Mar 29 2006
U.S. Banks Backing Off U.S. Debt
This graph was sent by a Austrian School colleague from the newropeans site. It is interesting to see how U.S. banks have backed off their holdings of U.S. treasuries in the last few years:
On one hand it makes you wonder what it is they worry about given the historic nature of banks playing the spread granted to them by the Fed. Just the same, this commentary from Daniel DeMartino at the Dallas Morning News tells another part of the story: Banks have put huge bets on housing.
Of course, we also see that foreigners (primarily their central banks) can’t seem to get enough U.S. debt, even in the face of this obvious insider selling. It also should raise some serious questions about how cocksure the U.S. can remain regarding its ambitious foreign policy given it is essentially hat-in-hand.
It is impossible to say exactly how this unwinds, but we are undoubtedly in uncharted waters. Readers are encouraged to keep their minds open and ready.
Stay Vigilant!
[...] We would add, there must also exist a point where those same nations decide that buying the U.S. treasuries of a country with a runaway federal deficit, an aging population, and massive unfunded entitlement liabilities (Social Security, Medicare, etc.) being hidden off the official balance sheet (estimated at $3.5 trillion vs. the official reported $350 billion), might not be the most attractive thing to do 1) with current interest rates being at 50 year lows, and 2) given the massive amount of dollar holdings they already have (see our March 29 entry and graph) when the U.S. also seems to be in a no win position for digging itself out of debt. That situation will force it to inflate the dollar at an even faster pace than is has (M3, the broadest indicator of money supply has more than doubled since 1990 from about $4 trillion to over $10 trillion today), which will only press foreigners to hasten their search for diversifying into alternatives. [...]
[...] Helping the Vigilant Identify Blindspots of Conventional Wisdom U.S. Banks Backing Off U.S. Debt [...]