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November TIC Data Update: China Treasury Holdings Decline By $11.2 Billion

Tyler Durden's picture





 

As we get Treasury International Capital data for one more (delayed) month, we realize just why QE will be a part of our financial landscape for a long time. In November, the formerly largest US credit (before it was overtaken by the Fed), lowered its Treasury holdings by $11.2 billion from $906.8 billion to $895.6 billion. And while overall there was strength in purchases of domestic securities by international entities, both private and official, which came at $93.9 billion in the month, split $61.8 billion in UST, $14.2 billion in agencies, $4.7 billion in corporate bonds and $13.3 billion in equities, the inflow into equities from foreign sources is far less than US sourced equity purchases of foreign stocks. But once again the biggest threat continues to be the rotation by China out of US Treasurys and into other securities... unless of course the UK continues to do China's bidding. UK holdings of US debt surged by a ridiculous $34.2 billion as direct bidders consolidated their holdings. Somehow the UK now holds $511.8 billion in US debt compared to $477.6 billion in October. What is troubling is that at this rate China will drop below Japan in total US holdings, a differential which has dropped to just $18.4 billion.

Total monthly foreign purhcases by asset class:

China holdings by month:

And the funniest chart by far, which nobody still has provided any explanation for why it is rising exponentially, "UK" Holdings:

 

 

 

 

 


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Tue, 01/18/2011 - 10:41 | Link to Comment Sudden Debt
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PS: The new governement in Tunesia has already just fallen.

MORE RIOTS!!

Tue, 01/18/2011 - 10:43 | Link to Comment Sudden Debt
Sudden Debt's picture

UK now holds $511.8 billion in US debt

Why don't they use it to downpay a part of their hangover?

Tue, 01/18/2011 - 10:47 | Link to Comment Quintus
Quintus's picture

Does the Fed have a branch office in London?

Tue, 01/18/2011 - 10:50 | Link to Comment Oh regional Indian
Oh regional Indian's picture

Quintus, more like a head office in the City of London.

ORI

Tue, 01/18/2011 - 10:53 | Link to Comment Cash_is_Trash
Cash_is_Trash's picture

Dunno, but the U.S. State Department is planning a massive new embassy.

Tue, 01/18/2011 - 11:11 | Link to Comment buzzsaw99
buzzsaw99's picture

will there be a sweet green zone?

Tue, 01/18/2011 - 12:05 | Link to Comment Quintus
Quintus's picture

I don't know, but the designs I've seen do (really) include a fairly large moat.  Should be handy for keeping the pitchfork wielding locals at bay when the time comes.  No word on whether the new building will also be equipped with Cannon and trebuchets though.

Tue, 01/18/2011 - 10:46 | Link to Comment Cdad
Cdad's picture

And the funniest chart by far, which nobody still has provided any explanation for why it is rising exponentially, "UK" Holdings:

Simple.  Ben Bernanke's secondary avenue for scrubbing counterfeit dollars through the United Kingdom.

Listen, this whole scam of Central Banks buying everything in sight in order to restore confidence shattered [yet again] by criminal syndicate Wall Street bankers...HAS FAILED! 

So put your f'n helmets on because, as has been said by everyone on this site, this is not going to end well and we all  know it.

 

Tue, 01/18/2011 - 10:46 | Link to Comment whatz that smell
whatz that smell's picture

praise be the bernank! may he ease a thousand years!

Tue, 01/18/2011 - 18:24 | Link to Comment tasmandevil
tasmandevil's picture

OK, got me fooled

Tue, 01/18/2011 - 10:47 | Link to Comment Oh regional Indian
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The United Kingdom owns the UNITED STATES (a corporation) and continues to earn interest on debt issued during the Revolutionary war (both sides).

This debt buying is a drop in the bucket compared to what is received, via the IMF. Research it or I can provide links.

The world is not as we know it or rather have been told it is.

ORI

http://aadivaahan.wordpress.com/2010/10/18/an-opportunity-and-a-golden-w...

Tue, 01/18/2011 - 11:24 | Link to Comment gold mining ceo...
gold mining ceos are idiots's picture

Indeed I have read that as well. In the end it is all good. One bankrupt entity bailing out a fellow bankrupt entity. All on paper of course.

Tue, 01/18/2011 - 13:39 | Link to Comment Oh regional Indian
Oh regional Indian's picture

GMC, on the other hand, the Queen and the rest of the black nobility, House Warttenberg, Saxe-Coburg Gotha, Orange, Green.... they are collectively the largest land-owners in the world.

Heck, they own all the land in the USA to begin with.

Now that is real. If true, which I believe it is, what a plot. Not to talk of the Vatican. And the Holy Roman Empire that never really went away, it just metastasized.

ORI

http://aadivaahan.wordpress.com

Tue, 01/18/2011 - 10:53 | Link to Comment Bruce Krasting
Bruce Krasting's picture

Tyler, We need an answer to the UK holdings. This has been going on for a year or so now. Clearly there is some smoke in these numbers. The BOE is fronting for someone.

This ain't chicken scratch. 1/2 trillion is serious money. Possibly you should send a letter to the Pauls. They are probably the only ones willing to ask the question and get an answer. Everyone else seems to want to bury this one in the sand.

Tue, 01/18/2011 - 11:34 | Link to Comment Spalding_Smailes
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Answers ? Mike Pettis  Aug 27th

 

Before I get into that, I suppose by now everyone has noticed that China is trying to diversify its reserve holdings and is reported to be buying more Japanese yen and Korean won, and perhaps other currencies.  In my entry six weeks ago, I argued that the fear that China could disrupt the US Treasury market by dumping dollars was totally unreasonable.  The latest news support my argument, I think.  First, it is pretty clear from the recent performance of the market that the vigorous attempt to diversify PBoC holdings has had no disruptive affect on the US Treasury market.

It cannot.  The world has a problem of too many countries eager to increase their export of savings and too few increasingly reluctant countries importing savings.  Too-little foreign financing won’t be an issue for the US Treasury, it is too much foreign financing that the US must worry about.  As if to prove the point, the Financial Times had an article Wednesday with the title: “Foreigners flock to buy US Treasuries.”  I am pretty sure they will continue “flocking” for many more years.

Second, even the small moves into won and yen are causing consternation in Japan and Korea.  For example, Saturday’sFinancial Times has this:

http://mpettis.com/wp-content/themes/viala/img/quote.png); background-repeat: no-repeat; background-attachment: initial; -webkit-background-clip: initial; -webkit-background-origin: initial; background-color: initial; font-family: Palatino, Times, serif; font-size: 15px; font-style: italic; margin-bottom: 22px; padding-top: 22px; padding-right: 22px; padding-bottom: 0px; padding-left: 22px; background-position: 5px 12px;">

Japanese prime minister Naoto Kan on Friday said he was ready to take “decisive” action on the yen, and urged the Bank of Japan to implement “expeditious” monetary policy measures.

…The government is under increasing pressure to stem the rising yen, which threatens the country’s economic recovery. His remarks suggested that the central bank could soon introduce additional easing measures to tackle the waning economy.

I pointed out in my piece six weeks ago that if the PBoC switches from dollars to some other currency, one of two things must happen.  Either the recipient country buys dollars to keep its currency from surging, in which case the US gets the money anyway, or the US trade deficit will be transferred to the recipient country, which will cause trade tensions with China.  Wednesday’sSouth China Morning Post already has the Japanese financial authorities threatening intervention because the rising yen is hurting exports — although apparently it is not just PBoC buying that is forcing up the yen.

The second of those two things is happening, in other words, and to prevent it from continuing, Japan will resort to the first.  As an aide, it was not that long ago when the japanese were arguing that US attempts to force up the yen were misguided because Japan’s trade surplus had nothing to do with the undervalued currency.  Now, apparently, it seems that the value of the currency does matter after all.

Expect a lot more of this.  As the US deficit surges as a consequence of the combination of collapsing trade deficits in Europe and expansionary trade-related policies in China, Germany, Japan and other trade surplus countries, surplus countries may implicitly or explicitly try to relieve pressure on the US by forcing deficits onto their neighbors, but no one wants them.  In the 1930s this was called beggar-thy-neighbor.  I discuss it in an OpEd piecefor the Financial Times on Monday.

 

 

http://mpettis.com/2010/08/have-we-underestimated-chinese-consumption/

 

 

Tue, 01/18/2011 - 12:13 | Link to Comment bankonzhongguo
bankonzhongguo's picture

They are a Fed proxy.  They are buying on the old orders to make the appearance of a market in UST.

 

Tue, 01/18/2011 - 13:09 | Link to Comment SDRII
SDRII's picture

Is a reason that Brad Sester was offered a job in the administration - perhaps he was asking too many questions and bringing too much attension to the Carrib and UK "flows"

SS,

What happens if the China flows flow outside of "standard" fx channels? A thought: look at the chart of Euro/Gold/Oil 1998 forward?

Tue, 01/18/2011 - 10:56 | Link to Comment lsbumblebee
lsbumblebee's picture

Not surprising since the BOE ultimately controls the Fed.

Tue, 01/18/2011 - 11:01 | Link to Comment Cash_is_Trash
Cash_is_Trash's picture

I believe you have it mixed up. The Fed controls Treasury which sells the bonds to the Bank of England; I believe forcefully, so the UK reps in the U.S. can meet with Team Bankrupt.

Tue, 01/18/2011 - 11:07 | Link to Comment lsbumblebee
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See "ownership of the Federal Reserve":

http://news.goldseek.com/GoldSeek/1095269452.php

Tue, 01/18/2011 - 11:43 | Link to Comment gdogus erectus
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Spot on, IBB, but most have not gone down the rabbit hole that far.  Your statement to investors is like telling the un-waken masses who was responsible for 9/11.

 

Here is that great cartoon that speaks to your point:

http://www.youtube.com/user/theamericandreamfilm

 

 

Tue, 01/18/2011 - 17:01 | Link to Comment Non Passaran
Non Passaran's picture

A freaking cartoon? LOL!

Tue, 01/18/2011 - 17:02 | Link to Comment Non Passaran
Non Passaran's picture

A footnote I found on URL you provided took me to http://land.netonecom.net/tlp/ref/federal_reserve.shtml and it shows data from 1976 (or was it 1776?). Useless conspiracy stuff.

From a PDF document available on the Internet:

"Instead, individual commercial member banks own stock in Federal Reserve Banks and elect a majority (six out of nine) of each bank’s board of directors.  The Federal Reserve Banks do, as discussed above, give all revenue in excess of expenses to the U.S. Treasury."

The main problem isn't the private ownership (or prehistoric stuff from your conspiracy theories), but the lack of proper oversight.

Tue, 01/18/2011 - 10:57 | Link to Comment Cash_is_Trash
Cash_is_Trash's picture

Is this part of our "Special Relationship" with Great Britain; sell them our shitty treasuries. In the interest of the British people, why doesn't the Bank of England say 'fuck off to Ben', goddamn Mervyn King, ruin you're people why don't you.

America's latest and greatest export: Unwarranted, undeserved Inflation.

Is this how we're pushing the Chinese to revalue their currency? Seems likely so.

Tue, 01/18/2011 - 11:08 | Link to Comment Quintus
Quintus's picture

If the Bank of England, or any UK entity is buying this stuff, they're doing it with cash wired over by the Bernank.  There just isn't this kid of liquidity in the UK right now.

Possibly, it's the Chinese or some other entity doing the buying via London.  If not,  then you can be absolutely sure that it's Ben.

Tue, 01/18/2011 - 11:04 | Link to Comment Byte Me
Byte Me's picture

HIH can the UK hold half a tril of US debt??

Does the Fed extend a swap line to the BoE so that another 'player' enters the Tbond market?

This doesn't make sense. "Here, have some of our (ersatz) currency to prop up our bond and currency with."

                             ./logicfail

Tue, 01/18/2011 - 11:09 | Link to Comment Spalding_Smailes
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Remember that China has a large current account surplus which necessarily must be recycled abroad, and the US has a large current account deficit which necessarily must be funded abroad. It would be astonishing if, under these circumstances, total Chinese holdings of USD assets declined, and of course it is impossible that they declined faster than the willingness of other foreigners to replace them.

Of course if the US current account deficit declines, net new foreign purchases must by definition decline too.  If the US wants its current account deficit to decline so that the USG can reduce the fiscal spending needed to generate any fixed number of jobs, this cannot possibly happen without a concomitant decline in net foreign, including Chinese, purchases of dollar assets.  But it need not result in any difficulty in funding the new, lower amount of debt issuance.  Depending on why it happens, reduced purchases by foreigners should probably be seen as a good thing for the US Treasury market, not a bad thing.

Confused?  How can a reduction in foreign purchases help the USG fund its massive fiscal deficit?  Because the purpose of the fiscal deficit is to create jobs in the US by boosting US spending.  Since some of the jobs that higher USG spending creates will accrete outside the US, via demand that “leaks” abroad through the deficit and creates employment for foreign manufacturers, a smaller trade deficit can itself be expansionary for the economy.  That means the USG will need to borrow less to create the same number of jobs. Fear of Chinese “dumping” of US treasury bonds, even if it were possible, should be a non-issue, but since it plays easily into various geopolitical conspiracies, we seem to love to worry about it needlessly.

 

If China runs a current account surplus, it must accumulate net foreign claims by exactly that amount, and the entity against which it accumulates those claims (adjusting for actions by other players within the balance of payments) ultimately must run the corresponding current account deficit.  And as long as China ran the largest current account surplus ever recorded as a share of global GDP, and the US the largest current account deficit ever recorded, and especially since China also ran an additional capital account surplus (i.e. other non-PBoC agents ran a net capital inflow), it was almost impossible for the PBoC to do anything but buy US dollar assets.  Given the sheer amounts, a substantial portion of these assets had inevitably to be USG bonds.

This was not a discretionary lending decision.  It is the automatic consequence of China’s currency regime, in which it pegs the RMB to a foreign currency, in this case the dollar.  Why?  Because when the PBoC decides on the level of the RMB against the dollar, it does not do so by passing a law, and making it a capital crime for anyone to trade at a different price.  What it does is far simpler.  It offers to buy or sell unlimited amounts of RMB against the dollar at the desired price.

 

This means that as long as it wants to set the exchange rate, then, it must take the opposite position of the market.  Since the rest of the market is a net seller of dollars (China runs a current and capital account surplus), the PBoC has no choice but to be a net buyer of dollars, which of course it must then invest.

If it stops buying dollars, it must let the market decide by itself on the new equilibrium price of the dollar.  In that case the value of the dollar has to plunge in RMB terms (or the RMB soar, which is the same thing) in order for buyers and sellers to match up and for the market to clear.  The moment the PBoC stops buying, in other words, the RMB will rise in value – and so it cannot stop buying inanticipation of the RMB rising in value, as the FT article suggested.

Of course the PBoC must fund the purchase of these dollars.  It does so primarily by borrowing in the domestic money markets, selling PBoC bills or entering into short term repos (although it also issues some longer-term bonds), or by “creating” money by crediting the accounts of the commercial banks who sell it the dollars.

This means, to simplify, that the PBoC has a balance sheet consisting on one side of dollar assets (and here “dollar” is short-hand for all foreign assets).   Against this and on the other side it has a roughly equivalent amount of RMB liabilities (I say “roughly” because when you run a mismatched balance sheet, changes in the relative value of assets and liabilities will create losses or profits).

 

http://mpettis.com/2010/02/what-the-pboc-cannot-do-with-its-reserves/

 

Tue, 01/18/2011 - 11:09 | Link to Comment Mike2756
Mike2756's picture

No wonder they are sucking up to India, need another "trading partner"

Tue, 01/18/2011 - 11:09 | Link to Comment chubbar
chubbar's picture

I thought the UK was all but BK? Where they getting a half trillion from? I'm sure  the citizens of the UK would like to know why they need austerity measures if the gov't has an extra half trillion and counting to throw at US debt.

Tue, 01/18/2011 - 11:46 | Link to Comment Mike2756
Mike2756's picture

Maybe the Fed is doing a little offshoring?

Tue, 01/18/2011 - 11:09 | Link to Comment carbon based unit
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a friend of mine pointed out that china executes some of its buying via other foreign interests.  and since some of them are actually rolled into the GB subset of TIC data it seems likely that the chinese are still accumulating, albeit in a more private and obscured fashion

Tue, 01/18/2011 - 11:12 | Link to Comment buzzsaw99
buzzsaw99's picture

Do not question the UK treasury holdings comrade.

Tue, 01/18/2011 - 11:21 | Link to Comment carbon based unit
carbon based unit's picture

 

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/...

 

2/ United Kingdom includes Channel Islands and Isle of Man.

 

 

Tue, 01/18/2011 - 11:23 | Link to Comment blind squirrel
blind squirrel's picture

Monthly UK Holdings actually reflect Chinese buying due to 'custodial bias'.  The correct country attribution gets picked up in the annual adjustments. See question 7 in FAQ link

 

http://www.treasury.gov/resource-center/faqs/Treasury-International-Capital/Pages/tic-faqs.aspx#q7

Tue, 01/18/2011 - 12:17 | Link to Comment packman
packman's picture

Except one thing - the annual adjustments happen in March, and sure enough the UK normally does get adjusted drastically downward, and China drastically upward, every March.  

... except for 2010.  China was adjusted upwards, but there was no downward adjustment in UK holdings.  UK holdings just have continued to skyrocket.

So the longer-term chart looks like this:

http://img412.imageshack.us/img412/9498/graphtreasholdings.gif

Maybe someone forgot to make the adjustment, but I doubt it.   China's been badmouthing the $$ for a couple of years now - doesn't seem like they'd be ramping up their purchases like that. 

However that being said - maybe they have been ramping up their purchases, and the bad-mouthing has been pure lip service, and the lack of adjustment last year was to keep up appearances.

(Maybe a story there Tyler?)

 

Tue, 01/18/2011 - 12:23 | Link to Comment packman
packman's picture

P.S. thanks blind squirrel for pointing that out.  I was dimly aware of such a bias, based on my observations of the numbers, but hadn't seen it explained in the FAQ.

 

Tue, 01/18/2011 - 11:38 | Link to Comment Orly
Orly's picture

"And the funniest chart by far, which nobody still has provided any explanation for why it is rising exponentially, "UK" Holdings:"

Grayson: So, where, exactly, did the half-trillion dollars go, Mr Chairman?

Bernanke:  European banks, I think, British banks.  I'd have to check on that.

Gee, would ya?

Tue, 01/18/2011 - 17:40 | Link to Comment mark mchugh
mark mchugh's picture

You got it, Orly!

In the clip your referring to, the Bernank reveals the scam, when questioned about "Central Bank Liquidity Swaps":

 "...those were swaps that were done with other central banks.  Many....um...many foreign banks are short dollars, and come into our markets looking for dollars, drive up interest rates and create volatility in our markets.  What we have done with a number of major central banks, like the European Central Bank, for example.  We swap our currency, dollars for their currency, Euros.  They take the dollars lend them out to the the banks in their, their jurisdiction.  That helps bring down interest rates in the global market for dollars  and meanwhile, we're not lending to those banks, we're lending to the central bank, the central bank is responsible for for repaying us......"

http://www.youtube.com/watch?v=n0NYBTkE1yQ

Translation:  We give away money to make it look like there is actual demand for US debt.  The American people are ultimately the ones on the hook.

And this is what happens when people pretend to understand things they don't.

Tue, 01/18/2011 - 12:14 | Link to Comment PureGuesswork
PureGuesswork's picture

Gavekal pointed this out a year ago.  China has been using London to mask treasury and FX moves for quite some time.  The TIC data, at least in reference to China, is fairly worthless.  They are, as Arthur Kroeber of Gavekal pointed out last February, "diversifying the channels through which they make these purchases so that it is much more difficult for the market to ascertain what they are doing."  This allows them to publicly trash the dollar and give the impression they are dumping treasuries while still buying them to continue mercantilist dollar yuan peg.

Tue, 01/18/2011 - 12:27 | Link to Comment packman
packman's picture

Yes that may be the case.  See my post above for a chart.  Usually the annual adjustment will pick this up - changing the UK holdings to China, and thus dropping the UK number dramatically and raising the China number.  However this didn't happen in the 2010 adjustment for some reason.

It'll be interesting to see what happens in two months, when the annual March adjustment is made.  If China really is holding these $500B or so, and the numbers are adjusted to reflect that - it'll probably be big, big news.

 

Tue, 01/18/2011 - 13:23 | Link to Comment Stuart
Stuart's picture

Alot of OPEC buys thru the UK.

 

Tue, 01/18/2011 - 13:45 | Link to Comment SayTabserb
SayTabserb's picture

I think the UK situation is all related to the discontinuation of the M-3 metric several years ago. The Fed could see then that it need an off-balance sheet entity to buy its own debt directly at auction.  M-3 used to count the dollars held in UK accounts, but no more. To save money, as the excuse went?  I rather think not. The Fed throws away far more money than needed to count M-3 every time it runs a POMO.

Tue, 01/18/2011 - 14:33 | Link to Comment Wheatman
Wheatman's picture

Tyler for F$%ck sake can you please get to the bottom of this.The FED is USING the UK as a proxy account. In other words the Fed (and US gov entitites) are buying US debt via the UK. The UK is simply a ponzi  front for a massive ponzi scam, where the US buys its own debt via the UK. Get to the bottom of this and please expose this criminal behavior by a complicit UK govt/central bank.

Tue, 01/18/2011 - 18:01 | Link to Comment bk1037
bk1037's picture

Good point, Wheatman, should be interesting to see if your concern is true about this being a proxy purchaser of Treasuries, It's not like the Brits are rolling in that kind of dough either, as they are a net importer just like us. Wasn't too long ago they were on the edge if I recall.

Tue, 01/18/2011 - 17:44 | Link to Comment mark mchugh
mark mchugh's picture

The Chinese are disguising themselves as Brits, because secretly, they think Treasuries are awesome....

Really?

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