Sunday, 20 March 2011
Federal Reserve Now Largest Holder of Treasury Debt
China Sells U.S. Treasury Debt for Second Month in a Row
The Federal Reserve has become the largest holder of Treasury debt, surpassing China, the largest foreign holder of U.S. Treasury debt.
For the last two months, China has been quietly selling Treasury debt, reducing its net holdings by $4 billion in November to $891.6 billion, following net selling of $11.2 billion in November, according to a report published in the Wall Street Journal.
What this suggests is that China remains concerned over U.S. debt and the possibility that the debasement of the dollar might result in a de facto devaluation resulting from a reduction of the dollar's purchasing power.
That the Federal Reserve has become the largest holder of Treasury debt leaves no doubt that the Federal Reserve is heavily involved in financing the third trillion dollar plus Obama federal budget deficit in a row.
A Wikileaks release last week of cables from U.S. embassies suggests that China is flexing its muscle with the United States.
One cable suggests that Chinese money managers have suggested the U.S. arms sales to Taiwan could sour the Chinese public on continued purchases of U.S. Treasury debt, according to a Reuters report. Source: www.cnbc.com/id/41643598
"The cables also indicate a high level of confidence among the Americans that China can't entirely stop buying U.S. debt, a sentiment shared by most economists who describe the dynamic as a form of mutually assured financial destruction," Reuters noted. "But the cables do show that China can and will pull back, with financial repercussions.
In the spring of 2009, with escalating U.S.-China financial tensions, China's Treasury holdings fell to around $764 billion, down from nearly $900 billion.
At its peak in June 2009, China held $940 billion in U.S. Treasury debt.
Meanwhile, trade relations continue one-sided in favor of China; the U.S. trade deficit with China reached a record $273.1 billion in 2010.
Fed causing inflation
The Fed under its current policy of Quantitative Easing 2, or QE2, is buying $600 billion of Treasury debt not only to hold down interest rates and thereby contain the cost of federal government borrowing, but also to cause inflation, in the belief that inflation will stimulate the economy and create jobs.
For economists trained traditionally the Fed's quantitative easing policies appear to be madness.
Since the end of World War II, a critical and continuing mission of the Fed has been to manage and contain inflation, not induce it.
John Williams, author of the Shadow Stats blog, continues to argue that the spike in December food and energy prices are not due to normal price volatility in those areas, but are a direct consequence of Fed chairman Ben Bernanke's "ongoing push to debase the dollar."
Source: www.shadowstats.com/
In his subscription newsletter in January, Williams wrote: "As Mr. Bernanke moves to prove his contention that a central bank and central government can create inflation at will, by debasing their currency, the bad news for the Fed remains that inflation created here reflects monetary policy distortions, not strong economic demand, as naively advertised."
Still, the Bureau of Labor Statistics refuses to include price fluctuations of energy and food in its "core CPI" calculations, allowing the government to continue under-reporting inflation.
On Jan. 14, the BLS reported annualized, seasonally adjusted, quarter-to-quarter CPU-U increased 2.57 percent in the fourth quarter 2010, up from 1.47 percent in the third quarter.
Unadjusted, year-over-year average 2010 over 2009 CPI-U inflation was 1.64 percent, versus a contraction of 0.36 percent in 2009 over 2008.
Last week, the Bureau of Labor Statistics reported that the Consumer Price Index increased 0.4 percent in January, following a 0.4 percent increase in December, suggesting inflation is beginning to appear once again in the U.S. economy.
Money supply contracting
Economics reporter Ambrose Evans-Prichard issued a warning last May in the London Telegraph that M3, the broadest measure of the money supply, has been contracting at an accelerating in the U.S. and EU that now matches the average decline seen from 1929 to 1933, despite near zero interest rates and the largest spending of federal stimulus money in history.
(Be Part Or Get The 'Hell' Out Of The Way)
The stock of money fell from $14.2 trillion to $13.9 trillion in the three months to April 2010, amounting to an annual rate of contraction of 9.6 percent.
"It's frightening," Professor Tim Congdon from International Monetary Research told Evans-Prichard. "The plunge in M3 has no precedent since the Great Depression. The dominant reason for this is that regulators across the world are pressing to raise capital asset ratios and to shrink their risk assets. This is why the U.S. is not recovering."
Still, in his State of the Union speech this January, President Obama pressed for yet more spending, evidently stuck on the idea that Keynesian deficit spending would create jobs, along with the inflation the Fed is trying to induce.
The end result is more dollar debasement with little or no improvement on the jobs front.
Meanwhile, the U.S. debt is now at $14 trillion, a figure that threatens to surpass 100 percent of U.S. gross domestic product sometime later in 2011.
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Why is that? Because...
By Dr. Michael Savage
Pages 18 through 24 and the rest of the book!
1. Illegal Aliens Are Here Illegally.
2. Pro-Domestic Employment Is Indispensable.
3. Stronger Military Is Essential.
4. Special Interests Eliminated.
5. Gun Ownership Is Sacred.
6. Government Must Be Downsized.
7. National Budget Must Be Balanced.
8. Deficit Spending Will End.
9. Bail-Out And Stimulus Plans Are Illegal.
10. Reduce Personal Income Taxes A Must.
11. Reduce Business Income Taxes Is Mandatory.
12. Political Offices Available To Average Citizens.
13. Intrusive Government Stopped.
14. English As Core Language Is Required.
15. Traditional Family Values Are Encouraged.
"Common Sense Constitutional Conservative Self-Governance Is Our Mode Of Operation"
(Yes, We Are A Christian Nation) You don't have to be a Christian to enjoy freedom.
The Tea Party welcomes all Red Blooded U.S. Citizens.
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