Brad Setser

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Record demand, record angst

by Brad Setser
May 29, 2009

The bond market vigilantes are (supposedly) back. And this time, they aren’t just Wall Street traders. America’s foreign creditors are no longer willing to provide endless amounts of long-term credit to the US at low rates. So argues Mark MacQueen of Austin, Texas- based Sage Advisory Services (via Bloomberg):

“The vigilante group is different this time around … It’s major foreign creditors. This whole idea that we need to spend our way out of our problems is being questioned.”

From all this talk, you would never know that the world is actually still buying record amounts of US Treasuries. In fact, Treasuries are the only US financial asset that the rest of the world is still buying in large quantities. Demand for Agencies — and asset backed securities — has fallen off a cliff. Demand for equities has been anemic (though the last data point comes from March). By contrast, the 52 week increase in the New York Fed’s custodial holdings is way, way up.


Over the last four weeks of data — basically the month of May — central bank Treasury purchases topped $70 billion even as their Agency holdings inched up. That is a big sum, almost a record sum. It implies that the rest of the world is currently shifting their US portfolio into Treasuries, not moving out of them.


To be sure, not all is well.

Foreign central bank demand is still concentrated at the short-end of the curve,* and the US is issuing  more long-dated bonds.

And key emerging market central banks (predictably) ares still reluctant to allow their currencies to appreciate. Tim Duy, in a superb Fed Watch:

The Fed’s ZIRP policy combined with stable financial markets once again makes the Dollar carry trade attractive. Since old habits die hard, this should “force” foreign central banks to accumulate Treasury assets – and it has. In this scenario, stable financial markets are now pushing for further reduction in the US external deficit … And, once again, it looks like much of the world, from the Fed to the Treasury to the emerging market central banks, are resisting the adjustment as it requires continued soft domestic demand in the US to limit imports.

Central banks that effectively peg to the dollar make for a strange kind of vigilante. Countries that do not want their currencies to appreciate have to intervene more when inflows pick up, and they have to invest that money abroad. And if central banks believe that the only acceptable, safe alternative to long-term Treasury notes is short-term Treasury bills, they will end up lending to the US at incredibly low rates so long as the Fed keeps rates low.

Key countries end up piling up short-term Treasury bills at a rate that has to make everyone nervous.

US policy makers have to worry about the weak foreign bid for long-term bonds, and the risk that the rise in mortgage rates will choke off the recovery. And at some point, foreign central banks will have to worry about the lack of interest income of their (now once again growing) foreign portfolio.

* Central banks bought a surprisingly large share of the 5 year auction, so this may be changing. We will have to see.


  • Posted by Cedric Regula

    K T Cat:”The decision to move small car production from China to the US would seem to generate some concernt in China.”

    1) GM competitors have nothing to fear.
    2) We will be dumping American built Aveos into Lake Michigan.

    A pre-packaged bankruptcy was a potentially attractive idea compared to liquidation which due to complexity would have destroyed most of the value in the company.

    But the implementation is bad and what we really have now is a pre-packaged serial bankruptcy funded by a taxpayer golden parachute.

    The UAW made some concessions, but they only apply to new employees, and we are obviously downsizing. We know how layoffs and early retirement works in the auto industry…employee “buyouts”. So that’s still to come in order to replace workers with new ones under the lower pay scale.

    So they will emerge from bankruptcy and still pay high school dropouts as much as mid level engineers. What do you think that will do to the price of a US made Aveo? $30K? Wanna buy one?

    The taxpayer now has 70% “ownership” (the right to buy out employees) and I heard estimates that GM would need to grow back to $70B in market cap before the taxpayer breaks even (I guess that means the taxpayer put in $50B already). That’s a lot of Aveos, at any price.

  • Posted by K T Cat

    Cedric, The taxpayer now has 70% “ownership” I was with you until that point. It’s not the taxpayer that owns the thing, it’s everyone that holds dollars or dollar-denominated assets that owns the thing.

    As soon as the Fed began monetizing the debt, everything at the margin was paid for by dollar-holders. I’ve yet to hear of any $1T increases in taxes and we’re not able to find enough lenders for our debt, so we’re debasing the currency.

    That’s the reason this stuff has yet to become politically unpopular. It really is a free lunch, at least until (and if) our creditors start the chain reaction by selling some of their Treasuries. After that, all bets are off.

  • Posted by Cedric Regula

    K T Cat

    OK, I was speaking in old fashioned terms where the government injected $50B and in theory the taxpayer is on the hook for it.

    But your right about the New World. We no longer really have taxpayers which is what makes it all so painless, so far.

    Which is the scary part. We now have the financial, auto, and health care industries directly hooked up to both the Fed’s printing press and the Treasury’s printing press.

    They have found infinitely deep pockets. For as long as that can last.

  • Posted by WStroupe

    As for a dollar crash, it is highly unlikely China and the other CBs will let the dollar crash in the short term. They’ll keep it propped up by buying, but not by buying much long-dated assets.

    When do the costs and the risks of keeping it propped up and continuing to peg to the dollar and accumulating yet more and more dollars outweigh the benefits of their doing so? At what point do the negative effects of Washington’s dollar-debasing policies become so potent and unacceptable that China and other CBs won’t stand for it anymore?

    Answer: When China and the other CBs accomplish a sufficient measure of decoupling from the U.S. and a re-composition of their reserves to decrease their dollar exposure so that they can exit (most likely gradually and orderly) their dollar-propping operations. They don’t have a long period of time to accomplish this before the negative effects of QE and other policies come home to roost on the dollar. At best they only have a few years, maybe 2 or 3. Can they accomplish it? I say they can, and I say they’ll be forced to do so, not because they’re so wise but rather because the U.S. financial and economic collapse is only still in its early stages, with the worst yet to come. They’re going to be forced by unfolding events to take bold and concerted action to fashion a replacement for Bretton Woods II and the old U.S.-centric trade/monetary/financial/economic order.

  • Posted by K T Cat

    WStroupe, I don’t know about an orderly exit. This sure looks like a bubble to me.

    Cedric, it is indeed scary. $20B is no longer a signficant amount of money. And how do you tell a congresscritter that they can’t have just one more earmark?

  • Posted by Sanjay

    Twofish: “Treasuries are just a useful place for China to park money while it figures out what to buy (or more accurately figures out how to figure out what to buy).

    This is why China has no particular interest in seeing the US economy collapse. The better the US economy, the better sorts of things that China can buy with its money.”

    Not really. The deeper the sale price of the US assets, the better the deal for China. US consumers were the market for US owned Chinese assets. The tables can be turned with global consumers becoming the market for Chinese owned US assets acquired at fire-sale prices. From an economic and a geopolitical objective, it makes sense for the Chinese to let USA sink in the long-term. Short-term, China will do what it needs to do to achieve its long-term objectives.

  • Posted by bsetser

    KT Cat — I have a hard time getting too animated by suggestions that GM’s decision to build small cars in the us is protectionist. Until China’s exchange rate is at a more realistic level, we don’t really know if it makes sense to build small cars for the us market in china or in the us or someplace else. the old model – where the us was the locus of production for big and fuel inefficient cars — had some problems. I am pretty confident though that if china develops an export based auto sector while maintaining its current exchange rate system, the level of trade tension globally will go way, way up …

    A few years ago it was argued that low wages in china (and an undervalued exchange rate) had no impact on the us b/c china didn’t make the same types of good as the us. but china increasingly — as one would expect — is moving into machinery and autos. and there it competes directly with the us and europe.

    my view, more or less, is that trade with china is already heavily distorted, so i cannot get all that worked up over another distortion .. remember that china imposes all sorts of local content requirements on foreign investors looking to produce in china, so this is very much a too way street.

  • Posted by greedf

    Take it from me. This is NOT the time to short the market. I know the fed and Geithner are
    corrupt, but the powers that be want to market to keep going higher, and there’s nothing you
    can do about it.

    The time to short is when you have high volume churning on the SPX after a long rally. When that time comes you can sit back. If you’re anxious that’s a bad sign. Let the trade come to you.

    i came across this interesting site finance and economics article links

  • Posted by wintermute

    “*what* they could [China] possibly buy with such horrendous amounts of USD is ( as you seem to admit) a bit of a headscratcher.
    (How about California ?)”

    UNOCAL anyone???

    China’s CNOOC tried to buy Unocal in 2005. This generated and ear-splitting fuss which proved how its stockpile of USD can really only buy debt – not equity. (Compare this with a much freer economy like the UK where China buys holdings in BP and Shell, – or the UAE can buy ports..)

    The US is shooting itself in the foot at every turn. It should not sell debt to foreign investors over and above what it can stand to be redeemed into equity assets.

  • Posted by Cedric Regula

    Brad:” the old model – where the us was the locus of production for big and fuel inefficient cars — had some problems.”

    You bet. There is a 25% tariff on imported light trucks, and apparently Detroit has also been allowed to classify SUVs in this category as well.

    So protectionism IS the source of Detroit’s only source of profits.

    And this isn’t against foreign 3rd world competitors with $2 labor rates either. It’s the Japanese and those notorious socialists, the Europeans.

    So the Detroit is not really competitive with anyone on this planet, with any sort of transportation device.

  • Posted by K T Cat

    Brad, thanks for the reply.

  • Posted by MakeMeTreasurySecretary

    Good Lord, what is happening here? Brad made some excellent points, especially that actions (record demand) are inconsistent with professed feelings (angst) but most discussants keep harping about the collapsing dollar.

    The dollar, my misguided friends, is not “collapsing” faster than it has been collapsing for the last thirty years. And I cannot for the life of me see any plausible reasons why the fall should accelerate under present conditions. If the US household savings rate increases to 10 percent, as some commentators predict, then I would not be surprised if the US dollar would break its long-term drop and start rising, in terms of a trade-weighted exchange rate.

    Please, stop frightening each other with the HUGE deficits and the SUPER-HUGE Chinese reserves.

  • Posted by Twofish

    2fish:”This is why China has no particular interest in seeing the US economy collapse. The better the US economy, the better sorts of things that China can buy with its money.”

    Chiangancharline: Such as ?

    Taiwan. Having the US quietly but firmly oppose Taiwan independence and not sell advanced fighters to Taiwan is definitely worth several hundred billion a year to Beijing.

    Also having the US around to keep Japan from developing nuclear weapons or undertake an independent foreign policy is also worth a few hundred billion.

    The funny thing is that China spends more money on the US military than it does on its own military.

    KTCat: The decision to move small car production from China to the US would seem to generate some concern in China. I wonder what levers they will press to keep the production there.

    Not moving the production of 50,000 cars from China to the United States is tiny, almost symbolic effort. GM’s production in China is geared mainly for the Chinese market.

    WStroupe: When China and the other CBs accomplish a sufficient measure of decoupling from the U.S. and a re-composition of their reserves to decrease their dollar exposure so that they can exit (most likely gradually and orderly) their dollar-propping operations.

    Which will just not happen. It is impossible for China to decouple from the United States is a gradually and orderly way. If some external event forces decoupling, it will be messy, traumatic, and painful. This is why China is so concerned about the impact of US monetary policy, they are stuck to the US.

    wintermute: China’s CNOOC tried to buy Unocal in 2005. This generated and ear-splitting fuss which proved how its stockpile of USD can really only buy debt – not equity.

    The problem was basically that CNOOC just didn’t pay off the right people. If CNOOC had done essentially a joint venture with Chevron, then Chevron’s lobbyists would have been in the halls of Congress telling people how the deal is the best thing since sliced bread. As it was, Chevron played hardball, but this is just business.

    The other point was that CNOOC had much less support for the deal in the Chinese government than otherwise supposed. Chinese SOE’s like acquisitions because it lets them get big, but the State Council and SASAC aren’t happy about them.

    KTCat: Twofish, that used to be the case. All that changed in November. On Monday we will become part-owners of GM. We are already part-owners of all manner of other used-to-be private industries. This is not the American system of old. This is Peronism.

    The US economic and financial system is constantly evolving, and the changes that are happening now aren’t that much more drastic than the ones that happened in the 1980’s or the 1930’s.

    I don’t care what -ism you label it as. As long as it works. In any case, I don’t see this as a bad thing. China managed to grow its economy by incorporating different ideas from the United States. Something that I do find interesting is that the United States is running into a lot of the same problems that China ran into in the mid-1990’s and coming up with the same sorts of solutions.

    One reason I’m rather optimistic about the US, is that if China could transform the mess that was its banking system and state-owned enterprises into something that seems to work for now, I think it’s likely that the US can do the same.

    If the Chinese economic or political system is so much better than the US (and I think that people overstate how much better it really is), find the parts that you like and copy them.

  • Posted by Twofish

    KTCat: I’ve yet to hear of any $1T increases in taxes and we’re not able to find enough lenders for our debt, so we’re debasing the currency.

    That’s because Obama is a smart politician. If we get through this mess, he is not going to have any problem ramming through a massive tax increase on high income earners. If we get to mid-year elections in 2010 with the economy in good shape, then who is going to stop him from increasing taxes? The Republicans? Yeah right.

    KTCat: Cedric, it is indeed scary. $20B is no longer a signficant amount of money. And how do you tell a congresscritter that they can’t have just one more earmark?

    $20B was never a significant amount of money. If a congresscritter wants an earmark, then you see how much it costs, and if it is something not that huge and you need his support, then you just give it to him. The TARP bill started out a three pages, ended up at something like 100 of which about 80 were earmarks. That’s how the game is played. Some senator wants $100K for a tax exemption on bows and arrow (I kid you not), you give it to him.

    bsetser: I have a hard time getting too animated by suggestions that GM’s decision to build small cars in the us is protectionist.

    I think it is protectionist, but I don’t think that protectionism is necessarily a bad thing. I also don’t think that state-owned or privately-owned enterprises are inherently good or bad things. There are all sorts of ways to mismanage state-owned enterprises, but there are all sorts of ways to run state-owned enterprises well. The US higher education system consists of a large block of state-owned enterprises, for example.

    Cedric: The taxpayer now has 70% “ownership” (the right to buy out employees) and I heard estimates that GM would need to grow back to $70B in market cap before the taxpayer breaks even (I guess that means the taxpayer put in $50B already). That’s a lot of Aveos, at any price.

    In order to do that, GM is going to have to massively ramp up manufacturing in China. China is the only market in which GM is doing well. One thing that is interesting about the UAW/GM interaction is that it effectively gives the UAW an incentive to outsource jobs to China. After all, it’s not the outsourcing that people care about, it’s the not having an income after the outsourcing.

  • Posted by Hugh Bastard

    To Mister Richard Branson,
    I am communicating to you on behalf of a group of people who for the past amount of years have been involved in the crimes that are tantamount to treason in a majority of nations worldwide, that have at times been know as terrorist and in other times liberating. This group has had the willing support of many others in its existance and now finds itself in the most dire need. They need one million dollars for the continuation of their cause, they know that in the past you have shown sympathy to groups with a similar belief and fundamental core structure. They believe that you are the man to help continue this cause. This group is known in various circles as FBI, they have promoted me on the basis that I will receive five percent of the total amount that you will willing donate to their cause, for the continuation of this mission. They are currently in the process of promoting a month long exercise at the expense of the public and other private groups to help achieve this cause; with your help the casualties of this, may be minimised.

    Sincerely H.B.

    对理查・ Branson先生,我沟通给您代表为过去相当数量几年在罪行介入了是同等的对在大多数的谋反国家全世界的一群人,那时常是知道作为恐怖分子和在解放其他的次内。 这个小组在它的存在有许多其他的愿意的支持和现在发现自己在迫切需要。 他们需要他们的起因的继续的一百万美元,他们知道从前您显示了同情对与一个相似的信仰和根本核心结构的小组。 他们相信您是帮助的人继续这起因。 这个小组被认识以各种各样的圈子作为FBI,他们提升了我,根据我将接受您将愿捐赠到他们的起因总额的百分之五,这个使命的继续的。 他们当前是在促进月久的锻炼过程中牺牲公众和其他私人组帮助达到这起因; 在您的帮助下此的伤亡,也许减到最小。 恳切H.B。

    對理查・ Branson先生,我溝通給您代表為過去相當数量几年在罪行介入了是同等的對在大多数的謀反國家全世界的一群人,那時常是知道作為恐怖分子和在解放其他的次内。 這個小組在它的存在有許多其他的願意的支持和現在發現自己在迫切需要。 他們需要他們的起因的繼續的一百萬美元,他們知道從前您顯示了同情對與一個相似的信仰和根本核心結構的小組。 他們相信您是幫助的人繼續這起因。 這個小組被认识以各種各樣的圈子作為FBI,他們提升了我,根據我將接受您將願捐贈到他們的起因总额的百分之五,這個使命的繼續的。 他們當前是在促進月久的鍛煉過程中犧牲公眾和其他私人组幫助達到這起因; 在您的幫助下此的傷亡,也許減到最小。 懇切H.B。

    Aan Mijnheer Richard Branson, Ik communiceer aan u namens een groep mensen die voor de afgelopen hoeveelheid jaren in de misdaden zijn geïmpliceerdr die wereldwijd aan verraad in een meerderheid van naties gelijkwaardig zijn, die af en toe kennen als terrorist en in andere tijden het bevrijden zijn geweest. Deze groep heeft de gewillige steun van vele anderen zijn bestaand gehad en zich nu in het meeste nijpend tekort gevonden. Zij hebben één miljoen dollars voor de voortzetting van hun oorzaak nodig, weten zij dat in het verleden u sympathie aan groepen met een gelijkaardig geloof en een fundamentele kernstructuur hebt getoond. Zij geloven dat u de man bent helpen deze oorzaak voortzetten. Deze groep is gekend in diverse cirkels aangezien FBI, zij me op de basis hebben bevorderd dat ik vijf percent van het totale bedrag dat u bereid om aan hun oorzaak te schenken zal, voor de voortzetting van deze opdracht zal ontvangen. Zij zijn momenteel tijdens het bevorderen van een maand lange oefening ten koste van het publiek en andere privé groepen helpen deze oorzaak bereiken; met uw hulp kunnen de slachtoffers van dit, worden geminimaliseerd. Oprecht H.B.

    À Monsieur Richard Branson, Je communique à vous au nom d’un groupe de personnes qui pour la quantité passée d’années ont été impliqués dans les crimes qui sont équivalents à la trahison dans une majorité de nations dans le monde entier, cela ont parfois été savent comme terroriste et en d’autres fois libérant. Ce groupe a eu l’appui disposé de beaucoup d’autres dans son existence et se trouve maintenant dans la plupart de besoins extrêmes. Ils ont besoin d’un million de dollars pour la suite de leur cause, ils savent que dans vous avez montré au delà la sympathie aux groupes avec une croyance semblable et une structure fondamentale de noyau. Ils croient que vous êtes l’homme à aider à continuer cette cause. Ce groupe est connu dans divers cercles comme FBI, ils m’ont promu sur la base que je recevrai cinq pour cent du montant total que vous voulant donner à leur cause, pour la suite de cette mission. Ils sont actuellement en cours de favoriser un exercice long de mois aux dépens du public et d’autres groupes privés pour aider à réaliser cette cause ; avec votre aide les accidents de ceci, peuvent être réduits au minimum. Sincèrement H.B.

    Zum Herrn Richard Branson, Ich stehe zu Ihnen im Namen einer Gruppe von Personen in Verbindung, die für die letzte Menge von Jahren in die Verbrechen, die mit Verrat in einer Majorität Nationen weltweit gleichwertig sind, das sind gewesen manchmal wissen als Terrorist und in anderer Zeitbefreiung miteinbezogen worden sind. Diese Gruppe hat die bereite Unterstützung von vielen anderen in seinem Bestehen gehabt und jetzt im meisten dringenden Bedarf findet. Sie benötigen eine Million Dollar für die Fortsetzung ihrer Ursache, wissen sie, dass in der Vergangenheit Sie den Gruppen mit einem ähnlichen Glauben und grundlegenden einer Kernstruktur Sympathie gezeigt haben. Sie glauben, dass Sie der Mann sind, zum zu helfen, diese Ursache fortzusetzen. Diese Gruppe bekannt in den verschiedenen Kreisen als FBI, sie haben gefördert mich auf der Basis, der ich fünf Prozent der Gesamtmenge, die Sie willend zu ihrer, Ursache zu spenden werden, für die Fortsetzung dieses Auftrags empfange. Sie sind z.Z. bei der Förderung einer einmonatigen Übung auf Kosten von der Öffentlichkeit und anderen privaten Gruppen, um zu helfen, diese Ursache zu erzielen; mit Ihrer Hilfe können die Unfall von diesem, herabgesetzt werden. Herzlichst H.B.

    Στον κύριο Richard Branson, Επικοινωνώ με σας εξ ονόματος μιας ομάδας ανθρώπων που για το προηγούμενο ποσό ετών έχουν συμμετάσχει στα εγκλήματα που είναι ισοδύναμα προς την προδοσία σε μια πλειοψηφία των εθνών παγκοσμίως, τα οποία ήταν κατά περιόδους ξέρουν ως τρομοκράτης και σε άλλη χρονική απελευθέρωση. Αυτή η ομάδα είχε την πρόθυμη υποστήριξη πολλές άλλες στην ύπαρξή της και βρίσκεται τώρα στην περισσότερη τρομερή ανάγκη. Χρειάζονται ένα εκατομμύριο δολάρια για τη συνέχεια της αιτίας τους, ξέρουν ότι στο παρελθόν έχετε παρουσιάσει συμπόνοια στις ομάδες με μια παρόμοια πεποίθηση και μια θεμελιώδη δομή πυρήνων. Θεωρούν ότι είστε το άτομο για να βοηθήσετε να συνεχίσετε αυτήν την αιτία. Αυτή η ομάδα είναι γνωστή στους διάφορους κύκλους δεδομένου ότι FBI, με έχουν προαγάγει στη βάση ότι θα λάβω πέντε τοις εκατό του συνολικού ποσού που πρόθυμος να δώσετε στην αιτία τους, για τη συνέχεια αυτής της αποστολής. Είναι αυτήν την περίοδο στο στάδιο της προώθησης μιας μακροχρόνιας άσκησης μήνα εις βάρος του κοινού και άλλων ιδιωτικών ομάδων για να βοηθήσουν να επιτύχουν αυτήν την αιτία με τη βοήθειά σας τα θύματα αυτού, μπορούν να ελαχιστοποιηθούν. Ειλικρινά H.B.

    Al l$signor Richard Branson, Sto comunicando a voi a nome di un gruppo di persone che per la quantità passata di anni sono stati coinvolgere nei crimini che sono equivalenti al tradimento in una maggioranza delle nazioni universalmente, quello occasionalmente sono stati sanno come terrorista ed in altre volte che liberano. Questo gruppo ha avuto il supporto disposto di molti altri nella relativa esistenza ed ora si trova nella maggior parte della necessità estrema. Hanno bisogno di un milione di dollari per la continuazione della loro causa, sanno che nel passato avete indicato la compassione ai gruppi con una simile credenza e una struttura fondamentale del centro. Credono che siate l’uomo da contribuire a continuare questa causa. Questo gruppo è conosciuto in vari cerchi come FBI, lo ha promosso sulla base che riceverò cinque per cento della somma totale che volendo donare alla loro causa, per la continuazione di questa missione. Sono attualmente nel corso della promozione dell’esercitazione di lunghezza di mese a scapito del pubblico e di altri gruppi riservati per contribuire a realizzare questa causa; con il vostro aiuto gli incidenti di questo, possono essere minimizzati. Francamente H.B.

    氏にリチャードBranson、私は国家の大半の反逆に世界的にほとんど等しい罪にテロリストとしてそして解放する他の時間で年の過去量のために、それ時々あったあることが知っているかかわった集団に代わってあなたと伝達し合っている。 このグループに存在で多くの他の喜んでサポートがあり、今緊急に必要とする状態の見つける。 それらは原因の継続のための百万ドルを必要とする、以前同じような確信および基本的な中心の構造を持つグループに共鳴を示したことを知っている。 彼らはこの原因を続けるのを助けるべき人であることを信じる。 このグループはFBIとしてさまざまな円で私があなたがこの代表団の継続のための総計の5%原因に寄付することを決定する受け取るという事実に基づいて、彼ら促進し私を知られていて。 それらは公衆および他のプライベートグループを犠牲にして月の長い練習の促進の過程においてこの原因の達成を助けるように現在ある; あなたの助けによってこれの死傷者は、最小になるかもしれない。 誠意をこめてH.B。

    미스터에 리처드 Branson, 나는 국가의 대다수에 있는 반역과 세계전반 동등한 범죄에서 테러리스트로 그리고 해방하는 다른 시간에서 년 과거 양을 위해, 그것 때때로 이다 것이 알고 있다 포함된 집단의 대신으로 당신에게 교통하고 있다. 이 그룹은 그것의 실존에서 많은 다른 사람의 기꺼이 하는 지원이 있고 지금 절박한 필요에서 찾아낸다. 그들은 그들 원인의 계속을 위한 일백만 달러를 필요로 한다, 과거에는 당신이 유사한 신념 및 기본적인 중핵 구조를 가진 그룹에 교감을 보여주었다는 것을 알고 있다. 그들은 당신이 이 원인을 계속한다고 것을 도울 남자 다고 믿는다. 이 그룹은 FBI로 각종 원형에서 나가 당신이 이 임무의 계속을 위한 총계의 5% 그들 원인에 기증하는 것을 의도한 받을 것이다 기초로 하여, 그들 증진해 저를 알려져. 그들은 공중 및 다른 개인 그룹을 희생해서 달 긴 운동을 승진시키기의 과정에서 이 원인을 달성하는 것을 돕도록 지금 이다; 당신의 도움으로 이것의 사고는, 극소화될지도 모른다. 근실하게 H.B.

    Ao senhor Richard Branson, Eu estou comunicando-me lhe em nome de um grupo de pessoas que para a quantidade passada de anos foram envolvidas nos crimes que são equivalentes à traição em uma maioria das nações no mundo inteiro, isso foram às vezes sabem como o terrorista e em outras vezes que liberam. Este grupo teve a sustentação disposta de muita outro em sua existência e encontra-se agora em a maioria de extrema necessidade. Precisam um milhão de dólares para a continuação de sua causa, sabem que no perto você mostrou a simpatia aos grupos com uma opinião similar e uma estrutura fundamental do núcleo. Acreditam que você é o homem a ajudar a continuar esta causa. Este grupo é conhecido em vários círculos como o FBI, eles promoveu-me na base que eu receberei cinco por cento da quantidade total que você querendo doar a sua causa, para a continuação desta missão. Estão atualmente no processo de promover um exercício de um mês. às expensas do público e de outros grupos confidenciais para ajudar a conseguir esta causa; com sua ajuda as víctimas desta, podem ser minimizadas. Sincera H.B.

    К господину Ричард Branson, Я связываю к вам именем группы людей которые для прошлого количества лет включались в злодеяния которые равный к предательству в большинстве наций всемирно, то временами знают как террорист и в других временах освобождая. Эта группа имела охотно готовую поддержку много других в своем существовании и теперь находит в большинств крайней нужде. Им нужны миллион долларов для продолжения их причины, они знают что в в прошлом вы показывали сочувствие к группам с подобным верованием и основной структурой сердечника. Они верят что вы человек, котор нужно помочь продолжать эту причину. Знают эту группу в различных кругах как ФБР, они повышала меня на основание которому я получу 5 процентов полной суммы которая вы будете завещающ для того чтобы подарить к их причине, для продолжения этого полета. Они в настоящее время в процессе повышать месячную тренировку за счет публики и других приватных групп для того чтобы помочь достигнуть этой причины; с вашей помощью потери этого, могут быть уменьшены. Задушевно H.B.

    A señor Richard Branson, Estoy comunicando a usted a nombre de un grupo de personas que para la última cantidad de años han estado implicadas en los crímenes que son equivalentes a la traición en una mayoría de las naciones por todo el mundo, eso han estado ocasionalmente saben como terrorista y en otras veces que liberaban. Este grupo ha tenido la ayuda dispuesta de muchos otras en su existencia y ahora se encuentra en la mayoría de la extrema necesidad. Necesitan un millón dólares para la continuación de su causa, saben que en el pasado usted ha demostrado condolencia a los grupos con una creencia similar y una estructura fundamental de la base. Creen que usted es el hombre a ayudar a continuar esta causa. Conocen a este grupo en varios círculos como FBI, ellos me ha promovido sobre la base que recibiré el cinco por ciento de la cantidad total que usted queriendo donar a su causa, para la continuación de esta misión. Él está actualmente en curso de promover un ejercicio de un mes a expensas del público y de otros grupos privados para ayudar a alcanzar esta causa; con su ayuda las muertes de esto, pueden ser reducidas al mínimo. Sinceramente H.B.

  • Posted by Twofish

    Part of what has fundamentally changed is that people just don’t have the same political beliefs that they did in 2007. The idea was that government was bad, private enterprise was good, the less government interference and bureaucracy you had the better. The fact that we have an largely unregulated “shadow banking system” wasn’t the result of rogue bankers trying to get around the system.

    It was the result of a political and economic ideology that viewed government regulation and supervision as a problem, and if you can find ways of circumventing government regulation and supervision, by creating an entirely new system free from meddling bureaucrats, then GREAT!!!! This is what the government regulators wanted you to do.

    That system is dead. In 2007, when people talked about governments, you had this image of corrupt, self-serving, greedy politicians with absolutely no clue about business, and then these fearless leaders of capitalism trying to do their best to generate wealth and prosperity free from government interference and what Ayn Rand called “looters” and “parasites”. If you really want to understand the assumptions that people were operating on in 2007, read Ayn Rand.

    What we have just undergone is not merely a financial collapse, but the collapse of an entire ideological system, which is why no one cares that the government is owning as many businesses as it is.

  • Posted by Cedric Regula

    I worry about about zombie companies being funded by the government.

    It’s probably only a matter of time before GM discovers, probably wih the guidance from someone at NASA, that the Hopskipnics on Vorlon use pogo sticks for transportation. This was a natural evolution on Vorlon because the Hopskipnics only have one leg, and a natural fear of anything that rolls.

    But GM reasons that if GM can build cars, GM can build pogo sticks for export to Vorlon.

    But the USG must help with infrastructure of course. How convenient, here’s the NASA guy. Obviously the space shuttle can lift the pogo sticks to the space station, but then what?

    “Well”, says the NASA guy. “A lot of people don’t know this but the Hubble Telescope has a reverse switch. Throw it in reverse and it generates electromagnetic waves out into space. Place any ferrous material in front of the telescope and it will be accelerated to any part of the galaxy you want!”

    “Great”, says an GM exec. “We have a plan, lets go to work!. You take care of your end with Congress and the White house, and we’ll convert over all our US plants to pogo stick factories. Tell Congress there’s orders in it for US Steel!”

    And that’s how we will enter the Vorlon pogo stick market.

  • Posted by Rien Huizer


    Is there any way to edit Hugh Bastard out? these sequences are getting long enough as they are.

  • Posted by Rien Huizer


    It is becoming repetitive, but foreigners that peg the USD appear to have a very strong liquidity preference. They are not trying to maximize returns but simply protect notional principal of something (USD) that they appear to be treating as some kind of waste/by-product of their trade management process.

    At least it is very clear that the Chinese authorities do not want to appreciate, even if their process of doing so (stay in cash) entails considerable short term opportunity costs. From a trade discussion point of view that may be a step forward. At this level of reserves (still growing) and without any attempt to invest that cash this is about the clearest case of unilateral currency management by a low cost producer that we have seen. The US should perhaps tinker with its issuing approach a little by making T bills really expensive, but only for China and persons acting on its behalf. I guess that would not be possible and cause too much disruption to the legitimate Tbill investors.

    The other thing is that, as mentioned before, Keynesian stimulus in an open economy is very hard to do. I have no idea how you can keep interest rates at the long end low without making a lot of trouble for yourself. But the flip side is: no housing recovery. And, realistically, there should be no (overall, in pockets there may not be a big surplus) recovery in an industry with so much stock and overcapacity.

    This also reltes to measurements of the US output gap for people who still remember the Taylor rule. With a large, possibly structural shift in future demand for new housing, the component of the housing industry (not only the unemployed workers but also undepreciated plant and equipment) included in the capacity side of the gap calculation is probably overstated. That is not a capacity that represents temporary slack. There may be similar things in other industries that grew obese during the misallocation of resources during the past 10 years. What that means is that the CPI may be a lot more vulnerable once the core portion of the economy starts to revive. You will not see too many people switching swords into plowshares (investment bankers and carpenters into psychiatric nurses etc) overnight. And with all that stimulus, I do not believe that the Fed has good handle on where the right levels according to “Taylor” should be and as a result it is likely to wait too long in raising interest rates. Which is no problem when the yield curve is really steep in the 1-3 year interval, but there is really no reason for people who do not have to buy, to buy longer dated paper now, unless we see OECD central banks restoring credibility.

  • Posted by piqued

    2Fish: “CDS against US sovereign debt default are one of the dumbest financial instruments that I’ve ever seen, because if the US does default, then they are worthless. Anyone that really thinks the US will default wouldn’t touch them, which means that someone is playing some game.”

    CDS on the US are written in Euros, not $ as you imply.

    2Fish: “Even if you end up with the worst case scenario of the US entering a 1930’s Great Depression, you are just not going to end up with a sovereign debt default or a dollar crisis. After all, the US has gone through a Civil War, one Great Depression, two World Wars, without defaulting, and if push comes to shove, the Fed has unlimited power to just print money.”

    Sloppy analysis, or cognitive dissonance that I have seen in many of my (very smart) friends who share exactly one common characteristic: they have debt which blinds them to what inflation is and does (mainly a mortgage). First, depending on the economist you read, many of the early *mistakes* the Fed made in the depression were the result of defending the dollar against speculative attack. Devaluing the dollar is a fancy way around saying you’ve defaulted on your debt since by legal fiat you haven’t. But tell that to those who lent you money. (Roosevelt went further than just devaluing the dollar, he got the supreme court to void gold clauses in contracts).

    During the world wars, the US came out ahead since we traded arms/materials not for any fiat payments but for gold. As far as the Fed turning on the printing press right now, it has, but those dollars are sequestered as reserves at banks due to the obvious crisis. If the banks ever turn around and say, “I’ll take the green stuff against those reserves…”, well then, that is pure, 100% inflation. What people are concerned about is that while in theory the Fed can mop up those dollars by selling bonds, in what scenario they do so is key. If there is inflation, what do people with bonds do? Yep, they sell bonds. And if the Fed fought inflation by selling it would then be magnifying the very thing it doesn’t want to do (hold down rates) in order to mop up those excess $’s. Of course it could always jack up interest rates–to defend the dollar–but read Bernanke’s thoughts on this, he doesn’t want to repeat the mistakes of the depression.

    Finally, I know everyone on this site can put together an excel sheet showing how fast inflation at x% will cut the purchasing power of a dollar in half/a third/a quarter/whatever. And everyone with debt is thankful for it since they pay back loans with devalued dollars (even better if the inflation rate exceeds the interest rate on the loan they owe). This is a form of default, though an unintended one. US citizens that have no debt and money in the bank are completely aligned with China’s POV right now. Shouldn’t the buck be a stable place to stash your work?

  • Posted by K T Cat

    I don’t care what -ism you label it as. As long as it works. In any case, I don’t see this as a bad thing.

    Fascism, of which Peronism is a variant, has never worked anywhere for any length of time at all for exactly the reasons we’re discussing here. Business decisions cease to be about profit and become centered around politics. Corruption becomes rampant.

    Moving GM production from China to the US is not a business decision and will hurt GM. Ditto with the green power generation efforts. You have to have profits to have jobs and fascism crushes profits by distorting business decision processes. Losses will pile up faster than before. For me, that’s the source of angst. It’s not that we’re borrowing money from China and others, it’s that you can’t see how this is all going to end in anything other than massive printing by the Fed.

  • Posted by WStroupe

    Brad’s quoted, briefly, in this Bloomberg article on Bond Market ‘Vigilantes’:

    Bill Gross of PIMCO says, “There’s becoming an embedded inflationary premium in the bond market that wasn’t there six months ago,”.

    Bloomberg News says “the Congressional Budget Office projects Obama’s spending plan will expand the deficit this year to about four times the previous record, and cause a $1.38 trillion shortfall in fiscal 2010. The U.S. will need to raise $3.25 trillion this year to finance its objectives, up from less than $1 trillion in 2008”

    “The vigilante group is different this time around,” said Mark MacQueen, a partner and money manager at Austin, Texas- based Sage Advisory Services Ltd., which oversees $7.5 billion. “It’s major foreign creditors. This whole idea that we need to spend our way out of our problems is being questioned.”

    Brad says “Yes there’s been a big move, and you can argue the big move is driven by the renewed appreciation of the risks associated with holding long-term Treasury bonds,” as the yield curve steepens.

    Finally, this from the article: “The yield spreads opening up imply that inflation premiums are rising,” said former Fed Chairman Alan Greenspan in a telephone interview from Washington on May 22. “If we try to do too much, too soon, we will end up with higher real long- term interest rates which will thwart the economic recovery.”

    Other economists are more pointed. After falling from 16 percent in the early 1980s, 10-year yields have nowhere to go but up, according to Richard Hoey, the New York-based chief economist at Bank of New York Mellon Corp.

    “The secular bull market in Treasury bonds is over,” Hoey said in a Bloomberg Television interview. “It ran a good 28 years. They’re never going lower. That’s it. It’s over.”

    Record angst (remember the subject of this post?) is translating into escalating yields, which showcases the mounting inflation fears of investors. The dollar is falling again, after enjoying a temporary boost that came thanks to risk-averse investors. But the developments above illustrate the record and growing angst investors feel over the dollar as a safe store of wealth. Hence the big moves into the short end.

    Mr Obama is committed – he’s going to spend and spend big. So big foreign investors see that inflation is virtually inevitable. The fact that the Treasury market is so deep and liquid at present, and that China’s CB and other big investors are still buying at record levels, must not be used to conclude that all is well, and that the dollar isn’t facing an unprecedented test. This shift to the short end with a steepening yield curve is the outside world’s vote of “No Confidence!” in Washington’s policies and in the dollar beyond the short term. We’re not listening. Fairly soon, we’ll wish we made less assumptions about the ‘inherent’ strength and invincibility of the dollar and unplugged our ears to the multiple warnings of guys like Bill Gross, Marc Faber, Jim Rogers and China’s CB managers.

    Remember, there were such guys warning of this very crisis we’re in right now – but almost nobody listened. Human nature, I guess.

  • Posted by gillies

    just as the price of houses went up because everyone ‘knew’ they were going up – is there the potential for the bond market to go down with what becomes a self feeding momentum ?

    what i am asking is – is it possible for the fear of inflation, and the fear of being left behind in a sharp fall, to precipitate falling bond prices (and rising interest rates) long before the inflation actually occurs (if it does at all) ?

  • Posted by Cedric Regula

    gillies:”what i am asking is – is it possible for the fear of inflation, and the fear of being left behind in a sharp fall, to precipitate falling bond prices (and rising interest rates) long before the inflation actually occurs (if it does at all) ?”

    Ya, mon. The Fed even has a phrase for it..”Inflation expectations are well anchored.”…to quote Greenspan and Bernanke.

    Of course they use this phrase the same way the Treasury uses the phrase…”We support a strong Dollar.”

    And they say it even when housing , gas and food prices are going up, because they say these things are not core inflation (no one really buys these things?!)

    On top of that we have have supply and demand in notes and bonds. My feeling is that will eventually have an effect even if inflation wasn’t a consideration in bond pricing. We have 9 Trillion to move over the next ten years per the 10 year plan, plus roll over the ones out there now.

  • Posted by FG

    Twofish: In the short run, keeping people busy isn’t a bad thing, but in the long run, if you have an economic system that causes people to do useless things rather than useful one’s, your growth ends up stalling.

    Isn’t that what the US is doing by buying mortgages: Investing the heart of its financial power into non productive endeavors such as keeping real-estate prices high where people can’t afford them? Instead of investing the same money into science, education, etc…

  • Posted by FG

    Twofish: I don’t understand people keep looking at Japan as some sort of model.
    Can there be inflation? Or would higher rates cause more credit contraction? Hyperinflation is not known to be a good economic solution.
    Maybe a Japan like outcome is the best the US can hope for.

  • Posted by bsetser

    rien — i’ll edit hugh out. was enjoying the nice weather rather than tending to the comments.

  • Posted by WStroupe

    Fed seems to want to believe that the steepening yield curve is mostly ‘a good thing’ – see this link –

    So they’re waiting before they step up to buy more Treasuries under QE. But you’ve got big over-supply problems, mounting worries about the U.S. fiscal position going forward, inordinate piling into short-dated Treasuries by global investors, mounting inflation fears, dollar declining, etc etc.

    The one factor Fed officials seem to want to believe most is that the economy is getting better so investors aren’t so risk averse and thus demand for the longer-dated Treasuries is sagging, thus driving up yields. What’s wrong with this picture???

    Demand for Treasuries ISN’T sagging. Only demand for the longer-dated assets is. DUH! So what does that mean? It means that just about the only thing that’s attractive about the dollar is that the Treasuries market is really deep and highly liquid – so investors are parking their wealth there for the short term ONLY. It seems like a slam dunk that the so-called ‘improving U.S. economic prospects’ factor is a minor one at best in judging the causes of the steepening yield curve.

  • Posted by adiemuso

    Some have tried to link US’s chances of survival that of Japan’s (GOlden Era bust till now) scenario, but have missed out on the stark differences between the two.

    Japan and US are different. They have different consumer spending and saving behaviours. They have different demographics. They have different export-import setup. They have different political systems and foreign policies. They have a different foreign exchange setup as well.

  • Posted by Twofish

    FG: Isn’t that what the US is doing by buying mortgages: Investing the heart of its financial power into non productive endeavors such as keeping real-estate prices high where people can’t afford them?

    No. Real estate prices are going down and should continue to go down. The problem is that if real estate prices go down enough, people stop buying and selling real estate, because when they do, they will have to realize a massive loss, thereby going bankrupt. So you end up with real estate at unrealistic prices in the books of the banks, and dead capital as unpayable loans get rolled over.

    What you need to do is to flush out the bad loans and get them sold off at fire sale prices, but that requires injecting large amounts of cash into the system. If bank figures that selling a property will force it to take a loss and kill the bank, they won’t do it.

    Personally, I’m a firm believer in market mechanisms since they tend to work very nicely when they work. But there are lots of situations in which markets just break down. You have banks that are willing to sell real estate at a massive discount because that would mean they end up dead, and you have buyers that are unable to get credit to buy up houses at deep discounts.

    FG: Instead of investing the same money into science, education, etc…

    As long as you have bad loans on the books of the banks, you will end up freezing capital that could be used for other things. You need to take the bad loans off the books, take the hit, and once you’ve cleaned up the mess then you free up capital.

    The most straight-forward way is to pump government money into the system to free up the markets. Then you step back and have a discussion as to who pays for the clean up.

  • Posted by Twofish

    piqued: CDS on the US are written in Euros, not $ as you imply.

    I know, but if the US defaults on Treasuries, do you think that there will be any banks handling euros left standing? I don’t. It’s clear to me that people that are buying these instruments really aren’t betting that the US will default on Treasuries. I’m trying to figure out what people are buying this for.

    piqued: Sloppy analysis, or cognitive dissonance that I have seen in many of my (very smart) friends who share exactly one common characteristic: they have debt which blinds them to what inflation is and does (mainly a mortgage).

    Inflation is very bad. There are things that are worse. If there is any real sign of inflation, then we can just pull a Volcker and raise short term interest rates sky high. The reason for waiting to do that is 1) it may not be necessary and 2) it gives the banks time enough to develop capital cushions so that they don’t go under when interest rates spike.

    Also, CNBC and Bloomberg are pretty awful sources of analysis about what is going on, since they focus on what happened in the last 24 hours rather than what’s been happening in the last 24 months, and they have a flare for trying to pump up drama where none really exists.

    After Lehmann fell, things on Wall Street were really totally insane for a few months. There wasn’t anything particularly odd about last week. Bond rates went up….. So??????

    One other factor, is that the moment GM goes bankrupt, rather massive amounts of cash are suddenly going to change hands, which I suspect makes buyers of Treasuries less willing to buy them than would normally be the case.