January may not be an anamoly

[solarbird]

Picking up where I left off.

Brad Setser has a substantial analysis of treasury flows today. Foreign long-term Treasury bill demand is gone. Foreign demand for US corporate bonds is gone. And now short-term T-bill demand is falling off a cliff. January's negative flows data was mostly privately driven; governments, in net, kept buying short-term Treasury bills, but there's now a question about even China:

There are about $40-50 billion in unexplained outflows and however you look at it there it is hard to believe that we haven’t seen at least $20-30 billion of hot money outflows in January... If there are hot money outflows from China large enough to cause the central bank to lose reserves, the central bank will not only stop buying US Treasury bonds and/or other dollar assets, it will have to sell something, which is most likely to be US dollar bonds. It has no choice.

What everyone is wondering is whether the Fed has seen enough February data to decide that foreign short-term T-bill purchases are also gone, and are taking this step now because of that. Remember: they have all this data long before we do. Others are speculating that China wants to dump a bunch of its T-bill holdings and the Fed is going to deal primarily with China sellers. Both of these are speculation at this point only.

In other news, Glenn Greenwald has links outlining how the Obama administration has been attempting to pin the AIG bonus situation on Senator Chris Dodd, who was actually a primary opponent.

At least one person at AIG knew this was coming in February 2008, and to their credit, spoke up at the time. This February 2008 article in Reuters is interesting to read.

Idiots On Patrol.

ABX tracking indiates that AAA mortgage-backed securities are now trading at new lows, around 25¢ on the dollar. All other tranches have been setting new lows in the low single-digits, AA at 4¢, A and BB at around 3¢ on the dollar. CMBX spreads are not at new records in AAA, but are in the upper range of the November trading band, which indicates significant stress in commercial real estate.

Finally, clickie, if you want. It's a lulMurrow. But it's important to remember that Cramer and his uncritical spouting of propaganda lines handed him by CEOs (or politicians) is typical of American "news" media, not the exception.

Comments

[whip-lash.livejournal.com]

In other news, Glenn Greenwald has links outlining how the Obama administration has been attempting to pin the AIG bonus situation on Senator Chris Dodd, who was actually a primary opponent.

I haven't read the Greenwald piece yet, but Dodd has acknowledged (http://www.cnn.com/2009/POLITICS/03/18/aig.bonuses.congress/index.html) that he lied to CNN about not having anything to do with it. He wrote the bill. He's now claiming the administration pressured him. Forgive me if I'm unsympathetic.

[solarbird]

That's what Greenwald's piece says, and what the documentation said at the time.

He opposed it and fought it but eventually caved to administration demands.

The press has been covering it like it was his idea, and the Obama administration has been trying to pin it on him, even though he opposed them in trying to prevent it from happening.

Mr. Dodd has many things to which he should answer, but this is not necessarily one of them, and Mr. Obama's administration is at greater, not at lesser, fault.

[mojave-wolf.livejournal.com]

Corrente has been following this in detail also, ditto digby. In a morning get-ready rush or I'd send you the links. Wait! The digby one is still up.

In case you haven't seen it . . .

http://digbysblog.blogspot.com/2009/03/finding-scapegoat-by-dday-good-to-see.html

Yeah Dodd cved but as you said, blaming him is sort of like the arsonist blaming the people racing from the building for not putting the fire out.

(okay, overstatement, but you get the idea and I must run)

[llachglin.livejournal.com]

I don't really care who's more at fault. I just want the government to hold the financial industry accountable and do what's necessary to fix it.

The reality is that both parties are financed by donations from banks and insurance companies, and Senator Dodd and President Obama in particular among Democrats have been among the top recipients of donations from the financial industry for years. That fact is one of the reasons I was hesitant to support Obama early in the primaries and preferred Edwards at the time, who got much less bank money and more money from lawyers.

It's no surprise that they're going to do everything they can to avoid taking financial interests on directly. I do think that events will force them--are already forcing them--to move in the right direction. Public anger will do that. The best thing we can do is keep our anger focused where it belongs--not on the politicians who predictably pandered to the financial industry, but on the financial industry itself.

[solarbird]

I do care, but that's not really my main interest in this particular story; my interest is the media's complete lack of memory all the way back to two months ago, reporting on this exact same story, then blindly swinging around and barking like particularly stupid dogs at the person who opposed the deed, when told to by the person who actually did the deed. It's yet another measure of how benightedly stupid and useless American media have become.

[silussa.livejournal.com]

If I might....does this seem to indicate that the massive surge of American Treasury Bills to finance all the various anti-depression programs are now going to cause massive inflation due to the Fed printing money to buy them?

That's not the half of it

[(Anonymous)]

Correct me if I'm wrong but the 6 trillion or so the Fed shoved into the money supply just to get us to this point is already going to cause huge inflation. So we have two inflation shocks in the pipeline?

Btw, what was the justification for making the central reserve bank a for profit corporation again? (it's not part of the gov't, it just owns the right to control the currency, was my understanding?)

Re: That's not the half of it

[solarbird]

It's been about US$2T so far. This'll make it about $3.1T - not $7.3T.

You can print a currency and still not have hyperinflation, if the economic losses stack up correctly. The deflation-despite-printing scenario would be that the dollar falls very sharply against important foreign currencies, sending imported goods (e.g., oil) through the roof, but the economy tanks so hard that there's no wage or price support, so there are fewer dollars in actual circulation, so prices and wages are both stable to falling both in real and in dollar terms.

Re: That's not the half of it

[silussa.livejournal.com]

In other words, our best hope to not have hyperinflation is if the dollar falls like a rock, killing imports while hopefully not encouraging OPEC to either dump the dollar for setting prices or jacking the price sky high.

Gold stocks look good, don't you think?

Re: That's not the half of it

[solarbird]

If you don't have buying capability, price inflation simply becomes irrelevant. Okay, gas is $10/gallon. If you don't have buyers, you don't have buyers, demand craters. No demand means no pricing power in the hands of sellers. That's why it's so difficult to have price inflation in a monetarily deflationary environment.