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Will China Step Back from Foreign Debt Purchases?

May 26, 2010 By Chuck

It is not news that China holds the most foreign bonds of any other nation. China essentially owns the United States and a super sized chunk of Europe. We already know that the United States is heavily dependent on China to keep buying our debt in order to keep the U.S. liquid in cash.

Late this afternoon the Financial Times reported that China is reviewing their holdings of European bonds.

Representatives of China’s State Administration of Foreign Exchange, or Safe, which manages the reserves under the country’s central bank, has been meeting with foreign bankers in Beijing in recent days to discuss the issue.

Safe, which holds an estimated $630bn of eurozone bonds in its reserves, has expressed concern about its exposure to the five so-called peripheral eurozone markets of Greece, Ireland, Italy, Portugal and Spain. (FT)

This news sent the Euro back down in late trading today as this news was spreading. Is it significant?

[Read more...]

Filed Under: China, Market Updates Tagged With: , ,

Deficit Worse Than Previously Expected

March 6, 2010 By Chuck

The Congressional Budget Office (CBO), in its new report issues today shows the budget deficit to be even worse than that of President Obama’s own projections.

[…] The nonpartisan Congressional Budget Office predicts that Obama’s budget plans would generate deficits over the upcoming decade that would total $9.8 trillion. That’s $1.2 trillion more than predicted by the administration.

The agency says its future-year predictions of tax revenues are more pessimistic than the administration’s. That’s because CBO projects slightly slower economic growth than the White House.

The deficit picture has turned alarmingly worse since the recession that started at the end of 2007, never dipping below 4 percent of the size of the economy over the next decade. Economists say that deficits of that size are unsustainable and could put upward pressure on interest rates, crowd out private investment in the economy and ultimately erode the nation’s standard of living. […]

[…] The report says that extending tax cuts enacted in 2001 and 2003 under GOP President George W. Bush and continuing to update the alternative minimum tax so that it won’t hit millions of middle-class taxpayers would cost $3 trillion over 2011-2020. The tax cuts expire at the end of this year and Obama wants to extend them — except for individuals making more than $200,000 a year and couples making $250,000.

For the ongoing budget year, CBO predicts a record $1.5 trillion deficit. That’s actually a little better than predicted by the White House, but at 10 percent of gross domestic product, it’s bigger than any deficit in history other than those experienced during World War II. […]

I am old enough to remember when a Trillion dollars was a big deal.

Filed Under: Market Updates, budget Tagged With: ,

China Decreases Holdings of U.S. Treasuries

February 16, 2010 By Chuck

The U.S. government needs foreign entities to keep purchasing U.S. treasuries in order to fund the government. Many months ago I discussed what would happen if foreign interest in purchasing our treasury notes began to dwindle, or worse yet, began selling them. If this is the start of a new direction for foreign governments, then funding the U.S. government will become increasingly difficult.

China Total holding of US Treasuries: $755.4B v $789.6B prior

Japan Total Holdings of US Treasuries: $768.8B v $757.3B prior 
Oil Exporters total Holdings of US Treasuries: $186.8B v $187.7B prior 
Brazil holdings of US Treasuries $160.6B v $157.1B prior 
Russia holdings of US Treasuries $118.5B v $128.1B prior 
Hong Kong holdings of US Treasuries $152.9B v $146.2B prior 
India holdings of US Treasuries: $29.6B v $31.6B prior

[…] WASHINGTON (AP) — The government said Tuesday that foreign demand for U.S. Treasury securities fell by the largest amount on record in December with China reducing its holdings by $34.2 billion.

The reductions in holdings, if they continue, could force the government to make higher interest payments at a time that it is running record federal deficits.

The Treasury Department reported that foreign holdings of U.S. Treasury securities fell by $53 billion in December, surpassing the previous record of a $44.5 billion drop in April 2009.[…]

[…] The Obama administration on Feb. 1 released a new budget plan which projects that the deficit for this year will total a record $1.56 trillion, surpassing last year’s record of $1.4 trillion deficit. The trillion-dollar-plus deficit have been caused by a deep recession, which has reduced government tax receipts, and the massive spending that has been undertaken to jump-start the economy and stabilize the financial system.

The administration has pledged to begin addressing the huge government deficits with Obama saying he will soon appoint a commission to recommend ways to trim future deficits.

Overall, the Treasury Department said that foreign net purchases of long-term securities totaled $63.3 billion in December, down from $126.4 billion in November. This category covers Treasury securities and private company bonds.[…]

There is only one way out of this record deficit the United States finds itself in, taxes will have to go up and more services will have to be cut. There is simply no way around it. We the taxpayers will be paying for the mistakes of Wall Street and government spending for a very long time.

Filed Under: Market Updates Tagged With: , , ,

National Debt Limit To Be Raised to $14.3 Trillion

January 20, 2010 By Chuck

National debt limit to be raised to $14.3 trillion. Today the Senate proposed allowing the federal government to borrow an additional $1.9 trillion to keep the lights on in Washington. The $1.9 trillion increase would be a new record.

The unpopular legislation is needed to allow the federal government to issue bonds to fund programs and prevent a first-time default on obligations. It promises to be a challenging debate for Democrats, who, as the party in power, hold the responsibility for passing the legislation. […]

[…] The measure came to the floor under rules requiring 60 votes to pass. That’s an unprecedented step that could mean that every Democrat, no matter how politically endangered, may have to vote for it next week before Brown takes office and Democrats lose their 60-vote majority.[…]

[…] A White House policy statement said the increase "is critically important to make sure that financing of federal government operations can continue without interruption and that the creditworthiness of the United States is not called into question." […] (AP)

The White House statement says it is critically important to safeguard the creditworthiness of the United States. What idiot in Washington came up with that press statement? If the United States wants to safeguard the creditworthiness they need to be reducing the debt, not increase it.

Everyday that passes I am even more amazed at just how stupid Washington thinks the American people are.

More on this topic (What's this?)
David Walker on the national debt (The Mess That Greenspan Made, 2/17/10)
Depression Averted? (Wealth Daily, 2/17/10)
Why the National Debt Matters (Learn Mining News, 6/28/10)
Read more on National Debt, Bond Investing at Wikinvest
Filed Under: Market Updates Tagged With: , , , ,

Black Swan Chronicles: The Debt Comes To Haunt Timmy

September 11, 2009 By Chuck

Today was the day in which was reported the state of the US Federal Budget. It sure is a nightmare as no government would ever want to have, Keynesianism or not.

One graph is better than hundred words:

ScreenShot043 Black Swan Chronicles: The Debt Comes To Haunt TimmyHence you can see that social security and other expenses have skyrocketed. That would not be so serious if taxes receipts rose as well… But these are not functioning.

Right now, in August, the deficit of $111.4Bn brings the total deficit for 2009 so far at 1.37 Bn. How will this be handled in the coming months and years is the question. We have seen that short-term debt is basically cheap, but longer-term debt carries another weight in terms of debt service. The question is how long the Fed will be able to maintain the rates low to finance the deficit, without giving birth to hyperinflation.

Monthly Treasury Statement August 2009

More on this topic (What's this?)
4 Dividend Stocks For The Social Security Blues (Dividends Value, 8/25/09)
Seven Stingy Dividend Stocks (Dividends Value, 8/26/09)
Seniors Beware: Deflation Hits Social Security (Contrarian Profits, 8/25/09)
Read more on Debt, Social Security at Wikinvest
Filed Under: General Economics, Market Updates Tagged With: ,