Brad Setser

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Russia’s waning appetite for dollars

by Brad Setser
May 18, 2009

If Russia were China — or if Russia’s reserves were growing at the same pace as in late 2007 or early 2008 – today’s revelation that Russia cut the dollar share of its reserves over the course of 2008 would be big news.

The dollar share of Russia’s reserves is now (or at least was in January) a lot closer to 40% than 50%. Reuters (via the Moscow Times, and other sources):

The euro’s share in Russia’s forex reserves, the world’s third-largest, overtook that of the dollar last year as the country pressed on with a gradual diversification, the Central Bank’s annual report showed. The euro’s share increased to 47.5 percent as of Jan. 1 from 42.4 percent a year ago, according to the report, which was submitted to the State Duma on Monday. The dollar’s share fell to 41.5 percent from 47 percent at the start of 2008 and 49 percent at the start of 2007.

It is often asserted that the dollar is the global reserve currency. It would be more accurate to say the dollar is the globe’s leading reserve currency.* The dollar is the dominant reserve currency in Northeast Asia. And the two big economies of Northeast Asia both happen to both hold far more reserves than either really needs. The dollar is also the reserve currency of the Gulf. And Latin America.**

But the dollar isn’t the dominant reserve currency along the periphery of the eurozone. Most European countries that aren’t part of the euro area now keep most of their reserves in euros. That makes sense. Most trade far more with Europe than the US – and some, especially in Eastern Europe, ultimately want to join the eurozone.

Russia has long traded far more with Europe than with the United States. By increasing the euro share of its reserves, Russia is in some sense just converging with the norm among other countries on the periphery of the eurozone.

Russia’s announcement also settles one mystery — or at least one little thing that I have spent a bit of time pondering. The following chart shows the Setser/ Pandey estimates of Russia’s dollar holdings relative to Russia’s foreign exchange reserves.

Interpreting the chart requires one additional bit of information. The quality of the data improves around the middle of the year, as the best US data comes from the (June) surrey of foreign portfolio investment in the US. The further from June, the larger the potential error.

Dollar assets for Russia (and China, but that is a more complicated story) were a bit lower than I would have expected in the June 2008 survey. I worried, though, that the survey was just missing a portion of Russia (and China’s) portfolio. Now though I would guess that the survey was more or less right about Russia. The US data then implies that Russia reduced the dollar share of its portfolio in early 2008 …

What of the apparent rise in Russia’s dollar share — at least based on our simple model — over the past few months?

Chalk that up to the limits of the US data.

We know from the US data that Russia has sold its short-term Agency portfolio. It literally took its holdings of short-term Agencies down from close to $100 billion to $1 billion. Almost of all of Russia’s remaining Agency portfolio in the Setser/ Pandey estimates consequently consists of longer-term Agencies.

And I would guess that Russia has actually sold off that portfolio at a faster pace than the Setser/ Pander estimates imply. If Russia sold a long-term Agency bond to a US investor, that would register in the data. But if Russia sold a long-term Agency bond to an investor outside the US, the TIC data wouldn’t pick up a thing. And our estimates are ultimately based off the TIC data …

Reuters reports that Russia has “banned investment in bonds of agencies such as Fannie Mae and Freddie Mac, saying it needed more liquid assets to meet the needs of its own budget” and here I suspect the Russians really have backed their words with actions.

An aside: Greg White’s reporting on Russia is always worth reading. The close to 10% y/y fall in Russia’s q1 GDP is a reminder of just how brutal the adjustment in Eastern Europe has been. The fall in output in a host of countries is now larger than back in the emerging market crises of the 1990s.

* The rise in global reserves means that the world’s central banks hold more euros as part of their reserves now than they held dollars in 2000. If demand for dollars hadn’t risen any more, the rise in demand for euro-denominated reserves would be a big story …
** Best that I can tell, South and Southeast Asia generally hold a far lower share of their reserves in dollars than the big countries in Northeast Asia.


  • Posted by WStroupe

    It’s quite a bit easier for Russia to reduce its exposure to the dollar. As you point out, Russia’s trade with the U.S. isn’t that significant. It did not accumulate too many dollars, therefore. Also, Russia isn’t much in the spotlight with respect to whether it might be ‘dumping dollars’. That gives Russia some cover to ‘dump dollars’ without triggering a dollar collapse. China hasn’t that advantage, and it holds far more dollars than Russia.

    China has to work incrementally but deliberately to solve its own dollar problem. I see an array of potent new policies and new mechanisms China is putting in place to do just that over the next very few years. They seem pretty well thought out on the whole, too. Belated, yes. But also potent.

  • Posted by Rien Huizer

    WS Troupe,

    China is just managing the US/CNY exchange rate, with apparent disregard for, say the USD/JPY or USD/EUR rate. Given the wide array of tools that the PoBC/SAFE have, of which simply keeping net USD export receipts in USD instruments is only one, China could probably keep a larger share (say using a trade weighted approach) of its reserves in EUR than it does, without jeopardizing its USD targeting strategy. But given China’s prominence as a USD investor, that could easily lead to speculation as to China’s views on the USD.

    Russia is simply a European country with an economy that is difficult to size (somewhere between Spain and the Uk perhaps), mainly exporting raw materials, where its is a large player but never dominant (piped natural gas excluded) and an importer of manufactures.It does not offer the same labor cost advantages as China or even Thailand which makes it unsuitable for export-oriented FDI, but also very suitable for labor-regarding EU governments as a strategic partner. Somewhere along the line it will have to converge to European standards of living, not only in a few districs of Moscow. Apart from the obvious political obstacles to membership (likely to be with us for a long time) the most logical approach for Russia, Ukraine etc and the EU would be to integrate much further.I do not see any reason why the ECB or the EU should be concerned about a very large EUR component in Russia’s reserves and a Russian policy-mix oriented towards shadowing the EUR. Short term that would be feasible (contrary to 18 months ago) and long term that would bring the usual benefits of Frankfurtian monetarism: low inflation, muzzling populists and long term growth. For the EU (or at least those countries that aspiore to responsible economic management) a Russia with virtue, austerity and domestic monetary stability could be useful in discusions with actual EU members more inclined to populism.

  • Posted by djc

    It’s difficult if not impossible for the Washington Consensus Elites to comprehend but US foreign policy and US economic recession are interrelated. The way to get the US Economy back on track is to stop attempting to be the world’s supercop. Already the US military has over 500 bases around the world with more planned across Central Asia and the Middle East. US Spyplanes and Navy ships regularly patrol the Chinese coastline, not the other way around. Russia and China don’t want US military presence in their backyards and have formed the Shanghai Cooperative Organization (SCO) to counter US military encirclement. The multi-trillion dollar costs of stupid Middle East Oil Wars for US Dollar hegemony and “Cold War” US military projection power versus Russia and China are absolutely unsustainable. The United States now spends more than the rest of the world combined on the military.

    While the Chinese invest their capital for new industrial infrastructure, the US squanders its capital on useless weapon systems like the $200 million per copy F-22 Fighter which has never once flown a combat mission. The average age of China’s industrial base today is 7 years or less; the average age of US industrial base is over 15 years of age. The American people need to rise in political protest to the Washington Consensus Elite agenda of US global hegemony.

  • Posted by Qingdao

    As the Kremlin struggles to turn around the shrinking economy, cope with surging unemployment and deal with a rising wave of bad-debt problems among its banks…

    This strikes me as an accurate picture of China in the near future; do the bloggers on this post imagine that the “Kremlin model” will soon replace the discredited Western consensus? That “power has shifted to the Kremlin” etc?

  • Posted by guest

    Russia is going through a painful readjustment with drastic cut in the budget.
    The upstream industry,the smelters idle.
    Courageous measures to protect the BOT, increased unemployment 12 Pct and OECD leading indicators as of May stubornly pointing down.
    The banking industry is a proxy of the economy.
    K Arrow conclusion may prevail no consensus without introducing an axiom of dictatorship.

  • Posted by guest

    The same goes for the financial markets

  • Posted by WStroupe

    Qingdao asked, “do the bloggers on this post imagine that the “Kremlin model” will soon replace the discredited Western consensus? That “power has shifted to the Kremlin” etc?”

    You must be very careful here, when assessing Russia and whether it is an economic and political failure. Even though the present crisis with its collapse of oil and gas prices from their summer of 2008 highs has hit Russia’s economy very hard, you cannot SAFELY make the assumption that this condition of very low energy prices will continue for long enough, say another full year or two, so that Russia will likely be ravaged, economically and politically.

    Any number of factors could well arise that would restore a significant measure of energy-based income to Russia. For one thing, the gross lack of investment in the oil sector means that as the global economy recovers, albeit rather slowly, supply constraints will almost assuredly cause prices to elevate very high.

    Europe is in deep economic trouble, but Russia is building its energy fortunes increasingly eastward – that is a smart move. It is also concluding a wide array of deals in the oil and gas sectors that only increase its grip on energy – this is a vigorous positioning of itself to massively capitalize when energy prices inevitably rise again.

    Sure, at present it looks like Russia is in deep, deep trouble. But that is a fundamentally unsafe conclusion based upon a faulty assumption – that energy prices will stay low enough, long enough to do permanent, wholesale damage to Russia. djc mentions the geopolitical developments regarding the SCO – it is consolidating and rising as a real counterweight to NATO. And within it, the Russia-China strategic axis is as vibrant as ever, and keeps getting more so.

    I advise everyone to be very cautious about simply writing off Russia – that’s a conclusion that has proved erroneous many times before in her case. Both Russia and China aren’t stunned and bewildered by this present crisis. Instead, both of them are actually leveraging it (and the present very low resources prices) to go on shopping and deal sprees worldwide to lock up more and more control over strategic resources.

    If I had to make a chess-player’s comment on all of this, I’d say the two are making profoundly clever moves. And you do know, don’t you, that in the game of chess its the ability to think strategically and to position yourself for a victory several moves ahead that wins you the game.

  • Posted by bsetser

    rien — the banks were pushing the argument that their sophisticated risk management allowed them to operate with more leverage, and that securitization had shifted risk off balance sheet so they could easily survive a “housing” related stress test. some banks (and bank economists) in early 07 were actively hostile to any suggestion that we weren’t living in a goldilocks world of permanently low risk spread and low levels of financial market volatility. I was working for RGE at the time, and I got an earful aobut nouriel’s pessimism and record for being wrong (he thought the us would enter into a recession in 06 when housing turned down … ). I came away convinced that the banks were something other than passive victims …

    though i fully agree that they whole buildup of risk couldn’t have happened without non-market inflows from china and other central banks.

  • Posted by Cedric Regula

    WStroupe: Energy chess game

    There are tech moves in the game. Obama announced his vehicle mileage/emissions plan which accelerates the anemic CAFE plan of the prior admin.

    It ups average fuel efficiency by 30% by 2016 at a projected average cost per vehicle of $1300. A pittance, I pay twice that in sales tax and reg fees when I buy a new car.

    On the domestic supply side, deepwater gulf reserves have a production cost of $45/bbl. So a $65/bbl selling price should make production feasible. Same goes for new Brazil deepwater finds at maybe a somewhat higher price. Also many producers have brought on new capacity, so at current (recession) consumption we have some capacity buffer again.

    So we don’t necessarily need to go to $200/bbl like people thought a year ago.

    some caveats…

    China could put a billion SUVs on the road. However, I think the Party is too smart to let that happen.

    US investors could again use the commodity markets as a store of wealth if we decide economists are right and dollars are not to be used for that purpose. No predictions on intelligence here…I’ll have to wait and see.

  • Posted by Cedric Regula

    Brad:”though i fully agree that they whole buildup of risk couldn’t have happened without non-market inflows from china and other central banks.”

    Richard Duncan was another early bubbleologist that spent a long time being “wrong”. He first published his book “The Dollar Crisis” in 2004. Back then a corporate debt bubble was his concern(post market crash after the 90s boom). Then in 2005 he came out with a second edition, stating he was now worried about a growing consumer bubble, and high corporate profitability seemed to be helping the corporate sector a lot.

    Then in 2006 he wrote some comments modifying his view. He admitted he underestimated foreign appetite for US government debt. I don’t know if he specifically mentioned GSEs as part of government debt, but he should have.

    So this created an environment that kept the housing bubble growing, HEW financed purchases of everything else, and the USG didn’t charge a tax bill in line with USG spending.

    Banks largely became salesmen for F%F paper for a commission. No risk there!

    So I have lots of sympathy for all the bubbleologists that didn’t pin the bust down to an exact year.

  • Posted by WStroupe

    Cedric Regula,

    Yes, efforts by the U.S. to wean itself from excessive dependence upon foreign energy are much like the proverbial ‘fart in the wind’ – you fee better, but the atmosphere isn’t significantly changed for more than a few moments.

    The West is strategically stuck – it’s going to take two decades, if even then, to achieve any real measure of energy “independence”. CFR has some good insights on this very subject dating back to 2006, I think. It’s virtually inevitable that Russia and its partners are going to see another windfall as global recovery happens.

    Experts in the West smugly deride Russia for its inordinate reliance upon the energy sector for its economic fortunes. But the U.S. meanwhile has embraced all too heartily the “New Economy”, the asset-based model, and it relies inordinately upon serial asset bubbles for its economic fortunes. As Roubini recently said, the U.S. had better get itself back to a more traditional model of growth. Russia’s economic fortunes are related to hard assets, and it doesn’t need to create bubbles out of them, just needs to see reasonable prices.

    Perhaps we should consider, at this juncture where Russia has reduced its dollar holdings to around 40% of its reserves, the trade/monetary model Brazil and China are pushing – that of conducting trade in regional currencies rather than in the dollar. What happens when Russia begins to move in that direction with its trade partners, sidelining the dollar in oil trx? The highest level political leaders in Russia have repeatedly promoted this idea. Perhaps its time has now come, or is very soon to come.

  • Posted by WStroupe
  • Posted by Cedric Regula


    Russia could easily accept euros in payment for oil and gas. They don’t need to ask the US or even the Saudies for permision. In fact, I thought they did start doing that already.

    They then have euros to pay for eurozone imports. Otherwise they could ask for roubles in payment, but first they would need to get the roubles out there somehow. So euros seems to make more sense.

    Also, I have some roubles now. My bond fund manager decided to go bargain hunting in the Russian bond market.

    Started reading the CFR paper. 90 pages, so that will take a little while.

  • Posted by MakeMeTreasurySecretary

    It makes sense for Russia to hold euros in its reserves, since it does so much business with Europe. In particular, a lot of this money came from Europe through Russian oil and gas sales… So, in a way, Russians are extending financing to their customers.

    But, do you think that the mega exporter Germany is happy about that?

  • Posted by FollowTheMoney

    The entire world seems tired of the dollar as global reserve. I’m amazed reading just how many nations want “out” but have a hard time time re-adjusting the positions.

    When and if the dollar does go, won’t the crisis be much larger than the systemic risk of financial institutions?

    Think of how many central banks hold U.S. dollars as reserves.

  • Posted by DJC.

    Contrasting Russia’s failure to industrialize with that of China and its anticipated 8% economic growth in 2009, Mr. Primakov noted: “China exports ready-made products, while in our country a strong raw material flow was traditional.” Now that Western economies are shrinking, China is “moving a large part of the ready-made goods to the domestic market. At the same time, they are trying to raise the population’s solvent demand. On this basis the plants and factories will continue to operate and the economy will work. We cannot do that. If raw materials are moved to the domestic market, consumers of such vast volumes will not be found.” Increasing domestic purchasing power will “merely step up imports.” That is the price that Russia is now paying for having failed to sponsor “structural changes in the economy.”

  • Posted by WStroupe


    True enough about the “price” Russia is paying for not making structural changes in its economy.

    However, consider that as an exporter of crucial resources every other economy on the planet requires for livelihood, and will continue to require for at least a couple of decades to come, Russia’s economic/geopolitical position is virtually secured. It’s only real threats are internal social collapse and/or external threats like NATO mucking around with states on its periphery. Hence, Russia’s iron-fist domestic lockdown policies and its rearmament policies.

    As for both threats, the income Russia will inevitably earn from rising energy and strategic minerals prices will finance its efforts to moderate both threats. Global investment in the energy sector is far below what it should be, setting up shortages and elevated resources prices for a long time – Russia will reap the rewards, notwithstanding the present basement in prices.

    Russia is well-positioned going forward. Whether its leaders will use the time to position Russia well for the era when hydrocarbons get marginalized, no one knows. But that era is still a couple of decades away, though work on restructuring its economy should begin now if it wants to succeed in that era.

  • Posted by MakeMeTreasurySecretary

    WStroupe: “However, consider that as an exporter of crucial resources every other economy on the planet requires for livelihood, and will continue to require for at least a couple of decades to come, Russia’s economic/geopolitical position is virtually secured.”

    Good point. Just consider, though, that the US produces almost as much oil as Russia (the US being the third largest producer of oil, well ahead of the fourth). The US would have no need to import a gallon of oil were it not for the fantastic waste of the cheap resource. (The big loser in this deal is our lungs.)

    Also, talking about vital resources, what is more vital than food? Only five countries have the potential to remain major exporters of food: USA, Australia, Argentina, France, and Canada. The USA would be number 1 with twice the export capacity of number 2 (Australia). Other countries, like Ukraine or Brazil, are way below. As living standards improve in China and elsewhere, the price of food is on a long-term upward trend and will increasingly play a role in our balance of trade.

  • Posted by WStroupe


    I’d like to see the U.S. revert to such a more traditional economic model that relies upon making and growing things and exporting them. That is a core part of the real answer to this present crisis. But Washington’s flushing trillions of dollars down the pipe trying to get the crashed model “rebooted”.

    If you’re not suicidal or prone to depression, and as long as the weather in your area isn’t too gloomy today, I’d recommend reading Roubini’s “Green Shoots or Yellow Weeds” analysis at RGE Monitior. It’s a long read but a very good one. Highly recommended.

  • Posted by Judy Yeo

    “though i fully agree that they whole buildup of risk couldn’t have happened without non-market inflows from china and other central banks”

    Brad , honestly, don’t you think it’s a case of willing supply and a heedless user?

    Frankly, with europe going into economic winter , Russia probably can’t stay out of the fray much longer, the wane of dollar appetite is just a preface, what will be interesting is how they deal with their fractious neighbours/customers. Perhaps Russia will learn that going retro in terms of diplomacy isn’t going to work so well; after all you attract more goodwill (and money) with honey/diplomacy than lemon /a tight iron fist.

  • Posted by WStroupe

    Judy Yeo said, “after all you attract more goodwill (and money) with honey/diplomacy than lemon /a tight iron fist.”

    Wherever NATO infringes, as in Georgia over the past several years since 2004, don’t expect the Russians to give ground. August 6-8, 2008 (Georgia) was the turning point, the last straw, if you will. As Mr. Putin said back then, you can only accommodate just so far, and eventually you have to push back hard. So, Russia did so. It will do so again and again if it is pushed by NATO. That’s not pro-Russia (or anti-NATO) spin on my part, it’s simply an astute observation of fact.

    Look at what Russia is doing with Ukraine – there’s your honey/diplomacy and it’s working quite well from Russia’s standpoint. It’s gotten some recent concessions from Ukraine that are valuable. But the military option is always at the ready, as in Georgia, if it’s called for. NATO’s interference most often leads to an explosion of that kind. Here you have a bunch of has-beens looking for a real reason to keep NATO together – with the U.S. pushing European NATO to try to carve away at Russia’s periphery. This foolish policy isn’t going to end because access and control of strategic resources is at stake, and thus you can count on a number of future conflicts and wars, hopefully just proxy wars, but the risks of direct conflict with Russia and China is increasing, not decreasing.

    All the while, this inane NATO policy only further strengthens the hand of the more radical, anti-Western political forces inside Russia, validating them.

  • Posted by CAMP

    An alternative view of the facts: on Sept 2, 2008 with the US Presidential election in full swing VP Cheney made an overseas trip which was universally ignored by the press. He visited Azerbaijan, Georgia, the Ukraine and stopped for lunch at Lake Como with America’s best ally, Silvio Berlusconi. It was a momentous weekend. Oil closed at $115 and gapped open at $ 110/bl only to extend its relentless collapse. Just three weeks before, with Bush, Sarko and Putin all together in full camera view attending the opening ceremonies of the Beijing Olympics, the Russian army marched into its neighbor, Georgia. It was great power politics at its most baroque. Now with Georgia at full boil and Sen. McCain announcing that “we are all Georgians” Mr. Cheney appeared to say the word and starve the Russian army of its supporting cash flow. If $140/bl oil produced an uppity Russia, let them get a taste of $30 oil. Russia had sneered at a US tied down in Iraq. It appears we fought the first battle of WW4 purely on financial grounds. With a futures market so leveraged, speculators were pushed to the wall, and the price melted. Morgan Stanley, the single largest holder of stored oil, nearly went under. Russia responded by dumping GSE paper. Though Putin may have thought of this as a defensive maneuver, both the Russians and Chinese have discovered that the US has deeper financial resources than they had estimated. Bernanke, a national hero, created a fortress from the FED’s balance sheet, while extending massive swaps to foreign central banks to support their banks, all vulnerable to the US mortgage market. He nationalized AIG, paying out CDS stipends that supported the regulatory capital of the French and Swiss banks. The Chinese have responded to the destabilized situation by threatening to dump Dollars. However, we have signalled “your move.” China, having gamed it out, seems reluctant to walk through the opening. They may recall that the US prefers to be hit first in order to respond with the fulsome outrage of the American people. Rick Santelli, in so many ways, is a useful idiot.

  • Posted by Usefulidiot


    Great prose an deep understanding of international affairs. Great that Mr Cheney got the oil price down and for such a good reason. Question, how did he get it up in the first place? Why did he wait so long? How did MS survive its apparently disastrous position and why did they not communicate with the VP?

  • Posted by gillies

    keep talking, CAMP, you obviously read more than just the front page of the newspaper.

  • Posted by WStroupe

    Here come the conspiracy theorists. Makes me want to watch the movie, “So, I married an Axe Murderer” so I can hear Mike Myers’s hilarious explanation of the “Pentavlet” and the secret gatherings in Colorado at a secret resort called, The Meadows.

  • Posted by gillies

    more relevant to other threads, perhaps –

    a respected irish economist outlines the advantages of leaving the eurozone –

    – so what would a eurozone breakup do to dollar collapse theory ?

  • Posted by Deigo Montalbon, raconteur

    re; Usefulidiot’s comment;
    “Question, how did he [ Cheney ] get it up in the first place?”

    He has to shoot someone or something to get it up.

    …. “Oops wrong planet”

  • Posted by gillies

    re conspiracy theory.

    everything in the worlds of politics, geopolitics, and macro-economics is a conspiracy, each sphere is a network of competing and interlocking conspiracies.

    conspiracy theory is the attempt to penetrate the secrecy which is an invariable aspect of all conspiracies, successful or unsuccessful.

  • Posted by WStroupe

    “conspiracy theory is the attempt to penetrate the secrecy which is an invariable aspect of all conspiracies, successful or unsuccessful.”

    Yeah. Except not everything in politics and geopolitics and finance and economics IS a conspiracy or secretive or spy-vs-spy tricky-dickey strategy. A lot of it is simply stuff that happens, for any number of various logical and knowable reasons, and then all the players get to react to it in their various ways.

    The idea that Dickey Cheney popped last summer’s oil price bubble to pay back the Russians for invading Georgia is ludicrous in the extreme.

    Of course, Dickey could be a secret member of the Pentavlet, I suppose. Does anyone know, has Dickey ever been to Colorado and The Meadows????

  • Posted by Rien Huizer


    Thanks for linking to the respected mr Mc Williams’ article. His purpose must have been to demonstrate the impossibility of ditching the Euro. But his last sentence is fine: Strangulation. That is precisely what will happen to small unruly economies, but they can take pride in having contributed to the ECB’s credibility, which is good for the long term

  • Posted by Rien Huizer

    Englishmen etc,

    A EUR breakup is neither desirable nor likely. The very strong tensions present in the EU regarding (1) stimulus and deficits (2) responsibility for cross border consumer banking (3) financial system supervision and architecture can all be solved if/when Germany adopts a role with greater responsibility and, alas, assertiveness. The first is on ice until the elections later this year and the latter suffers from some imperfections in Germany’s past. Patience please. No one is minding either deficit limits or competition policy. Anymore. And, no one is working on enlargement either. Suspensions may be more likely..

  • Posted by PMOK

    Just curious, but is there ever a thread around here any more that isn’t comprised primarily of:

    1. The U.S. is doing it wrong
    2. China is doing it right
    3. Russia, look out for ’em!
    4. The U.S. is goin’ down
    5. The dollar is going to “collapse”
    6. Did I mention the U.S. is doing it wrong?
    7. Did I mention China is doing it right?
    8. America is a warmongering and wasteful nation, oh and it’s also doing everything wrong and has no chance to doing anything right – that’s how wrong America is doing it
    9. China – doin’ it right even more now than 5 seconds ago.
    10. Collapse of the dollar. Any time now.

  • Posted by Ian Nunn

    Being rather naive, I could use some help understanding the graph. I assume “Treasuries” and “Agencies” are US denominated reserves. As I read the graph, The total of US reserves is the highest since early 2005 and stands currently around 55%. Where have i gone wrong?

  • Posted by bsetser

    Ian you are right —

    but the key thing is that my measure for Agencies almost certainly overstates Russia’s current holdings. Russia has run its holdings of s-term agencies down to zero. so all of the remaining bonds in the “Agencies” category are long-term bonds. The US data would only capture their sale on the secondary market if Russia initially sold those bonds to a US domiciled investor. If Russia sold those bonds to a UK bank and the UK bank sold them to a US bank, the US data wouldn’t show any Russian sales — only the sale of the a bond by a UK investor to a US investor. B/c of this, my estimate — which is based on the TIC data — likely understates russia’s agency sales and thus overstates it US holdings.

    it though is also possible that Russia ran down its dollar holdigns more than it wanted in q4 08 when its reserves were bleeding and it subsequently has reloaded.

  • Posted by Ian Nunn

    Many thanks, I understand.

  • Posted by CAMP

    Well, Mr. Cheney has certainly reclaimed the stage since I posted. He evidently sees his efforts as central to the survival of the West. My point was not, necessarily, to suggest that Cheney defeated the Russian version of “How To Spend It” with a few well-timed “sell orders” on the LIFFE, or a fabulous trading tip to Silvio which bolstered the weak finances of a friend at no cost to the US Treasury. Rather, I am frustrated that so much of the discussion of the US financial performance is narrowly focussed on regulatory failures in the government-backed mortgage sector. These loans are small potatoes, no matter how many are written. While 30x leverage makes an economy vulnerable, was it the sufficient condition for the financial panic that followed? There seems to be little sense of the interplay of the election, where surely Cheney was not a disinterested bystander, with the condition of commodities markets where Russia was flush and food riots threatened in the poorer neighborhoods. USEFUL-IDIOT’s question “how did he get it up” is very funny. I will say that I could have retired had I bought oil and oil service stocks on the day Cheney convened his secret energy advisory panel. His management of the first Homeland Investment Act from the Vice President’s office, on its own, proved he was a more able Treasury Secretary, part-time than any of Bush’s full-time appointments. I think he saw lower energy prices helping the election outcome and failed to foresee the mayhem of imploding hedge funds as the buoy to Obama’s fortunes.