Brad Setser

Follow the Money

Cross border flows, with a bit of macroeconomics

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No one wants to hold risk …

by Brad Setser
September 17, 2008

In July, the TIC data indicated that foreign central banks migrated in mass toward the Treasury market.

Today everyone did.

The 3 month Treasury bill now yields nothing. The Treasury though will give you your money back …

no-one-wants-to-hold-risk.JPG

The fall in Treasury yields came even as the US government indicated that it was going to issue a lot of bills and bonds to help the Fed grow its balance sheet.

I guess this is what a close to systemic financial crisis in the US looks like.

The broker-dealers were performing many of the economic functions of banks: The expansion of their balance sheets financed a lot of credit expansion in the US over the past few years. They no longer can access the debt market. That is a problem.

55 Comments

  • Posted by KnotRP

    What’s more interesting is that the US government has apparently learned it cannot default on the Chinese (which is why it had to backstop the implicitly backed agency debt instead of giving it a hair cut). The US couldn’t afford losing it’s biggest financiers. I warned that we might get jammed up like that, many moons ago in this blog’s comment section.

  • Posted by Ian Hurst

    KnotRP: “I warned that we might get jammed up like that, many moons ago in this blog’s comment section.”

    So, if you knew the borrowing was reckless, and I knew the borrowing was reckless, and Brad knew the borrowing was reckless, and just about everybody in the whole world knew the borrowing was reckless, what can possibly excuse the US government not knowing the borrowing was reckless?

    Are we really descending to this level of irresponsibility now? You can’t say “you should have known better” to the government of the most powerful nation on Earth? But you somehow can say it to rising powers?

    Come on. That is an absurd hypocrisy. “You should have known better” is either a valid criticism of everyone or it’s a valid criticism of no one.

  • Posted by KnotRP

    Ian – ok, so I see were you are coming from now. You have a reasonable position staked out, but I also have a lower appraisal of the situation than you. The US government isn’t a thinking entity, imho. It doesn’t act like an intelligent being. It’s a collection of individuals working to wrangle their slice of the tax payer….it’s not thinking about the damage to the tax payer from overgrazing, offshoring, or anything else….in that sense, it’s inanimate. There is no long term, in DC. There is only the now and what’s in it for “me” (and the lobby behind “me”).

    So you want to blame the US government?
    Go ahead. I won’t quibble. But it seems meaningless to me….like blaming a toaster for not producing a cup of coffee. it’s simply not organized to make good long term choices for the US citizen. It’s organized to maximize extraction. It’s doing what it was designed to do….but too well (or the host it’s feeding off is becoming too weak to sustain it). The parasite
    needs to be careful to not kill the host, but I
    just don’t see how the US government does that, organizationally…it’s just not built into the system.

  • Posted by Ian Hurst

    KnotRP: “The US government isn’t a thinking entity, imho.”

    And? If that kind of reasoning deflects blame, then all governments are blameless. Even petty dictatorships. It’s not like Kim Jong Il personally signs every check his government writes.

    So now we’re all blameless, yay! Except, no, I was responding to the ridiculous blame-flinging going on earlier in this thread. It ain’t all China’s fault. It ain’t all America’s fault. Each voluntarily entered agreements that are now screwing everyone.

    Adults take responsibility for their own choices. Children don’t. I know which group I belong to – in this argument, anyway.

  • Posted by KnotRP

    “…then all governments are blameless.”

    I’m willing to assign blame to the citizens,
    if they vote in the government that’s not
    doing the right thing. Do we agree now?

    As for dictators – they have concentrated
    executive power, so I’m perfectly willing to
    blame dictators for their actions.

  • Posted by KnotRP

    I would add that blame is an uninteresting concept, unless one plans to have ill gotten gains disgorged. I don’t see that happening, so…

  • Posted by Cymnentedum
  • Posted by Krestort

    Recently one of my friends started an obsession with the actor Nicholas Cage (mostly because their names are both Nicholas – sounds strange but he is strange and that isn’t the point). After asking around the rest of my friends he seems to be a very controversial figure.
    What does the forum think? do you love the all action superhero? Or do you hate the droning voice of the man who does nothing but action shooters?

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