© MERK INVESTMENTS
China dumped billions of America's debt in December.
The largest owner of U.S. debt, China sold $18 billion of U.S. Treasury debt in December.
And it's not alone. Japan sold even more: $22 billion. In the past year, Mexico, Turkey and Belgium have also lowered their holdings of U.S. debt, all of which have led to a record annual dump by central banks.
Many countries are suffering from the global economic slowdown, forcing central banks to
pull out all the stops to help buttress their economies.
Central banks in Japan and Sweden have resorted to negative
interest rates to spur banks to lend more; the European Central Bank is buying bonds issued by its member countries; the People's Bank of China is injecting cash into its financial system.
For many central banks, selling U.S. Treasuries gives them the cash to prop up their
collapsing currencies.
"These interventions are trying to add some air to the parachute," says Win Thin, head of emerging market currency strategy at Brown Brothers Harriman.
In total, central banks sold off a net $225 billion in U.S. Treasury debt last year, the most since at least 1978, the last year of available data. In 2014, there was a net increase of $45 billion, according to CNNMoney's analysis of Treasury data published Tuesday.
Foreign governments sold more U.S. Treasuries than they bought in 11 out of 12 months last year, according to Treasury data.
The U.S. debt dump is a sign of two things:
1. How aggressive central banks are acting to keep their economy afloat amid global weakness.
2. After years of building up savings -- the so-called "global savings glut" -- countries are starting to sell off their reserves.
© Treasury Dept
Currency collapse: central banks to the rescue?A weak currency often reflects a slowing or shrinking economy. For instance,
Russia and
Brazil are both in recession and their currencies have collapsed in value.
Both these countries along with many developing countries depend on commodities like oil, metals and food, to power their growth. Commodity prices --
especially oil prices -- tanked last year and have continued to do so in 2016.
When commodities plunge, currencies tend to follow suit. And when currencies rapidly decline, cash tends to flow out of a country and into safer havens. So central banks have tried to prevent massive capital outflows by easing their currency collapse.
China
spent $500 billion last year just to prop up its currency, the yuan. Despite all its spending, China's total holdings -- by public institutions and private investors -- of U.S. Treasury debt is up a bit from a year ago.
That's also true for the majority of countries: total foreign holdings increased in December compared to a year ago. So even though central banks are dumping U.S. debt, there's plenty of demand for it from private investors.
End of the 'global savings glut'Commodity prices boomed between 2003 and 2013 fueled by seemingly insatiable demand by China as it built up its cities and its economy. Many commodity-rich countries like Brazil also grew in tandem.
These countries seized the boom as a chance to ramp up their foreign reserves by buying hundreds of billions of debt issued by the U.S. Treasury. Former Fed Chair Ben Bernanke in 2005 called it the
"global savings glut."After beefing up foreign reserves for a decade, central banks finally started to sell last year. Total foreign reserves hit $12 trillion in 2014 and last year fell to about $11.5 billion, according to IMF data.
Last year, China posted the worst growth in 25 years. Its appetite for commodities softened, causing prices to plummet and leading to a ripple effect on economies and currencies globally.
Central banks are scrambling to prevent their currencies from plummeting even further. The U.S. debt selloff could be a trend for some time, expert say.
"I would expect that we would see this trend continue this year and perhaps into 2017," says Gus Faucher, senior economist at PNC Financial.
After WW2, the glorious winners (USA) owned half of the world's economy.
Now less then 20% and fast shrinking. What upholds US economy is arms sales (which, to my disgust, includes Australia, whose defence military thinking seems to include that joke the F-35, therefore we need to spend billions replacing our entirely competent FA-18's).
They are desperate. Military spending by the US and maintaining their hundreds of military bases outside the US is essentially a means to pull money out of the average tax-payer and feed them to corporations. You know, those corporations that feed the US political machinery. It's a self-defining requirement: vote for us, and we'll make America great, so we'll spend huge amounts of money on military industries that in turn supply us with political finances... lah de dah.
It won't work for too much longer. Even after the disastrous Iraq, Afghan and Syrian campaigns, the American people simply can't afford it.
The US government debt has doubled under 'Yes We Can" Obama, over the Little Bush illegal Iraqi war (that second one).
19 trillion dollars. In debt. Count that again. And again. It is a staggering number. And that's just government debt. On behalf of their tax-payers, the American citizen. To whom? To international banks that simply don't have the assets to pay out that debt, but they are quite happy to lend anyone anything. Put it into 'books' and pretend they have loaned the US government money they don't have.
And that US Govt debt just keeps getting bigger. And bigger. With no end in sight.
This should tell you how much the dollar is worth. Or any other currency. It's all imaginary stuff.
This is how good any economy is... it depends on imaginary financial 'confidence'.
Simply put, the amount of money floating around in the world does not equate to real assets. Economy doesn't really exist. Let's just keep printing paper money instead and confidently call it 'quantitative easing'.
That concept depends on US, and other government's (future) bonds being worth certain amounts of interest compounding. In other words, that the US economy and dollar will be worth more in the next 5, 10, 20 years.
Does anyone really see that? If so, why? (I'd like an economist to explain that sensibly to me) Long-term trends strongly suggest otherwise.