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What if foreigners sell Treasuries? Another myth exploded.

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November 04, 2011 – Comments (6)

Speaks for itself.

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Mike Norman - Friday, November 4, 2011
What if foreigners sell Treasuries? Another myth exploded.

http://mikenormaneconomics.blogspot.com/2011/11/what-if-foreigners-sell-treasuries.html

For a long time we’ve heard all the “America is broke, debt-doomsday, we're borrowing from the Chinese” crowd tell us that one day foreigners will start dumping their holdings of Treasuries and interest rates in the US will spike to Greek-like levels.

Well, guess what?

Since August 24th of this year, foreigners have unloaded an unprecedented $100 BILLION of Treasury holdings and INTEREST RATES WENT DOWN!

August 24, foreign custodial holdings of US Treasury securities: $3.49 trillion.
Rate on the 10year Treasury: 2.30%

Nov 2, foreign custodial holdings of US Treasury securities: $3.39 trillion. Rate on the 10 year Treasury: 1.98%

Another myth exploded.

6 Comments – Post Your Own

#1) On November 04, 2011 at 2:07 PM, dbjella (< 20) wrote:

Do you think inflation is the replacement for what interest rates use to serve as signal of risk?

In the fiat world it seems the Gov't can spend any amount, but there has to be a cost to this spending. 

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#2) On November 04, 2011 at 2:29 PM, binve (< 20) wrote:

dbjella ,

The key to understanding iterest rates lies how they are affected by government spending. It also bears pointing out that monetary policy as a determining factor in economic behavior is largely worthless. Inflation is a very important signal to determining the effectiveness of fiscal policy (which has the biggest impact on interest rates), and understanding inflation and how it manifests is required. That was a big theme of this post: http://caps.fool.com/Blogs/why-deficit-spending-and/621467..

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#3) On November 04, 2011 at 3:01 PM, devoish (98.38) wrote:

binve,

In your last post about Greek Debt, you expressed concern for the Greeks if banks stopped lending to them.

In the event that banks do stop lending, what will the bankers do for a living? Pearl diving? wrenching? climate science?

Just trying to worry about their problems too.

Best wishes,

Steven

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#4) On November 04, 2011 at 3:18 PM, binve (< 20) wrote:

devoish,

In your last post about Greek Debt, you expressed concern for the Greeks if banks stopped lending to them.

Which post are you referring to? I honestly don't remember making that observation. And in any case, I don't agree with it.

Financial need to fail. They need to cease being such a large portion of global economic activity. Because it is largely unproductive. We do need a financial system, but we only need it to be a small fraction of the size that we currently have.

In the event that banks do stop lending, what will the bankers do for a living?

There are a number of long term productive economic projects that require workers (and would have long term envrionmental and social benefits too), and could succesfully employ ex-bankers and the currently unemployed. I discuss this in sections 5 and 6 of the post in comment #2..

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#5) On November 04, 2011 at 3:29 PM, buffalonate (94.98) wrote:

Interest rates haven't spiked here because the Fed just loans the Treasury as much money as it wants.  Greece and Italy can't do that because they don't control the Euro.  The value of the dollar will inevitably crash and another reserve currency will be established.  The BRICS countries are already working on establishing another world currency.  The last time I checked about 70% of the Treasury's bond auctions were bought by the Fed.  Where did the Fed get that money?  Printed it.

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#6) On November 05, 2011 at 12:02 AM, devoish (98.38) wrote:

Financial need to fail. They need to cease being such a large portion of global economic activity. Because it is largely unproductive. We do need a financial system, but we only need it to be a small fraction of the size that we currently have. - Binve

I absolutely agree. The investment banks should have gotten the same help every other American gets when their company fails. Unemplyment checks.

My apologies for thinking you said something you didn't.

Best wishes,

Steven

 

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