There is a disturbing trend that is taking shape across the international financial markets. It involves primarily Russia, Brazil and China. Just what are these countries up to? They may be tipping the balance of international finance into uncharted waters.
Specifically, they are buying smaller quantities of U.S. treasuries and using their excess reserves to buy other non-dollar denominated assets. For example, in April total net purchases of long-term equities, notes and bonds rose a net $11.2 billion compared with a gain of $55.4 billion in March. International holdings increased $41.9 billion in April, compared with $55.3 billion in March.
There is growing concern about the large U.S. budget deficits and these three countries have expressed a desire to move out of dollar denominated assets. These are the numbers by countries:
- China trimmed its holding of U.S. securities by $4.4 billion.
- Russia's holdings dropped by $1.4 billion.
- Brazil's slipped by $600 million.
- Japan's total slid $800 million.
For short-term securities, such as stock swaps, foreigners sold $53.2 billion of U.S. assets in April, compared with buying only $25 billion the previous month.
U.S. Treasury Secretary Geithner went to China to try and patch things up and convince the Chinese to keep buying our treasury securities. The obvious reason is that we need Chinese buying to help finance our huge debt. However, the Chinese are looking at a U.S. budget deficit of $1.85 trillion this year and continuing through 2019, with a deficit of $600 billion.These figures were given by the Congressional Budget Office.
This trend is only in its infancy but it bears watching. If we see lower buying numbers for the next several months, it could cause a new crisis in the financial markets.
Do you believe that we will be able to finance our huge debt?
Nuclear power is on the comeback trail
Apple backs AT&T in continuing spat with Verizon
Closing Bell: The recession is still over, still... do you feel it?
Reader Comments (Page 1 of 1)
6-16-2009 @ 11:14AM
Dr. Dan said...
Does this actually surprise anyone? If you look at the proposed growth of M1 in the next year, it's all from printed money. $2T worth. I am no economist, but it looks like Obama is trying to solve the 'fixed' costs of medicare and medicaid by inflating our way out. Not only will this fail miserably, but it will destroy our economy, especially those on fixed incomes whom it supposedly would be meant to help. One only has to look back at the Carter years for the devastation double-digit unemployment and inflation caused, and how long it took to come out of it, as well as the measures Reagan had to take to do it. Please, please, wake up people. It's probably too late, but that doesn't mean we can't try to stop him.
6-16-2009 @ 12:53PM
Keith Kremposky said...
Put yourself it their shoes. Your job is to invest your countries wealth. Where would you invest? Not here, unless you buy the short treasuries, like TBT. It could be argued that for those countries to invest in the US bond market requires a greater return to compensate for the greater risk.
Also, what about the auto company bonds? Do we just rip 'em up if it's too tough to honor? They could be wondering it we'll just rip up the bonds that they hold.