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China Sold Second-Largest Amount Ever Of US Treasurys In December: And Guess Who Comes To The Rescue

Tyler Durden's picture




 

While we will have more to say about the disastrous December TIC data shortly, which was released early today, and which showed a dramatic plunge in foreign purchases of US securities in December - the month when the S&P soared to all time highs and when everyone was panicking about the 3% barrier in the 10 Year being breached and resulting in a selloff in Tsy paper - one thing stands out. The chart below shows holdings of Chinese Treasurys (pending revision of course, as the Treasury department is quite fond of ajdusting this data series with annual regularity): in a nutshell, Chinese Treasury holdings plunged by the most in two years, after China offloaded some $48 billion in paper, bringing its total to only $1268.9 billion, down from $1316.7 billion, and back to a level last seen in March 2013! 

 

This was the second largest dump by China in history with the sole exception of December 2011.

 

That this happened at a time when Chinese FX reserves soared to all time highs, and when China had gobs of spare cash lying around and not investing in US paper should be quite troubling to anyone who follows the nuanced game theory between the US and its largest external creditor, and the signals China sends to the world when it comes to its confidence in the US.

Yet what was truly surprising is that despite the plunge in Chinese holdings, and Japanese holdings which also dropped by $4 billion in December, is that total foreign holdings of US Treasurys increased in December, from $5716.9 billion to 5794.9 billion.

Why? Because of this country. Guess which one it is without looking at legend.

 

That's right: at a time when America's two largest foreign creditors, China and Japan, went on a buyers strike, the entity that came to the US rescue was Belgium, which as most know is simply another name for... Europe: the continent that has just a modest amount of its own excess debt to worry about. One wonders what favors were (and are) being exchanged behind the scenes in order to preserve the semblance that "all is well"?

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Tue, 02/18/2014 - 12:25 | 4448299 derek_vineyard
derek_vineyard's picture

best liquid collateral in the paper besed system......but as someone on here once said "when the shit storm hits, i believe that gold/silver/pms will be left standing.  what form or how we get to that shitstorm i dont know"....thats paraphrased  (shhhh,,i know fonz said it...its good advice)

Tue, 02/18/2014 - 12:27 | 4448310 fonzannoon
fonzannoon's picture

I still believe that, if/when that storm hits, that will hopefully be the case. But I thought that storm was supposed to hit a long time ago, and it seems to be getting further away by the day.

Tue, 02/18/2014 - 12:40 | 4448330 derek_vineyard
derek_vineyard's picture

sure does seem further.....but my son's onboard and if i dont need my silver....he will  (i like silver because it is lower denomination and makes you less of a target than the pretty yellow stuff)

 

many pounds of silver and a few of gold

Tue, 02/18/2014 - 12:39 | 4448380 pods
pods's picture

Fonz, if I might interject, I think that 2008 is still fresh in our minds.  Days of 500 point losses and bank stocks sinking into penny status.  

What might be the model is Japan, with a long slow grind down.  The long and slow grind doesn't get the heart pumping like seeing the DOW down 500, but that might be the case.

The FED has held up well over this time period. Maybe they are putting freshly minted FRNs in every Congress critters stocking for Xmas, idk. But public confidence in the FED has not dropped. Shit, most of the public has no clue about the FED. They have been taught to leave that up to the smart people. That is why Ben can lie about printing and there are no repercussions. But the FEDs survival depends on public acceptance of it.

The FED printing in reality also must mirror government deficits or it will drain the system of good collateral.  With deficits dropping (not promises but yearly operating costs), the FED has to taper.

I think that now we must at least entertain the thought of a long, generations long, slow grind down into 3rd world status, with some big hiccups along the way.

pods

Tue, 02/18/2014 - 12:53 | 4448437 derek_vineyard
derek_vineyard's picture

eating a few percent to inflation each year is the grind we are in.  global competition was inevitable.  too many people now share the less bountiful earth.  i have no solution except to live debt free and under consume the average joe.

the largest priority of our FED is too keep the wealth effect elevated.  and that rewards bad behavior.  we are a stupid people.

Tue, 02/18/2014 - 12:59 | 4448501 fonzannoon
fonzannoon's picture

I am basically posing a question here. Can the markets continue to operate on their own and possibly even climb higher while we witness the "economy" continue to sink. No one is doubting we are witnessing the death of the middle class really begin to pick up pace. However that reality does  ot necessarily have to bleed into the markets anytime soon. Especially when reports like this show the world is in on this together. 

Tue, 02/18/2014 - 13:09 | 4448546 Dr. Engali
Dr. Engali's picture

Personally I'm beginning to think that there are certain areas where the excess liquidity is allowed to go, but if you deviate too far from those areas the Fed brings a hammer down on you. Stocks, bonds, and real estate are good regardless of the economic reality, precious metals and other tangibles are bad.

Tue, 02/18/2014 - 13:17 | 4448582 Tinky
Tinky's picture

While I continue to respect your point that there is a worldwide, coordinated effort to keep the economy afloat (if not somewhat stable), I still maintain that the system is breaking down already, and that there will be an event (or series of events) that greatly accelerate the process in the near future.

Those who argue that TPTB can continue this charade for many years are, in my view, deluded. The situation today is radically different than the '70's, or '80's Japan, etc. The world is far more unstable. The masses have been lied to for many years, and the papering over with false recovery memes through captured media is rapidly coming to an end. There is already serious unrest in a number of countries around the world, currency wars are heating up rapidly, and the gold suppression efforts appear to be increasingly ineffectual.

I'm not nearly smart enough to pinpoint a precise inflection point (see Martin Amstrong for that), but I can't imagine that things won't begin to unravel in a serious way sometime over the next couple of years.

Wed, 02/19/2014 - 04:00 | 4451680 Groin
Groin's picture

Fonz I have been reading you for quite some time and respect your thinking ability. What I am going to suggest to you, and I expect and answer when you do :-) is that there is a currently a divergence in place that will grow exponentially. That divergence is the difference between real assets, and claimns over those assets. Frame it like that and see where your imagination takes you.

Tue, 02/18/2014 - 14:12 | 4448849 SDShack
SDShack's picture

Govt deficits will soon return with a vengence. They only dropped because of the sequester, and that is gone. Congress has caved and given 0zer0 the green light. Now 0zer0 can raise the debt ceiling at will, so no way there will be ANY deficit cuts of ANY kind.  Just look at the Farm Bill that was just passed. Full of pork for everyone. Next up will be 0zer0care, costing trillions more than expected, and generating nothing because no one is signing up because it's too expensive. That will lead to bailouts of the Insurance Companies, which will be more deficit spending. Finally, granting amnesty to 10+million illegals will push the govt dole percentage to 50%. No, the little blip in decreasing deficits is over.

Tue, 02/18/2014 - 14:20 | 4448856 Raging Debate
Raging Debate's picture

PODS - I see it more like several years of stagflation until much of the Boomers retire and trade has rebalanced. In real terms we already have had 13 years of stagflation. Twenty years not rough enough for ya?

I'll never get my 20 years of labor that was siphoned off back. Worst? The criminals got away with. As in completely. Finding out how the world works differently then taught in Sunday school can be a rude awakening.

The middle class has been destroyed. While I am optimistic life will go on the damage from all this will make all of us work harder until we're dead. Maybe millennial's get there break in 2020's but by then it past the time for family formation. There is much to grieve over and be upset about but Bernanke landing the plane to me isn't one of them. This service is bery valuable because robbers still abound and while this may decrease eventually, they will always be some.

I encourage people here to get out into the local community, make friends and have fun, because it is at the local level the economy will rebuild. And if your looking for work it mainly still is on who you know for better chances at prosperity.

Tue, 02/18/2014 - 17:41 | 4449824 RSloane
RSloane's picture

I hear you, Raging Debate. +1. For me it has always been the local community. Most of us shop local, grow some of our own food, barter and trade that, and shop at farms for meats and produce we don't grow. We may pay a little more for shopping locally but the stores we rely on are still there and so far we don't sport any of our own abandoned strip malls. We have a huge influx of tourists for the summer that support our restaurants and shops on the docks that were built mainly with them in mind. Our local fishermen work all year round as do our farmers. There are more and more contractors moving into the area and even they are turning their pristine perfect back yards into vegetable and fruit gardens.

I agree with you completely. Its at the local level that economies will be rebuilt or survive in the first place. I wish you well.

 

Tue, 02/18/2014 - 12:58 | 4448493 RSloane
RSloane's picture

No storm. Tiny papercuts over the next thirty or so years.

Tue, 02/18/2014 - 13:25 | 4448625 Oldwood
Oldwood's picture

I see small businesses bleeding to death every day.

Tue, 02/18/2014 - 17:50 | 4449859 JimS
JimS's picture

Think in terms of an excellent juggler. You keep throwing him objects to toss into the mix. At some point it will fail, but it could go along for quite some time, then it won't. You'll wake up one morning and it'll have collapsed. I saw it happen in Vietnam on October, 21, 1968.

Tue, 02/18/2014 - 18:11 | 4449953 JimS
JimS's picture

On October, 21, 1968, in Vietnam, Military Payment Certificate (MPC) series #641 was changed to series #661, overnight. That next morning the entire Vietnamese population's currency disappeared, and became worthless. Their whole livelihood had been depending on that old series 641, and that morning it was totally worthless. Outside my compound Vietnamese civilians were tossing bundles of the old series 641 over the fence crying/swearing in anger, wanting us to exchange the worthless currency for the new one. We couldn't, as, when we woke up that fateful morning, we were given one chance to exchange our own currency. Bingo, their fate was sealed. It could happen here in a heartbeat. That was the best kept secret that I saw during the war.

Tue, 02/18/2014 - 16:07 | 4449363 Urban Redneck
Urban Redneck's picture

*UST* paper used to be the best liquid collateral (before ZIRP) now excess reserves *FRB* paper are the best liquid collateral (outside of certain short term price shocks in certain markets for specific collateral).

I'm sure some enterprising central banker will use that logic to demand MOAR printing (or have a staffer convey the same message through their Meat Puppet Schumer at some hearing in proper CYA SOP).

But once TSHTF it really comes down to what TPTB and TBTF can accomplish in one weekend- if you feel lucky punk... (and are diversified across both institutions and jurisdictions) it could be the buying opportunity of a lifetime, or a complete wipe-out. But if you have physical gold or silver in your possession-- you don't have to worry about any of that.

I only sleep 4 hrs a night, so when I do sleep- I prefer to sleep well.

Wed, 02/19/2014 - 07:16 | 4451785 thestarl
thestarl's picture

Are you actually watching what is happening around the globe.

If this reaches critical mass here with the mob mentality you better be well armed and don't think your fucking gold or your pm's will make much difference it'll be pure and simply survival of the fittest.Everything brakes down and we revert to primeval savagery and all your learned intellect counts for fucking nothing as you beg for your miserable life as this repressed anger manifests itself in a bloodlust orgy.

There is no salvation for the hypocrite,never had to be this way but its the path we've chosen. 

Wed, 02/19/2014 - 04:11 | 4451686 Groin
Groin's picture

Collateral Doc, that is the bottom line so keep working on that train of thought. I know mine isn't available to them anymore :-) As that of a few others I have given advice to.

Tue, 02/18/2014 - 12:05 | 4448204 RSloane
RSloane's picture

This "shitshow" is incredibly controlled on a global level. There maybe unforseen burps and whorls, but in the long run power will not be denied.

Tue, 02/18/2014 - 16:12 | 4449403 Urban Redneck
Urban Redneck's picture

It's not controlled-- it's a frankenfreak GMO creation that has certain engineered traits which facilitate the perception of control, but the end result will be no different that of Shelley's.

Tue, 02/18/2014 - 12:28 | 4448316 Pheonyte
Pheonyte's picture

Swaps, repos, and a dozen other complicated scams will keep this alive a lot longer than I have thought.

Imagine a boot stamping on a human face forever.

Tue, 02/18/2014 - 11:35 | 4448063 RaceToTheBottom
RaceToTheBottom's picture

Three card monty on an industrial scale

Tue, 02/18/2014 - 11:36 | 4448066 WarPony
WarPony's picture

NATO (headquartered in Brussels) is our "friend" - yeah right.

Tue, 02/18/2014 - 11:46 | 4448120 Sudden Debt
Sudden Debt's picture

sure we are...

we come in peace...

http://youtu.be/rMdC45S79uQ


 

Tue, 02/18/2014 - 11:51 | 4448135 SAT 800
SAT 800's picture

It was astonishing to watch France Bomb Libya; in the interests of "human rights"; apparently, I lived too long.

Tue, 02/18/2014 - 15:26 | 4449205 WarPony
WarPony's picture

with a central bank installed and oil being shipped half way through the campaign.  But, hey, now we can pay our fair share of NATO's expenses

Tue, 02/18/2014 - 11:36 | 4448067 LawsofPhysics
LawsofPhysics's picture

So it's true then, we are becoming more like China every day.

This should end well.

Hedge accordingly.

Tue, 02/18/2014 - 14:18 | 4448892 Chuck Knoblauch
Chuck Knoblauch's picture

Agenda 21. Planned self-destruction based on sustainability, aka neo-feudalism.

 

Read it and weep.

Tue, 02/18/2014 - 15:27 | 4449208 Herd Redirectio...
Herd Redirection Committee's picture

The readvent of slavery.  This time in the form of debt slavery.

Tue, 02/18/2014 - 11:38 | 4448070 Colonel Klink
Colonel Klink's picture

Worldwide bond circlejerk.  Purchased no doubt with FED money.  Essentially the FED buying their own debt.

Tue, 02/18/2014 - 11:46 | 4448118 LawsofPhysics
LawsofPhysics's picture

Yes, just like the PBoC. (and every other central bank on the planet)

 

hedge accordingly.

Tue, 02/18/2014 - 11:56 | 4448168 Colonel Klink
Colonel Klink's picture

Thanks LOP, I've been hedged accordingly for the past 4 years.  They've trimmed my hedges but they're growing back.

Tue, 02/18/2014 - 11:59 | 4448177 LawsofPhysics
LawsofPhysics's picture

That's odd, all my ounces/grams are still very much intact.

Tue, 02/18/2014 - 12:32 | 4448332 Colonel Klink
Colonel Klink's picture

Well I was referring as being measured in FED fiat toilet paper, which is mainly what most of the world accepts.  But you already knew that.

Tue, 02/18/2014 - 11:38 | 4448081 Calculus99
Calculus99's picture

Wonder how long it will be before the paper wrapping around Belgium chocolates will be worth more than an American IOU (or a French, British, Spanish, Italian Japanese IOU etc)

Tue, 02/18/2014 - 11:41 | 4448092 overmedicatedun...
overmedicatedundersexed's picture

what word describes fiat printing and buying back debt?? I am sure Ben said it would never happen at the FED never seems to need clarification as in what the meaning of is, is?

Tue, 02/18/2014 - 11:41 | 4448093 GVB
GVB's picture

I didn't vote for that level of insanity..

Tue, 02/18/2014 - 11:42 | 4448094 RaceToTheBottom
RaceToTheBottom's picture

Gold purchases appear to be increasing and US Treasuries purchases appear to be decreasing......

connect the ................

Tue, 02/18/2014 - 11:42 | 4448097 fuu
fuu's picture

That's a lot of waffles.

Tue, 02/18/2014 - 11:52 | 4448142 SAT 800
SAT 800's picture

Yes, it is.

Tue, 02/18/2014 - 11:42 | 4448098 Kaiser Sousa
Kaiser Sousa's picture

"bye, bye Miss America Pie......"

Tue, 02/18/2014 - 11:42 | 4448101 Skin666
Skin666's picture

Belgium?!

 

I did not see that one coming!

Tue, 02/18/2014 - 11:44 | 4448105 Sudden Debt
Sudden Debt's picture

I OWN YOU BITCHEZ!!!!!

MOVE OFF MY LAND!!!

THE EMPIRE OF BELGIUM WILL SOON INVADE AND TAKE ALL!!!!

 

Tue, 02/18/2014 - 11:53 | 4448151 SAT 800
SAT 800's picture

I think you should try the DeCaf, for awhile; it tastes alright, and you avoid the sudden mental storms.

Tue, 02/18/2014 - 12:00 | 4448185 Sudden Debt
Sudden Debt's picture

nah... than the voices take over and they tell me to do bad stuff...

Tue, 02/18/2014 - 12:06 | 4448212 pods
pods's picture

You have to seek some help man.  

Hang on, the dog is sayin somethin.

pods

Tue, 02/18/2014 - 14:14 | 4448860 SDShack
SDShack's picture

Belgium, the Mouse that Roared.

Tue, 02/18/2014 - 16:11 | 4449390 resurger
resurger's picture

I thought the Fed came to the rescue lol

Tue, 02/18/2014 - 11:42 | 4448102 Sudden Debt
Sudden Debt's picture

MORE PAPER ON THE FED'S BOOKS!!

AHA!!

WE LOVE IT WHEN A PLAN COMES TOGETHER!!!

that was the plan right?....

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