It is hilarious listening to the propagandists try to “spin” the events in bond and currency markets to make it sound like the U.S. government is still operating from a position of strength.
While there are many Western, corporate-media outlets spouting such drivel, I'll use the Financial Times as my example.“China stuck in dollar trap”, crows FT on May 24th. Then, later “...[Beijing] has little choice but to keep pouring the bulk of its growing reserves into the U.S. Treasury”.
What somehow escaped this “analysis” by FT is that China won't touch any U.S. dollar asset except Treasury bonds. The monthly flows of capital into (or out of) the U.S., which is known as the Treasury Department's “TIC” report, tell a clear story.
So far, in the three months of data which have been reported for this year (Jan., Feb., March), the net result was an outflow of capital from the U.S. totaling $211.4 billion.
Does this number suggest China is “trapped” into buying U.S. debt?
The March number is slightly more instructive. This marks the beginning of the newest propaganda-offensive from the U.S. corporate media in asserting (yet again) that the U.S. economy was starting to “recover”. This was epitomized by U.S. court-jester Ben Bernanke prancing around, braying about “green shoots”.
In March, the TIC inflow into the U.S. was a paltry $23.2 billion. However, net purchases of U.S. Treasuries totaled $47.9 billion – meaning the net results for all other categories of U.S. debt was yet another outflow of $24.7 billion.
About the only useful piece of information in the Financial Times' propaganda was to note that China was only purchasing short-term Treasuries. This is highly significant for two reasons.
First, the shorter-term Treasuries are the most-liquid form of U.S. debt. It's no surprise that China is choosing only these types of Treasuries, since it is currently on a commodities buying-spree – which it is financing with U.S. Treasuries. In other words, while China may be a net buyer of U.S. Treasuries in relation to its transactions with the U.S., on a global basis, China is spending its U.S. dollar holdings at least as fast as it is accumulating them. Does this look like China is “trapped”?
The second important point about China's focus on short-term Treasuries is that this does very little to help the U.S. fund its gigantic, out-of-control deficits. The focus by China (and most other foreign buyers) on short-term Treasuries means that not only is the U.S. being forced to dump the largest glut of new Treasuries in history on this already-saturated market, but it is also being forced to try to “roll-over” additional, huge amounts each month as the short-term Treasuries mature.
Does this support the ludicrous assertion by FT (and others) that China “is helping Washington fund its growing budget deficit”?
How exactly will the U.S. “fund” a deficit certain to exceed $2 TRILLION (just in the current fiscal-year) with an outflow of more than $200 billion so far this year?
The ultimate rebuttal to the nonsense of the propagandists is to simply note what is happening in markets. Since the U.S. bond-bubble hit its peak late last year, U.S. Treasuries have already plunged a sickening 30% (see “U.S. Bond Bubble Bursts – bye-bye Equities Rally”).
Meanwhile, the U.S. dollar just hit its lowest level of the year. A look at this horrific chart suggests that the plunge of the dollar is much closer to the beginning than the end.
It is not China which is “trapped”. It is the U.S. government. Trapped by years of lies and statistical “padding” of its declining economy. Trapped by years of grossly over-spending. Trapped by the self-destructive machinations of the U.S. financial crime syndicate, which runs the U.S. government in all but name.
When China runs out of things to buy with its U.S. Treasuries, it will stop accumulating them – period! Instead, it will channel its huge budget surpluses into infrastructure development and other internal uses: for a huge economy which is still in the infancy of its development.
This is the story which the Financial Times should have written.