By: Liuk on Martedì 17 Giugno 2003 21:42
HOW LONG WILL ASIAN CENTRAL BANKS HOLD UP THE USD$?
Source: Business Times, Federal Reserve]
WIESBADEN, May 16 -- HOW LONG WILL ASIAN CENTRAL BANKS
HOLD UP THE U.S. DOLLAR?
This is the question raised by the Singapore {Business Times}
in a special piece, commenting on a Federal Reserve report.
In its June 12 release, the Fed documented that
it now holds $936 billion of marketable securities
"in custody for foreign official and international accounts."
This term refers to U.S. securities
owned by foreign central banks
but stored at the Federal Reserve.
Most of these securities, $749 billion, are U.S. Treasuries.
But on top of this, foreign central
banks as well own $187 billion in agency debt, that is bonds of
the Federally chartered mortgage lenders Fannie Mae and Freddie
Mac. An estimated 80-90% of the $936 billion assets are owned by
Asian central banks, in particular the Bank of Japan and the Bank of China.
The {Business Times} notes: "A handful of foreign central
banks, mostly Asian, are amassing a huge stake in the U.S.
economy, not out of any belief that America is an attractive
investment but rather as a desperate attempt to shield their
countries' exports. Data out last week showed the Federal Reserve
now holds a record $936 billion for these, mostly Asian, central
banks equivalent to almost 10% of the entire annual output of the
U.S. economy. The bulk of this is held in Treasuries giving these
banks over 20% of the market for government debt."
The holdings
of U.S. assets by foreign central banks "have risen around $163
billion in just the last year, with the Bank of Japan buying a
record $34 billion in May alone." These foreign purchases of U.S.
Treasuries and agency debt have been "a major reason for the
spectacular fall in yields of recent months," as Bill Gross, head
of the giant Pimco fund, emphasized last week in a CNN interview.
The main reason for the Japanese and Chinese central banks
for buying U.S. assets was to keep down their own currencies,
notes {Business Times}. And there is no easy exit for the Asian
central banks, because by liquididating U.S. dollar assets they
would themselves suffer heavy losses.
Furthermore, "Pulling the plug on the U.S."
would aggravate economic problems in the U.S.,
thereby hurting Asian exports.
"But just blithely assuming they will never run for the exit
is a risky business in such a volatile world. Few foresaw the
Asian currency crisis, or the Russian debt default and the
ensuing LTCM debacle.
Just last week, tremors over U.S.
mortgage-giant Freddie Mac damaged agency debt and some foreign
central banks were seen selling in response--a worrying
development given they hold $189 billion of agency paper.
"And at some point the bull market in Treasuries of recent
years is bound to turn. Once it looks like the Federal Reserve is contemplating tightening,
analysts expect Treasury prices to fall big time.
"If so, the central banks risk hefty losses on their
holdings and may cut their positions to lesson the pain.
Since they hold so many Treasuries,
such a development could well trigger an upward spiral
in yields, driving mortgage and borrowing costs higher
across the U.S. economy and perhaps pressuring the dollar."
[source: Congressional Budget Office]
CONGRESSIONAL BUDGET OFFICE PROJECTS THAT THE {OFFICIAL}
U.S. FEDERAL BUDGET DEFICIT WILL EXCEED $400 BILLION.
On June 9,
CBO, in its own understated manner, set off the equivalent of a
explosion:
It reported that the CBO now projects that the Federal
government is likely to end fiscal year 2003 bearing an
{official} budget deficit of more than $400 billion.
The CBO stated that through the first eight months of fiscal
2003, the U.S. budget deficit had soared to $291 billion (The
U.S. fiscal goes from begins Oct. 1 through Sept. 30, so the
first eight months ended May 31, 2003.) During the first eight
months of fiscal 2002, the U.S. budget deficit had been $145 billion.
EIR has previously reported that the {official} budget
deficit that the Treasury reports, which is called the ``unified
budget,'' is a sham agglomeration, which illegally mixes the
actual budget--called the General Revenue Budget--with the
off-budget {surplus} of the Social Security Trust Fund. But the
Social Security Trust Fund is a special fund, with its own
dedicated tax revenue stream, and should not be mixed in.
If one
refuses to count the surplus of the Social Security Trust Fund,
the Federal government's actual General Revenue Budget deficit is
projected to reach $563.4 billion during fiscal 2003.
This budget deficit is driven by the collapse of tax
revenues, itself caused by the collapse of the U.S. physical
economy. However, the CBO has calculated that the Bush Von
Hayekian tax cuts, which are misnamed the Jobs and Growth Tax
Relief Reconciliation Act of 2003, will add $49 billion to the
fiscal year 2003 budget deficit.
The budget deficit is unsustainable;
yet the Bush Administration has responded,
by saying it will not cause any problem,
demonstrating further
how it has lost touch with reality.
