Wednesday, May 30, 2007

Foreign U.S. Notes Rise to 80 Percent / "Reverse Marshallplan"

staggering number......Roach calls this some kind of "reverse Marshallplan".

noch fragen....Roach nennt das ganze passenderweise ne art "reverse Marshallplan"
There is a striking twist to the current globalization. Unlike the lobalization of the early 20th century when capital flowed from the rich countries of the developed world to the “settlement economies” such as Argentina, Australia, and Canada, the opposite is true today. In the current globalization, the incremental saving for the advanced economies of the developed world has been provided almost entirely by the transfer of capital from the poor countries of the developing world (including oil producers). The United States, with its massive current account deficit, is the major beneficiary of this “reverse Marshall Plan” – absorbing more than 70% of the world’s surplus saving over the past three year

For the moment, at least, financing the U.S. budget deficit may be getting less arduous as foreign investors now own a record 80 percent of the Treasury notes due in three to 10 years.

Not since the 19th century have foreigners held so much American debt, said Alan Taylor, a professor of economic history at the University of California, Davis. International investors own $672 billion of the $835.4 billion Treasuries due in three to 10 years,

While the Central Bank of China in Taipei and the Bank of Korea say they have had their fill of Treasuries, the 22 percent rise in U.S. dollar reserves led by Brazil and China during the past year makes Treasuries irresistible.

>especially when you look at all the currency losses making it one of the worst investments it is getting even better when you read this "Taxpayers on the hook for $59 trillion"

>das gilt natürlich besonders wenn die ganzne währungsverlusteb mitberücksichtigt werden.....und erst recht bei 59 trillionen zukünftiger verbindlichkeiten ( oben)......

Yields on U.S. government bills, notes and bonds are higher than similar- maturity debt sold by Japan and the countries sharing the euro. That's partly why foreign holdings of U.S. securities have doubled since 2002.

``Those dollars need to go somewhere and the natural place to go to is Treasuries,'' said Charles Comiskey, the New York- based head of U.S. government bond trading at HSBC, Europe's largest bank by market value. ``They're not bought for fundamental reasons but for necessity.''....

>but how long can and will this this continue....?
>aber ob das immer weitergehen kann........?

American long-term interest rates would be about 1.5 percentage points higher without foreign capital flowing into the $4.4 trillion of outstanding Treasuries, according to a 2005 Federal Reserve study by Professors Francis and Veronica Warnock at the University of Virginia in Charlottesville. The U.S. Department of the Treasury says non-Americans hold at least 52 percent of all notes and bonds.

Lower Treasury yields help keep down borrowing costs for companies and U.S. home buyers. The yield on U.S. corporate bonds was 5.82 percent last week, compared with a 10-year average of 6.05 percent, according to data compiled by Merrill Lynch & Co. Rates on 30-year mortgages rose 16 basis points last week to 6.37 percent, down from 7.94 percent in May 1997 and the average 6.70 percent over the past decade, data from Freddie Mac, the government-chartered mortgage company, show. ....

Percentage of Deficit
The last time foreigners owned so much U.S. debt was in the mid-19th century, when state and corporate bonds for the construction of railroads, canals and highways were purchased by Europeans, said Taylor, the University of California professor. .....
>and now....consumption, houses, war, debt....but no investments!
>und heute...keine investments, nur neue schulden um den kaufrausch weiter auszuleben und masslos über die verhältnisse zu leben und kriege zu finanzieren.

Central banks, whose currency reserves swelled to $5.4 trillion this year, are buying Treasuries with dollars accumulated from exports of goods and oil to America. Foreigners owned less than 35 percent of Treasuries in 2000. Crude prices have tripled during the same period.

Central banks, including the People's Bank of China, have said they plan to increase investments in bonds other than Treasuries, adding to concerns that waning demand would push up U.S. market rates.

`Reaching a Limit'
Japan, the biggest foreign holder of Treasuries, with $612 billion, has reduced investments in U.S. government bonds this year, from $623 billion. The country doesn't plan to ``drastically'' cut U.S. assets, Vice Finance Minister Hideto Fujii said last week.

International investors ``can't keep buying safe, simple Treasuries forever,'' said HSBC's Dyer, who based his estimates on June 2006 Treasury data. Foreigners are ``reaching a limit.''

At the same time, Treasuries are becoming more attractive to foreign investors as yields on emerging market debt and non- investment grade corporate securities approach record lows compared with government bonds, said O'Donnell.

Speculative-grade corporate bonds yielded an average 2.44 percentage points more than Treasuries last week, matching the record low in 1997, according to Merrill Lynch & Co., which started collecting the data in 1986. The average yield premium on emerging market debt narrowed to 1.49 percentage points, the smallest since JPMorgan Chase & Co. began collecting such data in 1997.

Treasuries due in 10 years yield 48 basis points, or 0.48 percentage point, more than German 10-year bunds, down from 116 basis points a year ago. The U.S. notes yield 314 basis points more than Japanese 10-year bonds, little changed from 317 this time last year.

`Reasonably Priced Assets'
``In the grand scheme of global opportunities, Treasury rates near 5 percent may perversely be the most reasonably priced assets around,'' said O'Donnell.

Central bank efforts to diversify reflect the growth of reserves more than the desire to hold less U.S. debt. China's swelled in the first quarter by a record $136 billion to $1.2 trillion, prompting the government to set up a group to pursue other investments. China last week bought a $3 billion stake in Blackstone Group LP, the New York-based private-equity firm led by Stephen Schwarzman.

China more than doubled its holdings of Treasuries in the three years ended March 31 to $420 billion, according to U.S. government data. Members of the Organization of Petroleum Exporting Countries did the same, increasing their investments to $113 billion. Brazil now owns $70.6 billion of U.S. government debt, up fivefold since 2004.

Central banks used their growing reserves to purchase a net $284.5 billion of so-called agency debt sold by government- chartered companies Fannie Mae of Washington and Freddie Mac in McLean, Virginia last year. They bought a net $485.2 billion of corporate bonds.
here is the take from minyanville on this datapoint

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10:51 PM  

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