Who will be threatened next by Trump and when he will come with war with any country depends on all on who demand more on treasuries and who buys less. This insight throws light on the same and tries its best to articulate the portrait of Trump's threat actions list. Buying Loss and Buying Risk are two different subjects where the former is short term and the later one is long term impactful bullet. The COVID 19 impact has led to significant liquidity into the system to save jobs. Well buy losses in the form of a structured asset have been made and these products will be saving the economy from collapse. Many of us have been thinking that the US will come up with trade war and other restrictions well that may not happen in the near term as US neck of Treasury ie being held by someone else other china.
We all know the total volume of liquidity injected across every country which turns out to be $18 trillion. This flood of liquidity does not come free but it comes with long term cost. The liability of this liquidity injection would be borne by those people who are not yet born and who are just baby boomers or rather millennial. Once the pandemic comes under control austerity measure, digital taxation would be implemented to reduce the burden. The pile of debt will reflect and will throw light about the depth of obligations which will never be met. The US debt spiked by $1 trillion in 5 weeks to now over $26 trillion. And business debts spike to high heaven.
Cross border bondholders will be demanding more returns and more gains as the day progress post-covid-19. Small businesses have taken out over $550 billion in loans from the Payroll Protection Program (roughly two months of payroll) which means corporates did not bleed cash. Their cash holding remains intact which is positive for the long term economic growth provided they spend later. Bankruptcies and defaults have also been purchased by U.S treasuries. Today the U.S unemployed has more money in the pocket compared to his wage which he used to get. Well, that saves the people but not the economy since people will not consume and would rather save for the long term.
Many countries in Europe have similar schemes to replace incomes. Replacement of incomes has led to long-term liability. EU as a whole has been under many austerities and another type of expenditure control. This might follow soon.
The US floated treasuries and those are simply being brought by cross border countries and huge social benefits product structures. Now the question comes who brought them and what are the long term implications of the same.
US Treasury debt by foreign entities comes as the US government is borrowing vast amounts, at a rate of $1 trillion every four to six weeks.
All foreign investors combined “foreign official” holders such as central banks, and foreign private-sector investors – dumped $44 billion in US Treasury securities in April, which took their total holdings down to $6.77 trillion, according to the Treasury Department’s Treasury International Capital (TIC) data.
China is no longer the buyer. Japan has taken up the position long back. China has been selling more of the papers in April where it took down the number to 4.3% whereas Japan took it up to 5.1%.
The line of buyers will give a clear image where the US will not get into war with trade issues:
- UK (“City of London” financial centre): $368 billion ($300 billion)
- Ireland: $300 billion ($270 billion)
- Luxembourg: $265 billion ($224 billion)
- Brazil: $259 billion ($307 billion)
- Hong Kong: $243 billion ($207 billion)
- Switzerland: $241 billion ($227 billion)
- Belgium: $210 billion ($180 billion)
- Cayman Islands: $207 billion ($217 billion).
- Taiwan: $202 billion ($171 billion)
- India: $157 billion ($155 billion)
Hence these countries will be good books and more show off will go where restrictions and other threats will be flying like kites. Post-COVID and coming years those countries who will demand and will be compelled to buy more will be from the winner list of who is being threatened and who buys the same. Trump can scare any anyone.
The US has also large internal buyers institutional investors, bond funds, pension funds, insurers, highly leveraged hedge funds engaging in complex trades, private equity firms who buy these treasuries. The summary as follows:
- Foreign holders: -$44 billion
- Federal Reserve: +$526 billion
- US government funds: -$91 billion
- US commercial banks: -$51 billion
- Other US entities: +948 billion
Well, it’s not the end. More papers are coming as long as the pandemic rules the mother earth.
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