Foreigners Dump $74 Billion In Treasurys In 6 Consecutive Weeks: Biggest Sequential Outflow In History

Tyler Durden's picture

Over the weekend, we observed the perplexing sell off of $56 billion in US Treasurys courtesy of weekly disclosure in the Fed's custodial account (source: H.4.1) and speculated if this may be due to an asset rotation, under duress or otherwise, out of bonds and into stocks, to prevent the collapse of the global ponzi (because when the BRICs tell the IMF to boost its bailout capacity you know it is global). We also proposed a far simpler theory: "the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity (although not with the element of surprise - China has made it abundantly clear it will sell its Treasury holdings, the only question is when), has finally arrived." In hindsight the Occam's Razor should have been applied. Little did we know 5 short days ago just how violent the reaction by China would be (both post and pre-facto) to the Senate decision to propose a law for all out trade warfare with China. Now we know - in the week ended October 12, a further $17.7 billion was "removed" from the Fed's custodial Treasury account, meaning that someone, somewhere is very displeased with US paper, and, far more importantly, what it represents, and wants to make their displeasure heard loud and clear. Whether it is China - we do not know: we may have a better view in two months when the September/October TIC data hits, but even then it will be full of errors, as Direct Bidder purchases by the UK usually end up being assigned to China at the yearly TIC audit. And the sellers know this all too well. What they also know is that over the next few days (or weeks - ZH tends to be a little "aggressive" in its estimates for popular uptake), as soon as the broader population understands what has transpired, concerns about the reserve status of the greenback will start to resurface, precisely as many have been warning. And what has happened is that in six consecutive weeks, foreigners have sold $74 billion, or more government bonds in a sequential period of time than ever before.

So... perhaps it is time to reevaluate US intentions for a trade war with any of its "evil" mercantilist, UST-recycling partners. Unless, of course, they want $74 billion to become $740 billion, and to force the Fed to have no choice but to intervene, only this time not with a duration sterilized procedure, but one where the Fed has to buy everything that China et al are selling.

On the other hand, judging by the traditional reaction of various precious metals to this kind of fiat suicide, perhaps it is not such a bad idea after all...

Total holdings in the Fed's Treasury custodial account and weekly change:

Trailing 6 Week Cumulative Total of custodial account Treasury flows.

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Eireann go Brach's picture

Timmayyyy get on the phone with Hewlett Packard and order a new round of printers!

I think I need to buy a gun's picture

from greenspan himself circa 1966

Under a gold standard, the amount of credit that an economy can support is determined by the economy's tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government's promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy's books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

This is the shabby secret of the welfare statists' tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard.

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dlmaniac's picture

Who needs foreigners when you have BEN-52 carpet-bombing the treasury market?

Kitler's picture

Shit ----> Fan.

Buckle-up.

redpill's picture

Biggest bubble ever.  Is it finally ready to pop?

Ahmeexnal's picture

so it has begun...the snow flake that will turn into an avalanche has already landed on the snowy slope.

yet, the sheeple party like it's 1999:

http://www.uefa.com/uefaeuro2012/index.html

TheFourthStooge-ing's picture

Grab a poncho first

A Mexican poncho or a Sears poncho?

 

upWising's picture

Kitler:  decorum, please.

FÆCES  -----> WHIRLING BLADES.

OSHA-approved crash helmet

Rosary (optional).

mailll's picture

I keep mentioning it over and over again on zero hedge that if foreigners aren't buying our treasuries, then who is?  It's the printed money by the Federal reserve.The problem is that if they can keep our interest rates on our US Treasuries at rock bottom by buying them, and that they have this much control over our Treasuries, then they can very easily crash our bond market as well whenever they decide to.  They are not on our side, but on the side of evil.  Please beware of the person in the drivers seat.  He can crash the vehicle anytime he wishes. I can't emphasize this enough. 

Republicae's picture

Quantitative Easing my friend, the FED is buying Treasuries, which are essentially worthless paper securitizing the other worthless paper we call Federal Reserve Notes. Fiat paper money substitutes backed by fiat paper Treasuries, which are in turn backed by the fiat paper money substitutes, which are backed, by get this, the Full Faith and Credit of the United States of America. Hmmmmm...nothing like honest money is there?

It's almost as good of a scam as the Social Security Trust Fund, which doesn't have a single dollar in it, only very special government securities. What makes them so very special? They are unmarketable securities...can't be sold. More fiat paper, worthless substitutes for assets. 

In a very real sense, the monetization of debt was a stoke of genius, it allowed the governments of the world to operate well beyond what they would have been able to do on Sound Money. All fiat currency, being double liabilities are a wonder to behold, especially when the system is dying. Too bad so few understand that gold, and silver, are double assets...it makes all the difference in the world when it comes to monetary potency and economic health.

 

Do you smell it? The fish is rotting from the head!

 

 

Snidley Whipsnae's picture

Republicae...

"In a very real sense, the monetization of debt was a stoke of genius, it allowed the governments of the world to operate well beyond what they would have been able to do on Sound Money."

No expanding empire can function on a sound money foundation. Up front money is needed to start a war and a great deal more money is needed to fund long multi front wars.

Greenspan's comments about welfare statists aims and fiat vs gold were good as far as they went. What Greenspan did not address was the need for fiat currency/gov bonds to finance wars. History shows that countries with sound money switch to fiat quickly in wartime.

Empires and fiat currencies go hand in hand.

Oh regional Indian's picture

Excellent point SW.

Fiat is the enabler of empire. Or rather, debt is, but Fiat makes it all go around.

ORI

Popo's picture

And a corollary argument is:  All empires require fiat.   The expansion of fiat is always a self-limiting and ultimately-doomed exercise  -- ergo all empires are self-limiting and ultimately doomed. 

 

 

 

mick_richfield's picture

Another corollary is that fiat is the death of the Republic.

The Powers do not need to even simulate democracy if they can create their own 'money', and force us to accept it.

Republicae's picture

My point exactly. Without fiat, the government is limited and thankfully so. The fact that during war many countries have, in the past, resorted to the suspension of specie, is indeed evidence that while sound money does restrain, the necessity for even more restraint is needed. The lack of public understanding, or perhaps the gullibility of the public is also a factor that allows government to go beyond the law, suspending specie in order to fund its wars, wars that are usually purely interventionist in nature and rarely defensive.

nmewn's picture

I am heartened others understand the basic thing.

Without unbacked fiat, there would be no money for wars or welfare. We need to decide.

Don Birnam's picture

"Foreigners:" Does that also include that El-Arian chap at PIMPCO ?

Fish Gone Bad's picture

He is only 42% foreign to me, but his name sounds 100% foreign to most people.

Biosci's picture

42%?  Three-sevenths?  Apparently one of his great-grandparents was a hermaphrodite?  Christ, what amazing info you can get on ZH.  I f'ing love this site!

whisperin's picture

T thought that was an airline!!!

acabrer's picture

HEY! (leaning in trying to hear over party noise) FANCY MEETING YOU HEAR! COOL PARTY UHH! ILL BUY YOU A SHOT!

Republicae's picture

Greenspan, was bought and paid for...he'll rot in Greenbacker Hell.

TheFourthStooge-ing's picture

Too bad Greenspan sold his soul.

Whatever he got for it was more than it was worth.

 

Popo's picture

Ayn Rand got to him.  He started to believe in the always convenient lie that market participants are self-governing and always operate in the interests of self-preservation.

...that is until Greenspan gave his famously pathetic "I found a flaw" speech to Waxman.   At which point, Greenspan's career should by all rights have ended -- and he should forever have been remembered as a fraud of historic proportions.

But along with accounting standards, capitalism, constitutional democracy and other extinct concepts -- we have also retired the concept of failure.

 

Calmyourself's picture

Who the heck reads that quote, looks at Greenspans actions and red flags this comment??  Clearly the Stasi has penetrated this freedom cell..

Gief Gold Plox's picture

Now and then I do. By mistake. Sitting on the porcelain throne, reading ZH... with the f-ing touchscreen phone you need to be very accurate to vote up, missing the down arrow. I'm not saying I downed this exact comment, but it happens every so often.

Waffen's picture

Just a theory.. But what if, just what if, this has all been Greehspan's plan to implode the system so we can return to a gold standard and kill the banks?

decon's picture

This could also be attributed in large part to EU banks.  Just yesterday they announced they would not seek capital in the markets but through liquidation.  Since they announced their strategy yesterday it means they had already largely made the moves.

TrulyBelieving's picture

Written in 1966 Allen Greenspan....Just wondering exactly who, by name or organization, are these "welfare statists"? If I got any understanding at all, that be the enemy.

Prometheus418's picture

Circa 1966, Greenspan was a follower of Ayn Rand.  Rather than writing a lot here, I'll just direct you to her body of work for the answer to that question- she used that exact term extensively.

 

AustriAnnie's picture

Unfortunately, because Greenspan spoke out in defense of free markets, then actually in action supported corporatism and the Federal Reserve ponzi, many people are now confused between the two.  Thank you Greenspan, for not only selling out your soul, but also doing it as a corporatist under the guise of a free marketer.

PAUL LEO FASO's picture

Notice how we are now poised to carpet bomb Iran because it is selling its oil without accepting the Federal Reserve Note?   Notice the internal combustion engine has been under your hood for over 100 years when every other piece of technology has changed on planet Earth?  Notice the private Federal Reserve Bank has been sub-contracted by the Congress for 100 years to run our money?  Notice the "RESERVE CURRENCY "to die for is the Petro/Dollar worthless fiat authorized the Congress who have abrogated their right and duty to "coin and regulate" money?  Notice how oil is measured in dollars not gold? Notice any monumental criminality here?  Notice the plan below to stop this here and now;

http://www.zerohedge.com/print/365866

 

 

Nascent_Variable's picture

Don't worry.  I'm sure Geithner will release a statement any minute that there's absolutely no risk of China and others dumping Treasurys.  Problem solved.

TheFourthStooge-ing's picture

Don't worry.  I'm sure Geithner will release a statement any minute that there's absolutely no risk of China and others dumping Treasurys.

Good God, NOOOOOO!!!

That would pretty much guarantee that it was Fuckin' On like Donkey King Kong.

Problem solved.

...yes...it's all so clear now........watch more television, and avoid panic buying....now I understand...

 

eureka's picture

I have been telling my fellow zerohedgers for a while that US needs China more than vice versa - and that China at some point may choose to dump its $3TRIL $US paper.

Well, here it is, the warning - and the proof. US is going down - in a short mattter of time.

kito's picture

Wasn't it a few days ago that bernanke gave bonds away to a sold out crowd?

Ahmeexnal's picture

just as a snakeoil salesman has his friends "buying" from him frantically, thus the idiotic fools who believe they are missing out on a wonderful product gladly exchange their silver schillings for a flask of putrid rat oil.

tim73's picture

But but but...USA is SAFE HAVEN! Even JESUS would DEPOSIT! USA! USA! USA!