Foreigners are telling us “If you’re going to continue spending, printing and borrowing like there’s no tomorrow — and paying us back with cheaper dollars — you’re going to have to pay us more to buy your bonds.” America’s annual foreign borrowing to fund our debt is now around $2 trillion per year. That represents what foreigners are buying to fund our annual deficits plus the amount of foreign debt we must roll over each year. China has stopped buying and has begun to reduce its holding of US debt. On Tuesday we learn from government figures that foreign demand for U.S Treasurys fell by the largest amount on record in December. China reduced its holdings by $34.2 billion to $755.4 billion. Japan also cut ownership of Treasurys by $11.5 billion to $768.8 billion. As foreigners lose faith in the dollar and reduce their holdings it will force the government to make higher interest-rate payments to attract more buyers, just as it is struggling with big budget deficits. (First sign has just come with the Fed raising the discount rate this week.)
If we are not able to find any real creditor to finance this debt, the Federal Reserve will paper over our funding gap by in effect printing money. The effect, which may not be far around the corner is rising inflation , soaring interest rates and credit that is hard to come by. Americans better hope and pray that there will not be a real run on the dollar.
Ellen ( I have given you details I’ll bet you are not reading in the big media, in the two publications below)
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MONEY and MARKETS
Just a few days ago, Treasury tried to auction off $25 billion in 10-year notes and $16 billion in 30-year bonds. Investors failed to step up to the plate in either auction — a bright red warning sign for bonds if I've ever seen one!
With the 10-year auction, only 33.2 percent of the notes sold went to so-called "indirect bidders," a group that includes key debt buyers like foreign central banks. That indirect share was well below the 39.3 percent average for the last ten auctions, a sign that foreign buyers are no longer buying aggressively.
Not only that, but the auction's bid-to-cover ratio fell to 2.67 from 3 at the last sale. This indicator measures the dollar volume of bids against the dollar volume of Treasuries being sold. The lower the number, the less aggressive bidders are being.
Finally, the Treasury had to sell the notes at a yield of 3.692 percent. That was higher than the 3.68 percent investors were expecting. Translation: Uncle Sam had to pay up to get buyers to open their wallets!
As for the 30-year bond sale, Treasury had to pay a yield of 4.72 percent, more than the 4.687 percent estimate of analysts. The bid-to-cover ratio was just 2.36, compared with an average over the last 10 auctions of 2.48. And indirect bidders took down just 28.5 percent of the bonds sold, compared to a 10-auction average of 43.2 percent.
There is simply no way to sugar-coat these results. They stink! And the lousy debt auction results aren't the only cause for alarm ...
China Heads for the Hills, Dumps the Most Treasuries on Record!
Foreign creditors own roughly 60 percent of all our marketable debt outstanding. That means we're in hock to the rest of the world like never before in history.
The biggest buyers of our bonds are countries like China, Japan, Russia, and the OPEC block of Middle Eastern nations. And now, we're seeing signs that they're fed up — and starting to head for the hills.
Take China ...
It's been our largest foreign creditor for a long time. But a not-so-funny thing happened in December. It dumped more Treasuries than in ANY month since the government started tracking in 2000! Specifically, China sold a net $34.2 billion in Treasuries. That left it with just $755.4 billion.
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And if you are really interested in how this works, read this except from S&A Digest
At the Federal Reserve, SOMA means, "System Open Market Account." You'll often find SOMA listed among buyers of U.S. Treasuries at auction. For example,
at last week's auction of 30-year Treasuries, SOMA accounted for 11% of all purchases, just shy of $1.8 billion worth. Think about this... the Federal Reserve buying more than 10% of a Treasury auction. A glance at other auction results tells me this isn't unusual, making it all the more troubling. The Fed simply prints money out of thin air to buy Treasuries, a purely inflationary act. Besides SOMA, you'll find three other kinds of buyers at Treasury auctions: indirect buyers, primary dealers, and direct buyers. Their actions tell a disturbing tale of last week's auction... So-called indirect buyers of U.S. Treasuries purchased large amounts of Treasuries through one of
18 primary dealers.
These are the big foreign buyers, like China and Japan. In the past four Treasury auctions, indirect buyers accounted for about 40% of purchases. Last Wednesday, indirect buyer purchases sunk to just 29% of the auctioned securities. Asians aren't buying Treasuries like they were. Primary dealers bought 47% of last Wednesday's auction... but these buyers have no choice. They've agreed to purchase Treasury securities in whatever amounts are necessary to ensure a liquid market. They have to buy them. Another group of buyers, so-called direct buyers, purchase small amounts directly from the Treasury. These buyers are unreported and untraceable. At 24% of last Wednesday's auction, they purchased a record high amount of Treasuries. Since nobody knows who these buyers are... the Fed itself could be among them.
