries and agencies equaled a stunning 97.2% of total issuance, $486.8 billion, versus $500.8 billion. (*)
As to the purchase of corporate bonds, foreign investors took down a net of $265.5 billion, 44.7% of total issuance of $594.3 billion.
In addition to the huge proportion of foreign Treasury acquisitions last year, the Federal Reserve added $51.2 billion to its own Treasury portfolio. This means that during 2004, the Fed and foreign investors absorbed $408.4 billion or about 112.7% of the total issuance of $362.5 billion. Obviously, this had a highly favorable influence, on balance, on Treasury yields during 2004, although an influence hugely lacking in traditional open-market characteristics. [Author's note—this explains the Greenspan conundrum as to why long-term yields fell, while the Fed raised short-term rates]
As of 3/31/05, foreign investors held a total of $9.723 trillion of US financial assets, up almost $400 billion from revised holdings of $9.326 trillion as of 12/31/04. From 3/31/04, the increase was approximately $1.11 trillion.
As of 3/31/05, foreign financial liabilities totaled $4.634 trillion, resulting in a net foreign claim against the US of $5.089 trillion.
For all of 2004, foreign investors acquired a record net $1.255 trillion of US financial assets. During 2005’s first quarter, this figure fell to an annual rate of $1.170 trillion, not materially below last year’s record level.
During this year’s first quarter, a very high 73.6% of US financial-asset acquisition by foreign investors was in highly marketable (therefore, highly liquid or “exposed”) asset classes. This was up from 66.0% for all of 2004, and equal to the same 73.6% level achieved in 2003.
(*)
2004:
FCBs: total 269.0 billion: Treasuries 206.3, agencies: 62.7
Fed: 51.325 billion, SOMA account growth in 2004 was 7.65%, that's inflationary. Total official activity 320.3 billion: 66% of all Treasury and Agency issuance was accounted for by a central bank, hardly "private demand".
2005:
FCBs: total 171.9 billion: Treasuries 25.2, agencies 146.6, an astonishing about face, what would the mortgage market and spreads look like today without this?
Fed: 32.213 billion, SOMA account growth YTD is 5.3%, still pretty inflationary, but some withdrawal from 2004 frenzied pace. Total official activity 204.1, or 234 billion annualized for the entire 2005. That's a $86 billion central bank decline or hole from 2004, and I believe explains the higher rate environment,
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especially given that the trade and fiscal are getting worse, not better.
For rates to be contained, will require a higher level of central banks price fixing (monetization), and/or a lower debt borrowing need from the US economy. |
