Comments on: Doesn’t a smaller (external) deficit mean less dependence on (external) creditors, including China? http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/ Thu, 14 Oct 2010 13:09:54 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: WStroupe http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133748 WStroupe Thu, 30 Jul 2009 01:03:11 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133748 Well, demand at the last two auctions isn't blowing the Treasury's skirt up, if you know what I mean: http://www.cnbc.com/id/32201716 Before we conclude we're really getting "good debt management from the Treasury", and we've got the cat in the bag, wouldn't it be better to keep on the watch to see if that's really the way it turns out? Well, demand at the last two auctions isn’t blowing the Treasury’s skirt up, if you know what I mean: http://www.cnbc.com/id/32201716

Before we conclude we’re really getting “good debt management from the Treasury”, and we’ve got the cat in the bag, wouldn’t it be better to keep on the watch to see if that’s really the way it turns out?

]]> By: bsetser http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133741 bsetser Wed, 29 Jul 2009 23:10:15 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133741 Mark -- thanks for the comments. Glad we agree. i'll try to get in touch with you tomorrow. Mark — thanks for the comments. Glad we agree. i’ll try to get in touch with you tomorrow.

]]> By: HZ http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133726 HZ Wed, 29 Jul 2009 21:59:51 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133726 Brad, I think the question is preference and financing of US fiscal deficit. US domestic investors have a lot more choices -- you can get FDIC insured bank deposits at 2.5% interest rate so what is the incentive (at least for small savers) to buy T bills? Chinese central bank has little choice but to buy Treasuries. So it is the financing of the public debt not just the net domestic debt that is in question. However I agree with you the dependence is less not more when the C/A deficit is down. Brad,
I think the question is preference and financing of US fiscal deficit. US domestic investors have a lot more choices — you can get FDIC insured bank deposits at 2.5% interest rate so what is the incentive (at least for small savers) to buy T bills? Chinese central bank has little choice but to buy Treasuries. So it is the financing of the public debt not just the net domestic debt that is in question. However I agree with you the dependence is less not more when the C/A deficit is down.

]]> By: WStroupe http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133722 WStroupe Wed, 29 Jul 2009 21:34:42 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133722 mdow said, "even though the Chinese demand is less important, it is still very robust–despite public comments from them that might suggest the contrary." Very robust at what maturities? Can you give us a quick breakdown? I'll bet they're still excessively heavy at the short-dated side. mdow said, “even though the Chinese demand is less important, it is still very robust–despite public comments from them that might suggest the contrary.”

Very robust at what maturities? Can you give us a quick breakdown? I’ll bet they’re still excessively heavy at the short-dated side.

]]> By: Cedric Regula http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133719 Cedric Regula Wed, 29 Jul 2009 17:24:48 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133719 Scratch that rally in the 10s and 30s. They just reversed 7 basis points the last few minutes. Scratch that rally in the 10s and 30s. They just reversed 7 basis points the last few minutes.

]]> By: Cedric Regula http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133717 Cedric Regula Wed, 29 Jul 2009 17:10:25 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133717 CNBC just reported on how today's 5 year auction went. In technical terms, they describe it as a pooch with a long tail. What that means in laymen's terms is the bid to cover was less than two, the yield went up from pre auction levels, and large institutional buying(CBs) percentage was in the teens. Paradoxically, we have been getting a sizable rally in 10 and 30 yearlings the past couple days. 7 year auction tomorrow. CNBC just reported on how today’s 5 year auction went.

In technical terms, they describe it as a pooch with a long tail.

What that means in laymen’s terms is the bid to cover was less than two, the yield went up from pre auction levels, and large institutional buying(CBs) percentage was in the teens.

Paradoxically, we have been getting a sizable rally in 10 and 30 yearlings the past couple days.

7 year auction tomorrow.

]]> By: mdow http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133714 mdow Wed, 29 Jul 2009 16:39:44 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133714 Brad - Impossible for me to agree with you more! And, just getting back to NYC today from our nation's capital, I can tell you that you can expect more of the same good debt management from Treasury. I can also tell you that even though the Chinese demand is less important, it is still very robust--despite public comments from them that might suggest the contrary. One more point on Treasuries: the fresh supply of AAA non-government paper is virtualy non-existant, as the economy continues to deleverage. Investors who are force by mandate to hold a certain share in AAA names have little alternative these days. This is a considerable help to the Treasury as it tries to place all that paper. Brad – Impossible for me to agree with you more! And, just getting back to NYC today from our nation’s capital, I can tell you that you can expect more of the same good debt management from Treasury. I can also tell you that even though the Chinese demand is less important, it is still very robust–despite public comments from them that might suggest the contrary.

One more point on Treasuries: the fresh supply of AAA non-government paper is virtualy non-existant, as the economy continues to deleverage. Investors who are force by mandate to hold a certain share in AAA names have little alternative these days. This is a considerable help to the Treasury as it tries to place all that paper.

]]> By: a http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133713 a Wed, 29 Jul 2009 16:16:44 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133713 a: "1/ (amount of debt owed to China)/ USA GDP, 2/ (amount of yearly interest owed to China) / USA GDP." Actually, on mature reflection, probably a better proxy for the denominator is "total US exports" - because, in order to pay down the debt, we will need to be exporting goods and services. Now *that* denominator has really gone down, so the ratio 1/ has really zoomed up. brad: "I would add 3/ the increase in the amount of debt owed to China/ US GDP. The flow as well as the stock." Now consider (increase in the amount of debt owed to China/total US exports). That ratio might still have gone down, but nowhere near as much as the one with US GDP as denominator. a: “1/ (amount of debt owed to China)/ USA GDP,
2/ (amount of yearly interest owed to China) / USA GDP.”

Actually, on mature reflection, probably a better proxy for the denominator is “total US exports” – because, in order to pay down the debt, we will need to be exporting goods and services. Now *that* denominator has really gone down, so the ratio 1/ has really zoomed up.

brad: “I would add 3/ the increase in the amount of debt owed to China/ US GDP. The flow as well as the stock.”

Now consider (increase in the amount of debt owed to China/total US exports).

That ratio might still have gone down, but nowhere near as much as the one with US GDP as denominator.

]]> By: Cedric Regula http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133712 Cedric Regula Wed, 29 Jul 2009 15:35:47 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133712 Brad: I looked the current numbers for the national debt. http://www.treasurydirect.gov/NP/BPDLogin?application=np says: $7.26T held by the public (foreign plus domestic) $4.34T intragov (mostly SS and fed pensions) $11.6 total. They do have a report there also that breaks down the debt structure by maturity. But I heard it's 4 years duration quoted by Rick Santelli, the bond and currency commentator on CNBC, so I'm going on the assumption that he is correct. So the average rate that this needs to be rolled over is then 7.26/4=$1.8T per year. So that is very much more than even the peak CA of $700B that we got from foreign investment. Not that that comparison really means anything, but just gives a sense of scale, and the total financing need did jump by a huge amount lately and is on a steep upward slope indicating that we are in untested territory. Brad:

I looked the current numbers for the national debt.

http://www.treasurydirect.gov/NP/BPDLogin?application=np

says:

$7.26T held by the public (foreign plus domestic)

$4.34T intragov (mostly SS and fed pensions)

$11.6 total.

They do have a report there also that breaks down the debt structure by maturity. But I heard it’s 4 years duration quoted by Rick Santelli, the bond and currency commentator on CNBC, so I’m going on the assumption that he is correct.

So the average rate that this needs to be rolled over is then 7.26/4=$1.8T per year.

So that is very much more than even the peak CA of $700B that we got from foreign investment. Not that that comparison really means anything, but just gives a sense of scale, and the total financing need did jump by a huge amount lately and is on a steep upward slope indicating that we are in untested territory.

]]> By: David Pearson http://blogs.cfr.org/setser/2009/07/28/doesnt-a-smaller-external-deficit-mean-less-dependence-on-external-creditors-including-china/#comment-133707 David Pearson Wed, 29 Jul 2009 14:40:12 +0000 http://blogs.cfr.org/setser/?p=6041#comment-133707 Oh and btw, if they don't continue to stimulate, and assuming China is currently propping up global growth, then deflation is a likely outcome. So the choice for China is a trade deficit or deflation. Either has out-sized impacts on the U.S. and global economies. How is this a stable equilibrium? Oh and btw, if they don’t continue to stimulate, and assuming China is currently propping up global growth, then deflation is a likely outcome.

So the choice for China is a trade deficit or deflation. Either has out-sized impacts on the U.S. and global economies. How is this a stable equilibrium?

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