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A Funding Nightmare for the US

Tuesday, March 17, 2009, 6:02 AM

The way that the US is planning to fund all of the bailout and stimulus activity is by borrowing the money.  As any long-time reader here knows, the rate of US savings has been less than stellar over the past 15 years or so, indicating that borrowing from foreign sources is necessary to plug the gap.

The way we keep an eye on this is by watching something called the Treasury International Capital, or "TIC," report.

What this report from the Treasury Department measures is the aggregate total of money coming into vs. heading out of the US. Money flows in and money flows out.  When it comes in, it lands in bank accounts and bond and equity purchases.  When it leaves, the various financial assets are sold and the money flows home, wherever that happens to be.  All of this is tracked.

Admittedly there are a lot of moving pieces in this measurement, but, roughly speaking, for everything to balance, the amount of money coming in needs to equal the amount of money being borrowed by the US.

If it does not, then the official deficit of the US government will compete with local needs for borrowing while the trade deficit will erode the value of the dollar.  If and when both domestic and foreign sources of lending are insufficient for the task, then we'd expect the Federal Reserve to cave in and simply print up the difference.

In fact, this is already being done by several bankrupt countries, including the UK, Switzerland and the US although it goes by the fancy name "quantitative easing."

The most recent TIC report for January 2009 is nothing short of a disaster for US borrowing plans and indicates that some very interesting times are dead ahead.  Here's the latest report, with my comments in bold:

Washington —The U.S. Department of the Treasury today released Treasury International Capital (TIC) data for January 2009. The next release, which will report on data for February 2009, is scheduled for April 15, 2009.

Net foreign purchases of long-term securities were negative $43.0 billion.  This means that foreigners were selling both long dated bonds and equities.

  • Net foreign purchases of long-term U.S. securities were negative $18.8 billion. Of this, net purchases by private foreign investors were negative $10.2 billion, and net purchases by foreign official institutions were negative $8.5 billion.
  • U.S. residents purchased a net $24.2 billion of long-term foreign securities.

Net foreign acquisition of long-term securities, taking into account adjustments, is estimated to have been negative $60.9 billion. Wow!  This is by far the most negative reading for this number that I can find in the data series.  This means that foreigners, rather than investing in the US, have been taking their money home in a big way.

Foreign holdings of dollar-denominated short-term U.S. securities, including Treasury bills, and other custody liabilities increased $30.9 billion. Foreign holdings of Treasury bills decreased $15.4 billion. This one is a stunner.  See the image below for further clarification.  This says that foreigners have been net sellers of Treasury bills.  This is simply the most unusual data point I can imagine considering that every US auction of Treasury bills in January were "over subscribed."  Now I am wondering just where the domestic demand for all that buying came from?

Banks’ own net dollar-denominated liabilities to foreign residents decreased $118.9 billion. I think this means foreigners closing out bank accounts and taking the money home, but I am not entirely sure.  I'll have to look into how this number is derived.

Monthly net TIC flows were negative $148.9 billion. Of this, net foreign private flows were negative $158.1 billion, and net foreign official flows were $9.2 billion.  This reveals that where private parties were pulling money out of the US, foreign central banks ("official flows") were still propping up the US financial markets.  For how much longer, one wonders?

The bottom line here is that where the US needs inflows on the order of $30 billion per month simply to support the trade deficit, it needs a further $100 to $200 billion per month to support the fiscal deficits of the federal government.  Instead, January saw a nearly $160 billion outflow. This is a funding disaster.  Many a smaller country has seen the utter abandonment and collapse of their currency result from exactly this sort of "financing flight."  

But this is just a single bad month.  Perhaps it will reverse vigorously next month.  Who knows?  But we'll be keeping a close eye on it, because if not, this will portend a quite serious change in the global financial picture.

Below is a snapshot of the TIC report.  Note that the negative $15 billion in net Treasury bill purchases was composed of a -$44 billion private outflow and a +$29 billion "official" inflow (lines 24 + 25).  

Thank goodness that China, et al., not only rolled over all their existing positions but managed to find a way to purchase another $29 billion on to of that.  If that ever ends, or reverses, look out below, Mr. Dollar!

TIC_flows_for_January_2009.jpg

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39 Comments

cat233's picture
cat233
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Re: A Funding Nightmare for the US

Chris,

Thank you for the continuing education, and for this clear explanation of another puzzle piece. 

Cat

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Re: A Funding Nightmare for the US

Thank you for the information Dr. Martenson. This is the type of analysis that you can only find here. I truly value your services. My subscription is worth every penny!

Jeff 

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Re: A Funding Nightmare for the US

I have a question about the tension between deflation and hyperinflation. I understand the argumant for hyperinflation that you have described here, but isn't that more than offset by the massive defaults that are occuring? In other words, as consumers, corporations, and eventually governments default on their debts, doesn't that money just disappear, thereby reducing total money supply and increasing deflationary pressures?

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Re: A Funding Nightmare for the US

I quickly scanned some of the previous reports at the Treasury and see a lot of variation from month to month, so looking at 12 month averages might smooth that out. I'd like to see the data charted, if that's available somewhere.   There were big inflows in Sept and Oct 08; maybe this net outflow is partially to offset that.  Still, Jan 09 looks like a huge sudden drop in foreign investment just when the US wants to borrow more than ever.  Where's the money going if not here?  What motivates foreign central banks to prop us up when private investors are not?

The transition will be painful, but shutting off easy credit to the US might be the best thing for us in the long term to learn to live within our means.

 

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Re: A Funding Nightmare for the US

On top of that, it looks like the non-borrowed assets of the

AGGREGATE RESERVES OF DEPOSITORY INSTITUTIONS AND THE MONETARY BASE are going south again

http://www.federalreserve.gov/releases/h3/Current/

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Re: A Funding Nightmare for the US
Woodman wrote:

I quickly scanned some of the previous reports at the Treasury and see a lot of variation from month to month, so looking at 12 month averages might smooth that out. I'd like to see the data charted, if that's available somewhere.   There were big inflows in Sept and Oct 08; maybe this net outflow is partially to offset that.  Still, Jan 09 looks like a huge sudden drop in foreign investment just when the US wants to borrow more than ever.  Where's the money going if not here?  What motivates foreign central banks to prop us up when private investors are not?

The transition will be painful, but shutting off easy credit to the US might be the best thing for us in the long term to learn to live within our means.

I found a chart (without aggregates) here:

http://forex.fxdd.com/21756/economic-statistics/us-tic-data-for-january-...

 greg_michalowski_fxdd_fxtrading01544

It also reveals (confirms) foreigners are moving from long-term to short-term.

AFAIK, this reveals (confirms) loss of confidence for ability to get paid.

CB's picture
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Re: A Funding Nightmare for the US

http://www.atimes.com/atimes/China_Business/KC18Cb01.html

Quote:

DOLLAR CRISIS IN THE MAKING, Part 3
China inoculates itself against dollar collapse
By W Joseph Stroupe
This article concludes a three-part report.

......................... 

As for China's purchases of Treasuries over the most recent three months (October - December of 2008), note this statement from Setser:

And over the past three months, almost all the growth in China's Treasury portfolio has come from its rapidly growing holdings of short-term bills not from purchases of longer-term notes.

Setser goes on to make the point that China's central bank is unquestionably divesting itself of the comparatively less-safe assets such as agency debt

in favor of very short-dated Treasuries. The best estimates of the total exposure of China's central bank to dollar-denominated assets of all kinds is about 70%, or somewhere between $1.5 trillion and $1.7 trillion depending upon whether you use the $2.2 trillion figure or the $2.4 trillion figure for the total sum of China's reserves.

That uncomfortably high level of exposure to the dollar is what has been causing concern to flare in China most recently. A much more desirable figure, from China's standpoint, of its total exposure to the dollar would be 50% or less of its total reserves. A reserve composition of 50% dollars to 50% everything else is much safer because an excessive decline in the value of the dollar would tend to be offset by corresponding increases against the dollar in the value of the non-dollar assets comprising the rest of the reserves.

In order to get to that more desirable composition fairly quickly over the next several months, China would have to somehow divest itself of as much as $450 billion of its existing dollar-denominated assets, not purchase a significant amount of new dollar-denominated assets, and accomplish all this without triggering a global dollar panic. That's a very tall order indeed - but it is not by any means impossible.

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Re: A Funding Nightmare for the US

I don't want this to come across as me seeking investment advice, but it would seem that if we're pretty sure the US Gov't is going to have more and more problems selling Treasuries, that means yields are going to have to go a lot higher.  This would push Treasury prices down; there's also some funds setup that let you buy 'short' Treasuries, like TBT & PST.  If yields can pretty much only go higher these seem like solid investments. 

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Re: A Funding Nightmare for the US

Hello MSauer:

I'll give you my take, but I have no crystal ball and I would listen to every opinion out there.

I think they will use QE to print money to pay debt. Even if they, or another govt. didn't then it's dollar would be a reflection of insolvent and it's dollar would be like a Zimbabwe dollar - worthless and require many of them to buy a loaf of bread.

I really hate the term inflation and deflation unless they are applied to the amount of currency in circulation. Inflate a currency, in my book, means make a lot of dollars. Make a lot of anything and it becomes worthless so you need a lot of them to exchange them for something. Going BK and or defaulting is another-way to make something worthless.

That is my simpleton approach. I have done the what if domino falling exercise over and over and over. I see no way out. I see massive hyperinflation and another depression as the only corrective action. There is no consumerism and I doubt we will ever see it like it was until people forget how stupid it was.

Take care 

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Re: A Funding Nightmare for the US

"This one is a stunner.  See the image below for further clarification.  This says that foreigners have been net sellers of Treasury bills.  This is simply the most unusual data point I can imagine considering that every US auction of Treasury bills in January were "over subscribed."  Now I am wondering just where the domestic demand for all that buying came from?"

 I assume the domestic demand came from further mutual fund managers moving their funds reserves into treasuries for the short term to ride out the stock market drop.  I think that as they start moving out on the risk curve to corporate bonds or preferreds, domestic demand for treasuries will plunge. 

Obviously, foreign private demand has already plunged, leaving simply foreign central banks to prop up the treasuries.  However, there is no way they can do this to the tune of $125+ Billion per month.  These central banks will help avert the global financial disaster (which they have been doing), but will not fund US specific socialist programs, in my opinion.

At the end of the day, the remaining demand is coming and can come from only one place: The US Fed buying their own auctioned notes.  I have read where they plan to do exactly that, and they may have already begun, which could have assisted these auctions being oversubscribed.  As this becomes a larger percentage of the demand, I expect investors, foreign central banks, etc., will see through this, and T-bill interest rates will skyrocket and/or the US$ will start a final downward spiral.

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Re: A Funding Nightmare for the US

Seems to me the yields will need to go higher to attract more investors or the Fed will print money and monetize the debt, supressing interest rates but risking high inflation down the road.  The link fujisan posted above indicates 30 year Treasury yields rose significantly in January 2009.

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Re: A Funding Nightmare for the US
Quote:

I found a chart (without aggregates) here:

http://forex.fxdd.com/21756/economic-sta...

Just curious, what happened Jul-Sep (esp Aug) 2007?

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Re: A Funding Nightmare for the US

I think China just realised that it will not get its existing debts paid by the USA unless it loans them a whole lot more.

Reminds me of what my primary school teacher told us about banking: If you owe the bank a million pounds, the bank owns you. If you owe the bank a thousand million pounds, you own the bank.

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Re: A Funding Nightmare for the US

So would you all say that it is pretty safe to say that if (when) this trend continues this is some new cracks to head as big warnings for things to come?

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Re: A Funding Nightmare for the US
MSauer wrote:

I have a question about the tension between deflation and hyperinflation. I understand the argumant for hyperinflation that you have described here, but isn't that more than offset by the massive defaults that are occuring? In other words, as consumers, corporations, and eventually governments default on their debts, doesn't that money just disappear, thereby reducing total money supply and increasing deflationary pressures?

In defaults debt disappears, money does not. So defaults are not deflationary.

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Re: A Funding Nightmare for the US

Well if you default and money doesn't disappear then what about the
current mortgage crisis.  In many cases this money only exist due to
debt, eg. money that is repaid in the future (or money that doesn't
exist yet).  If I owe $800,000 on my house and I default then my house
goes into foreclosure.  After foreclosure proceedings the bank ends up
selling my house for $500,000, isn't $300,000 destroyed? ( assuming the reality that banks lent out more money than they had due to low reserve requirements.)

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Re: A Funding Nightmare for the US
Jarhett wrote:

Well if you default and money doesn't disappear then what about the current mortgage crisis.  In many cases this money only exist due to debt, eg. money that is repaid in the future (or money that doesn't exist yet).  If I owe $800,000 on my house and I default then my house goes into foreclosure.  After foreclosure proceedings the bank ends up selling my house for $500,000, isn't $300,000 destroyed? ( assuming the reality that banks lent out more money than they had due to low reserve requirements.)

The bank would lose $300K to whoever originally sold you the house.  The money doesn't disappear. 

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Re: A Funding Nightmare for the US

Thank you Davos and Woupiestek,

But one of the core teachings I took from the crash course was that money was created, in fact then multiplied, when debt was created. Why would it not be destroyed when debt was erased?

I think there is at least a reasonable chance that before we experience hyperinflation, we will experience a perhaps prolonged period of deflation. During that period cash will be king as it's purchasing power increases, as has been happening for the last 4-6 months. In addition, the reduced demand for goods causes downward pressure on prices, which I know is not the same as deflation, but certainly dries up demand for the credit expansion our leaders are so anxious to stimulate.

They pour trillions into the money bucket, but it's leaking out the bottom faster than they can pour it in.

Yes, no, maybe so?

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Re: A Funding Nightmare for the US

I like looking at the breakdown of who are the Major Foreign Holders Of US Treasury Securities, and the monthly changes:

http://www.treas.gov/tic/mfh.txt

- Ernie.

 

 

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Re: A Funding Nightmare for the US

Hello MSauer:

I'm sure we have assett price "deflation" now as the result of less available funds for purchases (i.e. pulled cc lines, pulled HELOC lines etc.)

My concern about cash being king is when it dies the door to convert it into something more healthy will be a crowded one.

Take care... 

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Re: A Funding Nightmare for the US

Tom,

I found what you are looking for.

Here's the "chart of the day" on this matter...

This shows the trailing 12 months change in foreign purchases of total US financial assets, corporate bonds and agency debt.

The bubble in US financing took a turn for the skies in 1998 and peak in late 2006.  

It is clear that this game is over now.  It is easy to feel like an entitled superpower that hit a triple when the world is shoveling more than 80% of its collective savings back into your financial markets.  

What comes next, however, is that the US will discover it was actually born on third base and will have to largely give back everything that was handed to it either in the form of hard assets (think of Japan buying US real estate icons int he late 1980's) or a serious decline in its standard of living.

Trailing_12_month_TIC.jpg

 

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Re: A Funding Nightmare for the US

Great chart, thanks!    Looks like not just a shift from US Agency to Corporate Bond purchases but rather dramtic declines in both, with a net outflow from US bonds now.  So are we about at Peak Credit now?  Are foreign entities putting money elsewhere or do they just have less money to send us?  What past specific past historical examples of this in other countries are there and what can we learn from them?

Tom

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Re: A Funding Nightmare for the US

The amazing thing is that in spite of these dire numbers, the Obama administration wants to increase the national debt by an unprecedented amount.  Surely, frugality is in order and expenses should be slashed, not increased.

One thing the US could do to reduce the amount of debt would be to pay off the debt we owe the private Federal Reserve Bank.  I'm not sure how much of debt they hold at this time but suspect it is around $5 trillion dollars. 

The US treasury could directly issue the dollars - without incurring further debt - and then use the money to pay off the debt to the Fed electronically.  This would extinguish the loan, so effectively the money would cease to exist.

This would reduce our national debt by somewhere around 40% - and would lessen the stress on the remaining debt which might make our investment instruments more attractive to foreigners.

Larry

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Re: A Funding Nightmare for the US

Indeed, thanks for the info Chris.

If this net outflow of money continues, it will be bad news for the USA. 

And Larry (DrKrbyLuv), I agree!

The Fed is largely to blame for our current predicament.

The horribly unfortunate thing is that our government is now planning to give the Fed EVEN MORE power. This is from a recent article in the Wall Street Journal:

Quote:

A major component of the plan would be new clout for the Federal Reserve, which already runs monetary policy and has accumulated large new powers since the financial crisis began.

The balkanized structure of financial-services regulation has meant that no one institution had the ability to look broadly at markets to spot signs of systemic risk, such as huge bets made by investment banks on mortgage debt.

Mr. Geithner wants the Fed to have the authority to do so.

 

What ever happened to the idea that "Power corrupts"?

Was that idea not very important to the people who founded our country? 


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Re: A Funding Nightmare for the US
Quote:

 But one of the core teachings I took from the crash course was that money was created, in fact then multiplied, when debt was created. Why would it not be destroyed when debt was erased? 

 

Firstly, in case of a default less money is destroyed, than would be if the debt was fully repayed. Secondly, when a debt is repayed, the banks loose a source of income. Before the crisis, the banks made sure to create and lend more money than was payed back, in order to increase their income. So defaults don't cause deflation. Bearish banks do.

 

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Re: A Funding Nightmare for the US

Chris: Any chance you could post a link with that chart? I find it very interesting and I want to poke around a little more. Thanks for all your information!

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Re: A Funding Nightmare for the US

Larry, I don't think there's some things quite right in your post above.  If I'm using the right link for the Federal Reserve balance sheet..

http://www.federalreserve.gov/releases/h41/current/h41.htm#h41tab8

The Fed has about $474 Billion in Treasuries as assets right now, but has increased its balance sheet significantly in the past few months by buying up additional "toxic assets" with all these bailouts.  The only way for the Treasury get dollars to issue is to collect taxes from you and me or to auction off bills, notes, and bonds (more debt).  The Government owes the social security trust fund about $23T plus $2.6 T interest right now too.

 

 

 

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Re: A Funding Nightmare for the US

Hey all, This article is (as far as I can tell) the Fed's response to these problems noted here......just when you think they are done making horrible decisions....

http://www.nytimes.com/2009/03/19/business/economy/19fed.html?_r=1 

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Re: A Funding Nightmare for the US

Thanks to Dr. Chris and Davos and all youse other People With Knowledge & Ideas.  This is a fascinating (if routinely hair-raising) education for me.  

Viva -- Sager 

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Re: A Funding Nightmare for the US

No, sorry.  That comes off a Bloomberg terminal. 

That's a quite pricey subscription service and there's just no way to link to it.

 

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Re: A Funding Nightmare for the US

Woodman said:

Larry, I don't think there's some things quite right in your post
above.  If I'm using the right link for the Federal Reserve balance
sheet.

Thanks for taking the time to review my post.  I was guessing at the number and it is probably wrong at $5 trillion.  I based my guess on this Dollardaze chart from 2007 results - I guessed that the numbers would be much higher now, but I sure could be wrong.

 

 

 

Woodman said:

The only way for the Treasury get dollars to issue is to collect taxes
from you and me or to auction off bills, notes, and bonds (more debt).

The US government, through the treasury, has the power and authority to issue bonds and/or to issue currency without paying interest - and they can eliminate the need to repay the loan.  Lincoln issued greenbacks to help win the civil war rather than to deal with the European central bankers who would charge 20-30%.

So, why can't we issue the money owed to the Fed (basically for free) to extinguish all debt - the money would basically cease to exist after repayment.  I'm sure the mechanics would be more involved but you get my point.

It would not be this easy to get rid of the portion of our debt that we owe private lenders and foreign nations (this represents over half of our $11 trillion dollar national debt).  It could result in adding too much money to our circulation - this could cause the value of money to drop which should be avoided.

Woodman said:

The Government owes the social security trust fund about $23T plus $2.6 T interest right now too. 

As far as our future liabilities are concerned, you're right, we will owe social security much more when the entitlements come due.  That's why it is imperative that we take back control of our monetary system. 

Larry 

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Re: A Funding Nightmare for the US
U.N. panel says world should ditch dollar

By Jeremy Gaunt, European Investment Correspondent

LUXEMBOURG (Reuters) - A U.N. panel will next week recommend that the world ditch the dollar as its reserve currency in favor of a shared basket of currencies, a member of the panel said on Wednesday, adding to pressure on the dollar.

Currency specialist Avinash Persaud, a member of the panel of experts, told a Reuters Funds Summit in Luxembourg that the proposal was to create something like the old Ecu, or European currency unit, that was a hard-traded, weighted basket. Persaud, chairman of consultants Intelligence Capital and a former currency chief at JPMorgan, said the recommendation would be one of a number delivered to the United Nations on March 25 by the U.N. Commission of Experts on International Financial Reform.

"It is a good moment to move to a shared reserve currency," he said.

Central banks hold their reserves in a variety of currencies and gold, but the dollar has dominated as the most convincing store of value -- though its rate has wavered in recent years as the United States ran up huge twin budget and external deficits. Some analysts said news of the U.N. panel's recommendation extended dollar losses because it fed into concerns about the future of the greenback as the main global reserve currency, raising the chances of central bank sales of dollar holdings.

"Speculation that major central banks would begin rebalancing their FX reserves has risen since the intensification of the dollar's slide between 2002 and mid-2008," CMC Markets said in a note. Russia is also planning to propose the creation of a new reserve currency, to be issued by international financial institutions, at the April G20 meeting, according to the text of its proposals published on Monday.

It has significantly reduced the dollar's share in its own reserves in recent years.

GOOD TIME

Persaud said that the United States was concerned that holding the reserve currency made it impossible to run policy, while the rest of world was also unhappy with the generally declining dollar.

"There is a moment that can be grasped for change," he said.

"Today the Americans complain that when the world wants to save, it means a deficit. A shared (reserve) would reduce the possibility of global imbalances." Persaud said the panel had been looking at using something like an expanded Special Drawing Right, originally created by the International Monetary Fund in 1969 but now used mainly as an accounting unit within similar organizations.

The SDR and the old Ecu are essentially combinations of currencies, weighted to a constituent's economic clout, which can be valued against other currencies and indeed against those inside the basket.  Continued at Reuters site...

http://www.reuters.com/article/Funds09/idUSTRE52H2CY20090318

 

 

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Re: A Funding Nightmare for the US
Rob Z wrote:
......U.N. panel says world should ditch dollar..... 

 

 

Holy smokes.....it seems to me a lot of this is happening a lot faster than I  thought it would....we all knew this was coming, but I at least  hoped we had the next 1-3 years...hmmm

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Re: A Funding Nightmare for the US

in regards to the money destruction caused by deflation argument i would like to add:

banks lend out $9000 for every $1000 they receive. that's how money is created, it is destroyed by the loan being paid off.

from the hypothetical example from above of an $800K house that goes into default and is resold for $500K and the bank writes the $300K off as a loss against it's reserve capital. the $300K is not destroyed because the seller of the house has that money. Where the money is destroyed is that $300K was taken as a loss against reserve capital. money that would otherwise be lent out is being used to recapitalize.

this is exactly where we were (and maybe are still) two months ago. where banks were scrambling for money to recapitalize after all their losses. the money coming in was being used to secure the base of their loans, get their reserve-to-loans ratio back into line because of the amount of defaults (and also because what were once assets are now valued at zero).

In conclusion, defaults are deflationary! because it inhibits banks to extend credit.

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Re: A Funding Nightmare for the US

John Mauldin (excuse any spelling mistake) agrees with you. He forecasts significant deflation. My personal interpretation is that deflation will lead to a bottom, and any turnaround will lead to hyperinflation, as banks will begin lending. The money multiplier effect will do the rest. The interesting part will be that the Feds will try and reduce the money supply when this inflation takes hold. Then, the gov will be issuing debt securities to fund itself, AND the Fed will be selling debt securities to reduce the money supply. Hence the idea of betting on a fall in gov issued debt security prices... massive oversupply.

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pleaseremoveme
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Re: A Funding Nightmare for the US

kemosavvy,

Defaults and bankruptcies are not an entirely new phenomenon. There have been a lot of defaults all of the time and nonetheless, the money supply was steadily inflated. So that banks are inhibited in extending credit, because of defaults is something completely new. It seems that that is a position they have put themselves in by betting a lot of their money on mortgages. Still, all the money lost in defaults by banks has ended up somewhere, and probably in a place that some banks can acces it. But they're not extending credit either. So defaults don't cause deflation. Bearish banks do.

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TechGuy
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Re: A Funding Nightmare for the US
kemosavvy wrote:

In conclusion, defaults are deflationary! because it inhibits banks to extend credit.

 That would be the case, if the gov't was not bailing out all of the losses. The bailouts are inflationary, especially now that the Fed needs to print money to prop up go'vt deficits and pay for the bailouts.The gov't is also extending credit using the GSEs and giving money to banks and hedge funds to use to create new loans to consumers.

 

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Woodman
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Re: A Funding Nightmare for the US
DrKrbyLuv wrote:

Woodman said:

The only way for the Treasury get dollars to issue is to collect taxes from you and me or to auction off bills, notes, and bonds (more debt).

The US government, through the treasury, has the power and authority to issue bonds and/or to issue currency without paying interest - and they can eliminate the need to repay the loan.  Lincoln issued greenbacks to help win the civil war rather than to deal with the European central bankers who would charge 20-30%.

So, why can't we issue the money owed to the Fed (basically for free) to extinguish all debt - the money would basically cease to exist after repayment.  I'm sure the mechanics would be more involved but you get my point.

It would not be this easy to get rid of the portion of our debt that we owe private lenders and foreign nations (this represents over half of our $11 trillion dollar national debt).  It could result in adding too much money to our circulation - this could cause the value of money to drop which should be avoided.

Woodman said:

The Government owes the social security trust fund about $23T plus $2.6 T interest right now too. 

As far as our future liabilities are concerned, you're right, we will owe social security much more when the entitlements come due.  That's why it is imperative that we take back control of our monetary system. 

Larry 

I don't quite follow why it would make much difference whether the Fed or the Treasury prints money; it seems to be all out of thin air.  Greenbacks were issued by the Treasury to use inflation to fund the war I assume because the Federal Reserve didn't exist yet then.

To clarify the social security obligation numbers I quoted above, that came from the present value of revenues and interests expected to be transfered back from the General Fund for the next 75 year period. (See 2008 US Financial Statements supplemental Info page 136 Table 5).  The projected date when SS revenues no longer exceed expenses, and no surplus can be loaned to the General Fund is 2017 officially and probably will be even sooner.

Tom

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DrKrbyLuv
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Re: A Funding Nightmare for the US

Woodman said:

I don't quite follow why it would make much difference whether the Fed
or the Treasury prints money; it seems to be all out of thin air. 
Greenbacks were issued by the Treasury to use inflation to fund the war
I assume because the Federal Reserve didn't exist yet then.

Tom, I think the big difference is that if the Treasury simply printed dollars instead of bonds, we would not have to pay any interest on our debt.  Instead the Treasury prints bonds which are bought by the Fed with dollars they create via a printing press.  The private, neither government owned or controlled, Federal Reserve Bank collects interest on the bonds with money they create for free.  And, yes, both the bond and the dollar are created "out of thin air."

Thomas Edison explained this when he said "It is absurd to say that
our country can issue $30 million in bonds and not $30 million in
currency. Both are promises to pay, but one fattens the usurers and the
other helps the people. If the currency issued by the Government was no
good, then the bonds would be no good either. It is a terrible situation
when the Government, to increase the national wealth, must go into debt
and submit to ruinous interest charges."

The Federal Reserve Bank is nothing more than a parasite that steals from the real economy.  Lincoln issued "greenbacks" as interest free and debt free money - he did not have, nor want, a central bank, like the Federal Reserve, to usurp our nations most important power.  Lincoln said "The
Government should create, issue, and circulate all the currency and
credits needed to satisfy the spending power of the Government and the
buying power of consumers. By the adoption of these principles, the
taxpayers will be saved immense sums of interest. Money will cease to be
master and become the servant of humanity.
"

We have the power to fix, or at least diffuse, the current financial crisis - End the Fed

Larry

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