U.S. Treasuries: The Big Dump Begins
by Jeff Nielson, Bullion Bulls Canada There are two, major elements to the news that there is currently a global sell-off of U.S. Treasuries underway. The first element is obviously the news, itself. It becomes much harder for the U.S. government, the Federal Reserve, and the Corporate media to pretend that U.S. Treasuries are an asset of unparalleled “safety” (and supposed high demand) when nobody wants them. The second, and equally significant aspect of this major development is the market “reaction” to this sell-off. What happens in any legitimate market, for any asset-class, when that asset is dumped onto the market? The price falls. But first, more specifics — direct from CNN. Countries around the world are selling their U.S. government debt holdings this year by the largest amounts seen since at least 2000. China has been selling U.S. debt but it’s not alone. Lots of emerging market nations like Brazil, India and Mexico are also selling U.S. Treasuries. Not that long ago all these countries were huge buyers of U.S. debt, which is viewed as one of the safest places to park money… Foreign governments have sold more bonds than they have bought for ten consecutive monthsthrough July 2015, the most recent month of available data from the Treasury Department. [emphasis mine] If the global community were net-sellers of U.S. debt for one or two months, that could be characterized as a “blip”. If it happened for a few months in a row, perhaps it could be dismissed as an “aberration”. But when something happens in a market for ten, consecutive months, this is universally considered to be a trend. What is the only, possible outcome in any market where there is at least a ten-month trend of dumping? What happens every time the bankers dump their “gold” and “silver” (i.e. paper-called-gold and paper-called-silver) onto the market? The price falls. Yet when we look at how U.S. Treasuries prices have tracked this year, we see the following: 1 month – virtually unchanged 3 month — virtually unchanged 6 month — increased 1 year — increased 2 year — increased 3 year — increased 5 year — increased 7 year — increased 10 year — increased 20 year — decreased 30 year — decreased In any legitimate market; the price would have had to fall, for all categories of this debt. In legitimate trading; no one ignores a trend for (at least) ten consecutive months. Yet in this fraud market; we see two bond prices unchanged, and seven have actually risen. Only the rates for the two longest terms, the 20-year and 30-year bonds, did what all these prices must do…if this was a legitimate market. However, as one would expect, the reporting by the mainstream media soft-peddles this sell-off of U.S. Treasuries, in numerous ways, and ignores the market fraud. It’s already been reported that China has continued dumping large quantities of Treasuries since July, meaning we already know that this “ten month” trend will grow even longer, as more official data comes out. Then we have the weasel-words used in CNN’s less-than-candid reporting: Countries around the world are selling their U.S. government debt holdings this year by the largest amounts since at least 2000. [emphasis mine] There are only a couple of ways we can translate the slippery line above, and neither of them reflect well on the mainstream media, or the U.S. Treasuries market. 1) This is the biggest, global Treasuries-dump going back even farther than 15 years, but CNN simply wouldn’t look at data any older than this. 2) Referring to this as the biggest Treasuries dump in “at least” 15 years means that this is the best, possible “interpretation” (i.e. twisting) of the data, and interpreting the data in a more-realistic manner would show that this is the biggest Treasuries-dump (perhaps) ever. However, there is a far more-fundamental manner in which the data presented by CNN fails (by far) to capture the magnitude of this global, Treasuries sell-off. Further along in the same article; CNN tells us that: Just in the first seven months of the year, foreign governments sold off $103 billion of U.S. debt… Given that China had already sold $107 billion, by itself, to this point in the year, obviously what CNN is trying to peddle here is a net figure. Subtract out all so-called “Treasuries buying” from the global sell-off, and what’s left is a net figure of -$103 billion, according to the mainstream media. However, it is when we look at some of the supposed “big buyers” of U.S. Treasuries in recent months/years that we see the fraud in this reporting (and the U.S. Treasuries market itself) exposed, to an absurd degree. This can be accomplished through looking at just two of these “big buyers”: Japan and Belgium. Japan has recently become the “largest holder” of U.S. Treasuries, by default, due to the fact that the previous “largest holder” (China) has dumped around $200 billion or so of these fraud-bonds this year. Let’s look more closely at this. The economy of Japan, as everyone knows, has been in a 30-year depression – the price that it has paid (so far) for its own “too big to fail” fraud/extortion, with its own Big Banks. If you were the government of Japan, in a 30-year depression, could you really find nothing better to do with your money than to loan that money to the world’s greatest Deadbeat Debtor? Don’t answer that question yet. Would you loan vast sums of money to a Deadbeat Debtor, during your 30-year depression, when the Deadbeat Debtor pays virtually no interest, at all, on those loans? Indeed, these fraud-bonds have supposedly begun trading at “negative” rates of interest: lenders paying for the privilege of loaning money to a Deadbeat Debtor. For those readers who find it improbable (impossible?) that a government in the midst of a 30-year depression would loan-out vast sums of capital, year after year, to a debtor who refuses to pay interest on those loans, we have a word for such transactions: money-laundering. Japan is not the “largest holder” of U.S. Treasuries. Rather it is simply the largest money-laundering toilet for Treasuries, which can now no longer be flogged by even any quasi-legitimate means. Then we have Belgium. The supposedly torrid “love affair” which has developed between Belgium’s government and the U.S.’s debts has been well-chronicled at Zero Hedge: Belgium is a nation whose total GDP was reported at $535 billion (USD) in 2014, but is projected to fall to $464 billion this year, an enormous, year-over-year contraction of more than 13%. Yet what we are supposed to believe is that during a recent four-month period, the government of this faltering economy spent $161 billion “buying U.S. Treasuries” (i.e. lending money to the U.S. government) at virtually no interest. That works out to nearly 100% of Belgium’s GDP over that four-month period (at the previous size of Belgium’s economy, in 2014), and more than 100% of GDP if we look at the catastrophic estimate for this year. There is no rational scenario we can construct where even the world’s healthiest economy would choose to lend 100% of its GDP (to a Deadbeat Debtor). Here readers need to understand that our GDP is not the nation’s “profits”, it’s simply a measurement of all economic activity. Thus, on a practical basis, no nation could ever muster that much capital, much less “loan it” to another government. There is no quasi-sane scenario we can construct where any nation would/could lend-out 100% of its GDP, at virtually no interest. And there aren’t even any (believable) fantasy scenarios we can construct where a desperately ill economy could lend-out 100% of its GDP, at no interest. The point here is not that Belgium has allowed its sovereign balance sheet to be turned into a money-laundering toilet for U.S. Treasuries. The point here is that this massive fraud has now become so ridiculously obvious, and ridiculously precarious that this is now the best that the U.S. government (and Federal Reserve) can do to try to hide their money-laundering of U.S. Treasuries. How long can the U.S. government pretend that some of the world’s sickest economies supposedly have nothing better to do with their total, national, economic output than to lend money to the U.S. government – at no interest? Of course it’s not entirely accurate to refer to this money-laundering fraud as “no-interest loans”. In the real world, inflation is running at somewhere around a double-digit rate. Food-inflation is spiraling higher at 20% per year, if not more. Real estate/housing costs are soaring at a similar rate. With the ever-growing populations of poor and Working Poor spending an ever-growing percentage of their available dollars on food; the “real” inflation-rate depends on to whom you are talking. Given even a 10% rate of inflation: at the highest yield of any Treasury, the 30-year bond at 2.87%, this represents an annual loss (in real dollars) of more than 7% per year, on what is loaned to the U.S. government. With the shorter-term Treasuries, which pay literally no interest; that annual loss is roughly 10% per year. Now let’s return to two of the money-laundering toilets previously used as examples. Japan, a nation in a 30-year depression, is supposedly subsidizing the U.S. government’s national debt, at a rate between 7% and 10% per year. Belgium, a nation where the economy is now collapsing, is supposedly engaging in similar subsidization of the U.S. economy. Would any nation (or any entity) loan any money at all to the U.S. government under these terms: a guaranteed loss of 7 – 10% per year? Of course not. It’s not even a credible lie. Michael Palin was far more convincing when he tried to persuade John Cleese that Cleese’s Dead Parrot was merely “resting”. Displaying Japan and Belgium as “big buyers” of U.S. Treasuries proves only one thing: the Parrot (i.e. the market for U.S. Treasuries) is dead – meaning it is a complete fraud. In any market sell-off, the metaphor of “the tide going out” is generally very appropriate. What happens when the tide goes out? What was previously hidden by the ocean can now be plainly seen. In markets which are now literally nothing but “oceans” of central bank (and Big Bank) funny-money; the tide is now going out on U.S. Treasuries. We’ve had a glimpse of what is already visible, even when this fraud-market was still at “high tide”. What else will become visible in the months ahead is anyone’s guess. What happens when it becomes visible to everyone that the only thing propping up the Treasuries market, for several years, has been the serial money-laundering (and counterfeiting) of the U.S. government and Federal Reserve?