Candy From Strangers: Exactly Who Is Buying All That Treasury Paper?
Are they wearing the same f'ing tie?
A Treasury detective's read from Mark McHugh.
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Author’s note: Numbers in the original published version of this piece were derived from fed table F.209 not L.209 (in other words, the wrong table). I sincerely apologize to all for the error. And I hope the fact that I’m a dunce won’t distract you from issues I was trying to address. A more detailed description of the error can be found here.
When TrimTabs Charles Biderman questioned the source of the money that propelled stocks 65% from the March 2009 lows, he got beaten with the idiot stick so badly that he turned bullish in April 2010. Lost in the ensuing choke-out was the fact that no one ever actually answered his question, unless scoffing and muttering “dark pools and stuff,” under your breath counts (and he’s the one who should be wearing the tin-foil hat?). Here we go again.
The first thing you should notice when looking at The Treasury’s 2010 Q1 Bulletin is that it’s incomplete, as I’m sure most of Secretary Tim Geithner’s homework assignments were(1). Of the 12 columns on Table OFS-2 (Estimated Ownership of U.S. Treasury Securities), Turbo managed to fill in only 5 (FYI: it takes Treasury more than two months to prepare the bulletin).
From the data actually present, we can determine that Treasury issued 461.7 Billion in new debt Q1. That’s not surprising, we’ve been running at the $500 per person per month clip for almost two years now. What is surprising is that the Fed & Intragovernment holdings went down $17B. Foreigners, God bless ‘em, scooped up an additional $192.5 B, while US saving bond holdings were basically flat (-$1.1 B).
Um, we’re out of data now, but not debt. 287.4 Billion (62%) of Q1′s public debt is not accounted for on the report. Fortunately when discussing who could digest that much debt in three months, we can quickly eliminate 6 of the 7 “not available” data points (depository institutions, pension funds, mutual funds, insurance companies, and State & local governments). The only logical conclusion is at least a quarter trillion in debt was purchased by “Other Investors” in Q1.
Aren’t you glad we cleared that up?
What’s that? “Who the hell are Other Investors,” you say? Good question. It does seem rather nebulous, especially considering that they are now clearly our best customer(s). Not very bright though. They stepped in and bought like crazy as interest rates went to record lows. Still I think we should send a basket of fruit and a nice thank you note, because without them we would surely have had a failed auction (read Keynesian apocalypse).
The Treasury defines Other Investors as:
Individuals, Government-sponsored enterprises, brokers and dealers, bank personal trusts and estates, corporate and non-corporate businesses, and other investors.
Thanks Turbo, for narrowing it down to just about everyone under the sun.
Let’s go ask Ben!
Geithner’s a slacker, this is known, but Fed Chair Ben Bernanke’s SAT score (1590!) suggests analality (?) (mine was considerably lower). Besides, Treasury’s footnotes on tables OFS-2 tell us that the source for 6 of the 7 empty columns is the Federal Reserve Board of Governors, Flow of Funds Table L.209 (and which was actually released before the Treasury Bulletin – don’t get me started…).
The Fed’s flow of funds data is an exercise in convolution, but it wasn’t too difficult to extract the data missing from the Treasury bulletin. Here’s the breakdown:
- Depository Institutions +$67.2 B (up 32.5% in one quarter!)
- Private Pension Funds +$32.4 B
- State & Local Government Pension Funds +$7.1 B
- Insurance Companies +$2.1 B
- Mutual Funds -$13.1 B
- State & Local Governments -6.6 B
Depository institutions and Private pensions purchased record amounts of Treasuries in Q1. Which means that “Other Investors” accounted for $198 B of the Treasuries issued in Q1. Yes, I realize that this is somewhat lower than my original estimate, but in my defense that was a logical conclusion. Who knew banks and private pensions are expecting another stock market collapse? Nobody at CNBC anyway. They’re too busy laughing at Main Street for not seeing the awesomeness of the recovery.
Before putting away the Fed’s flow of funds, it is worth noting that brokers and dealers added $8.4 B in holdings and GSEs bought 38 B (both groups are included as other investors and no the GSE number is not a mistake!)(2). This brings us to the turd in the punchbowl. The Household sector, who the Fed says purchased a whopping $148 B. Now before you start thinking your neighbors are taking their unemployment checks and sneaking off to Treasury auctions, listen to what Sprott Asset Management’s Eric Sprott and David Franklin said of the household sector in their December 2009 report entitled, Is it all just a Ponzi Scheme?:
To quote directly from the Flow of Funds Guide, “For example, the amounts of Treasury securities held by all other sectors, obtained from asset data reported by the companies or institutions themselves, are subtracted from total Treasury securities outstanding, obtained from the Monthly Treasury Statement of Receipts and Outlays of the United States Government and the balance is assigned to the household sector.” (Emphasis ours) So to answer the question – who is the Household Sector? They are a PHANTOM. They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.
I guess that means your neighbor isn’t our superhero, and besides, if he was he’d have a cooler car. So who are these strangers with candy hell-bent on making sure this sugar high doesn’t end? I don’t know. There I said it. Maybe Charles Biderman gets rattled when everyone calls him a moron, but I’m used to it. So fire away, but answer the question.
By the end of 2010, Other Investors will own more than 10% of the US public debt (1.5 Trillion or so). They bought more than 40% of the new debt in Q1. At what point does this kind of opacity become unacceptable? Why can’t the Treasury fill out its own bulletin with information already available? Why do we have to wait five months for information that is so vague, you can’t even call it information with a straight face?
And last but not least, where do we send the fruit basket?
- Treasury’s bulletins have always omitted the most recent data – the omissions are not unique to Geithner. The omissions are inexcusable, especially now, but not new. I didn’t explain that because I didn’t think it was particularly relevant and it ruined a perfectly good joke.
- This sentence was replaced. Data on the GSEs was omitted from the original post, and the broker and dealers number was changed from -19B to +8.4B.
Other Reading:
Is it all just a Ponzi Scheme? (Sprott & Franklin)
Smoking Guns of US Treasury Monetization (Jim Willie)
Treasury table OFS-2 (updated by author).
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Check out Mark's blog:
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DailyBail
Author has issued corrected numbers.
Reader Comments (48)
http://www.gold-eagle.com/editorials_08/willie072210.html
During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the resulting funds from the bond sales go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, seizing the funds in foreign locations for syndicate usage. The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance.
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So any ideas on why the excess borrowing?
I need to do some research into this...
I'd rather not speculate on who's buying the debt, because I know I don't know (and that's the problem). If the auctions are a sham, then so are interest rates, home prices and just about everything else. I'm not willing to make that claim, because there are so many people out there smarter than me. I'll let them reach that conclusion.
If I may, I'd like to add two points not in the original post:
1) GSEs, who are included as "other investors" bought $38 B in Treasuries Q1. Um, yes that strikes me as odd.
2) Treasury's bulletins have always omitted the most recent data - the omissions are not unique to Geithner. The omissions are inexcusable, especially now, but not new. I didn't explain that because I didn't think it was paticularly relevant and it ruined a perfectly good joke.
Geithner's been a disappointment, to put it mildly, but for whatever it's worth, I think I am the only person on the planet who ever defended Geithner for his tax problems:
http://acrossthestreetnet.wordpress.com/2009/11/23/my-apology-to-tim-geithner/
http://www.businessinsider.com/candy-from-strangers-who-exactly-is-buying-all-that-treasury-paper-2010-8
I sent it to him earlier this morning...
Thanks again. Fame's cool, but answers would be better (I know you'd agree).
Jim Rogers, Nassim Taleb, Gerald Celente, Peter Schiff, and Ron Paul are all definitely smarter than ME, and they all agree that the auctions are a sham, so are interest rates, home prices and just about everything else.
And is it standard practice to leave columns blank like that (on the Treasury tables)? Or is that some kind of Depression-averting "innovation"?
http://letthemfail.us/archives/3204
"And is it standard practice to leave columns blank like that (on the Treasury tables)? Or is that some kind of Depression-averting "innovation"?"
It is standard, for reasons I can't fathom. I tried to address that earlier in the comments.
"are "Primary Dealers" included under "brokers and dealers"? I would have assumed that the PD's were the primary link in the ponzi scheme, but if i follow you right, the Fed says Nyet(?)"
Very good question. I'm not sure. The way I see it the could fall into three categories: 1)Federal Reserve (they are members, right?) 2) Depository Institutions (they do that too!) or 3) Brokers & Dealers. The could be treated like razzles I guess.
I wanted to dig into that, but I thought the article would become too sprawling...and I'd never be able to finish it, so I had to put some blinders on.
But yeah, I very much think we should know how much Citi, BAC, Goldman and the rest hold in Treasuries and how they are classified by Treasury, etc. etc.
It's like eating an elephant...one bite at a time. For now, I just wanted people to know that none of us know who were selling our kids futures to.
the weird thing would be if the PD's (however they're categorized) were NOT the ones holding the Treasury bag.
btw, i see why the sec wouldn't want you hanging around, poking sticks and whatnot.
That's too funny!
Are they wearing the same f'ing tie?
That little gem wasn't lost on me.
why don't you ask Treasury if they can answer your question? I'm sure they want to be as transparent and open as possible re US Treasury holdings -- you know, to ensure confidence and all. (Just skip the part where you ask them "CAN YOU FUCKING SEE THIS????")
So, the holdings of Other Investors increased $100 billion each of 3Q and 4Q 2009, in 1Q 2010 it went up $200 billion.
Are you advocating individuals be required to fill out quarterly reports on these holdings?
"So, the holdings of Other Investors increased $100 billion each of 3Q and 4Q 2009, in 1Q 2010 it went up $200 billion.
Are you advocating individuals be required to fill out quarterly reports on these holdings?"
No Erich. I don't believe the entities making these purchases aren't "individuals" at all. It's too much money we're talking about here. That would be 1000 of the uber-rich taking down 200 million a piece in one quarter, or 10,000 with 20 million (in one quarter!). And you'd have to be rich AND dumb to buy in with record low yields.
There aren't that many rich dumb people. No way, no how. And if anyone tries to say there are - yeah, I want to see the list (because I don't believe it). All mutual funds combined (and that's a big heap 'o cash) hold less than 650B and reached saturation Q4 2008. Keep in mind, savings bond holdings keep drifting lower these last two years. That I believe.
So that individuals bought anything approachin $215B Q1 just doesn't hold water.
I don't know anyone who has ever been part of a treasury auction. Technically, we're allowed, but I don't think the sytems
or
Teacher Bailout...another $26 Billion
Fannie & Freddie...Obama and Dems planning to blow another ??? up to $800 Billion to bail out underwater F & F loans
Michelle and Kids in Spain...my guess...$5 million at least not to mention Spain's bill
I think the Dems have reached the cliff and they are going to try to seize power thru spending us over their cliff. We/They have been talking about this for a while. Obama and the Dems will spend spend spend as much as they can to buy votes. I think their plan could even include Marshall Law to maintain power. There have been many predictions that the stock market will crash (20 to 60%) by the end of the year. That is my bet.
"An Obama executive order that creates a council of state governors who will work with the feds to expand military involvement in domestic security has stoked fears that the administration is stepping up preparations for martial law."
http://www.prisonplanet.com/obama-executive-order-stokes-martial-law-fears.html
We have only just begun to collapse like a house of cards, the bottom is going to be ugly and dangerous.
I have always believed that Obama has plans for the returning troops from Iraq. They won't be able to find jobs. Obama will begin to create his domestic civilian army. My guess is that Obama's first priority will be a gun grab and bullying the states that have been fighting his perceived authority.
Add Obama's bill to visit his radical friends in Chicago on his birthday.
Hmmmm, they just don't get it.
http://www.nydailynews.com/opinions/2010/08/04/2010-08-04_material_girl_michelle_obama_is_a_modernday_marie_antoinette_on_a_glitzy_spanish.html
Sacrifice is something that many Americans are becoming all too familiar with during this economic downturn. It was a key theme in President Obama's inaugural address to the nation, and he's referenced it numerous times when lecturing the country on how to get back on its feet.
But while most of the country is pinching pennies and downsizing summer sojourns - or forgoing them altogether - the Obamas don't seem to be heeding their own advice. While many of us are struggling, the First Lady is spending the next few days in a five-star hotel on the chic Costa del Sol in southern Spain with 40 of her "closest friends." According
Boston Globe | The number of Americans who are receiving food stamps rose to a record 40.8 million in May.
http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/7857595/RBS-tells-clients-to-prepare-for-monster-money-printing-by-the-Federal-Reserve.html
http://www.huffingtonpost.com/2010/08/05/dong-feng-21d-chinese-mis_n_672166.html
Dong Feng 21D, Chinese Missile, Could Shift Pacific Power Balance
Ah, poor America. Seems that that habit of running around the globe, invading the WRONG countries in search of imaginary threats might NOT have been such a useful waste of time & resources after all. Particularly considering the fact that its REAL enemies have taken advantage of the decade-long lull in America's attention in order to invent a NEW conventional missile capable of penetrating the defenses of a carrier fleet and destroying the carrier/s itself.
Needless to say; *I'm* hoping THEY'LL USE THEM.
I think it's quite clear that China is 'feeling its oats' and starting to flex its (considerable) muscle in order to signal the international community that there's a NEW PLAYER in town. Not that the world hadn't noticed ALREADY. Slowly but surely they're stepping into the void left by an increasingly weaker U.S..
Quite frankly, I wish them well. While the U.S. had the Soviet Union as an equally powerful foe to balance-out its actions, it at least maintained an APPEARANCE of serving "good" and "justice". But when the Soviet Union finally collapsed, the U.S. did what ANY business monopoly would do: ABUSE THE CUSTOMER.
NOW we have a new shop on the block and I think I'll take my shopping THERE instead. And now if you'll excuse me, it's time for my Mandarin lesson.
http://www.irregulartimes.com/secedenow.html
*I've* already taken the first step; I PERSONALLY seceeded from the United States of America. That means I no longer recognize its rule and authority. Fortunately for me however, they don't know it yet. THAT kinda really helps my plan. UNLESS of course any of those 3 census-takers I chased off my property goes and tells on me.
In the meantime, I've invaded the state of California and plan to occupy it indefinitely until my demands are met.
Sorry I forgot to answer your question earlier, but yeah, I'll do that. I'll post the contents when I do (in case something "unfortunate" happens to me). Sometime next week.
DB,
Does the deletion of my last post mean you don't want me to use "LOL AMEN" as my new official signoff anymore?
LOL
AMEN
as you can imagine, i was deleting posts to keep this thread more on topic...i didn't want ken's repeated stuff to clog this board...he had already posted all the links elsewhere...i want this thread open for discussion...and i would like to know if anyone has figured out anything with regard to the excessive treasury borrowing...i tried some google searches and didn't come up with anything...when i get some time i plan to delve further...
mark...why don't you call geithner...his phone number is listed in the contact washington tab at the top...try to get someone from treasury to comment on why they are borrowing so much more than the actual deficits...i
I've called government offices before, you never get answers. At best you get to leave a voicemail (which has proved as useful as shouting your concerns down a well).
I think I prefer email and public disclosure. When I posted that Arlen Specter hadn't responded to an email about Bernanke after (I think) three weeks, I got a response within the hour.
I'll include your question, and any others the group may have (but I reserve the right to refuse questions - sure we'd all like to know if he lets his kids cut his hair, but I'm not asking....)
Thats way 2 cool. I need to revsit him. It kinda takes the stress off ya when yr in "Over-Load" ? Him, and that other guy DB had on this site that had the "Come-a-Part" in front of his web-cam. DB needs to get these two guy togeather in the "Bust-em-Up Shed".........
There have been many predictions that the stock market will crash (20 to 60%) by the end of the year. That is my bet.
Linsey Williams said on AJ show that by April 2011 the Feds will dump the dollar by 40-60%. It will start this fall, Ah, in Oct. after the big Boom.....?
DB, I think there is something going on "Deeper & Darker" than we have found out about here. Its like the GS plan is now in full swing, and going down. Things are falling apart in all corners. If you read that post I did, its all of his puzzle pieces comming togeather.
Stepping back and looking into the over filled shoe box of mice-&-rats, the Perfict Storm is just around the corner.
Hey, anyone want to buy a Ozark Mtn. Duck, in good shape.........? Cheep !
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what do you mean by "excessive" borrowing? you mean like "extra"? (because it's all "excessive" as far as i'm concerned ;-) ).
also, is that the figure you posted on Clusterstock, something about such and such deficit, but such and such borrowing...?
i wonder if the figure you were quoting was a total of how much has been borrowed and/or rolled over (i.e., if you have bills of duration <1year, then you're going to sell 1.x times total deficit spending for a given fiscal year).
Even still, to mark's question, who are the "other investors"? I think you mentioned this, mark, but the "other investors" took down even more Q1 2009, no?
(right now i'm going to read the update you posted)
http://www.gold-eagle.com/editorials_08/willie072210.html
During the past 45 months, the USGovt has accumulated an incremental $4.7 trillion in new debt, but the federal budget deficit has grown by $3.2 trillion, much less but still a mammoth amount. Nobody asked why so, and nobody asks where the resulting funds from the bond sales go. One is left to speculate that a vast bold new syndicate technique is simply selling bonds beyond newly formed debt, seizing the funds in foreign locations for syndicate usage. The June USGovt official budget deficit was logged at $68.4 billion. During the same month, the USGovt borrowed a staggering total of $210.9 billion. These are not refinances of USTreasury debt in rollover. On a consistent basis, the USGovt has borrowed much more in each deficit month than was required to close the deficit and finance the debt accrued. The differential of excess debt issuance for the first six months of 2010 comes to a hefty $290 billion, a pattern in continuance.
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So, any ideas...
You're right, "Other Investors" took down an even bigger chunk Q1 2009 (good catch - I actually didn't mention that). Let me be perfectly honest, I don't have a theory about what's going on here other than to say I find it very hard to believe anything resembling real supply and demand is at work here. If those purchases are real, whoever bought them probably wants something in return (and I'm not talking about 2.8% on a ten year). Influence, technology, weapons - something. If this is some kind of shelll game to keep rates low and TBTF banks solvent by gifting them future tax receipts - well, I wanna know that too.
Bottom line - I don't know what this is, but it's probably not good.
Digging into the Fed's data is like diving into a room of tangled slinkies - no one (including me) wants to do it and very few people are trying (major universities, I'm looking in your direction....). Hell, I think even the treasury is afraid of the data!
The discrepancies DB is talking about is a whole nother can of worms....
http://inflation.us/videos.html
it may have something to do with Treasury's desire to borrow when rates are so low.
does anyone even know where to look into this, or where JW might be getting his figures from?
http://www.treasurydirect.gov/NP/BPDLogin?application=np
That will match the treasury data in the chart posted in the article ($461.7B)
Deficit info:
http://www.fms.treas.gov/mts/index.html
($329B for Q1)
And to confuse you even more...the Fed data:
http://www.federalreserve.gov/releases/z1/Current/z1.pdf
the flow table (F.209) will give you $361B (annualized data - divide by 4, or at least I think it's that simple) and it says "net issues"
the level table (L.209) will give you $477B (simple subtraction)
To review, that's three different numbers for treasuries plus the deficit number:
$329 (deficit)
$461 (treasury bulletin)
$361 (fed flow of funds)
$477 (fed levels)
I used flow (determined by the eenie-meenie method) for the article, but had I used levels the "household sector" number would have been $147B vs the $68B number I used.
You're gonna wish you took the blue pilll.....GOOD LUCK!
Can I have the blue pill, please?
LOL
AMEN!
All of these force wages and benefits down, not just immigration.
I didn't spend a lot of time on this, but I think the differences in the deficit vs the debt is the rollover effect, despite JW's claim that it's not. Consider you run a 100B 10 years in a row(1 trillion) and 20% of the outstanding principle is due every year, so you roll it....Your debt picture looks like this:
Year 1 - 100B
Year 2 - 220B (20B of year one has to be rolled again)
Year 3 - 364B (20B from y1; 24B from y2)
Year 4 - 537B (and so on.......)
Year 5 - 744B
Year 6 - 993B
Year 7 - 1272B
Year 8 - 1582B
Year 9 - 1926B
Year 10- 2303B
So by year 10, you have to issue 378B in new debt to finance your deficit (which is only 100B) AND roll the maturing debt (278B).
Keep in mind this example excludes the effect of interest; this is just rolling principle....
Yeah, this isn't gonna end well
Also, what about Social Security? Didn't payouts exceed revenues this year, or am I mistaken?
BTW, did you write to the Dept of the Treasury about this? Maybe you should just ask them, while you're at it, if borrowing from the Fed and "buying" Treasuries is just a back-door bailout (or would they rather lie about it being a back-door bailout)?
They need a pitchfork up their ass either way, but that goes without saying.
I think SS payouts will exceed revenue this year and I have not written treasury yet. I've got some crow on my plate first.
The numbers suggest that a "backdoor bailout" is a definite possibility, I'm not convinced that that's the whole story.
Less than two years ago it was discovered that the World’s largest hedge fund was a complete and total fraud (in fact, it wasn’t even registered as a hedge fund). Bernie Madoff turned himself in; he was never caught. For almost fifty years, he was treated like a magic unicorn on Wall Street. Sure, there were tons of articles about how obvious the fraud was after Bernie turned himself in and to all those “journalists,” I say thanks for nothing! You suck!
http://acrossthestreetnet.wordpress.com/2010/08/10/about-that-hole-in-my-foot/