Ad astra per aspera
The Russian partner of Magna, the Canadian company that has bought German carmaker Opel, says without a transfer of technology to Russia the deal would be worthless. The head of Russian lender Sberbank said on Friday that Russian automakers Avtovaz and GAZ were interested in joining the new Opel venture for the technology. "The point of our participation in the deal is for the import of technology. If this doesn't happen, then we wasted our time," German Gref was quoted by news agency RIA Novosti as saying. He was speaking at an economic forum in the Black Sea resort of Sochi meant to garner greater foreign investment in Russia. The state-owned Sberbank has teamed up with Canadian auto parts maker Magna to purchase a joint majority 55-percent stake in Opel, while General Motors will retain 35 percent.
The head of Russian lender Sberbank said on Friday that Russian automakers Avtovaz and GAZ were interested in joining the new Opel venture for the technology.
"The point of our participation in the deal is for the import of technology. If this doesn't happen, then we wasted our time," German Gref was quoted by news agency RIA Novosti as saying.
He was speaking at an economic forum in the Black Sea resort of Sochi meant to garner greater foreign investment in Russia.
The state-owned Sberbank has teamed up with Canadian auto parts maker Magna to purchase a joint majority 55-percent stake in Opel, while General Motors will retain 35 percent.
Stock market trading by small investors has surged to levels last seen during the "dotcom" boom, with many thousands of people buying into the strong recovery in shares that on Friday sent the FTSE 100 to its highest this year.Some of the country's biggest brokers say a "tide" of individual investors - frustrated with the low interest rates on offer in cash savings accounts and wary of buying into property - have turned to equities in the hope of riding a six-month rally that has propelled the blue-chip index to levels almost 50 per cent above its March low.Despite fears of an autumn correction, stock markets this week marked the anniversary of Lehman Brothers' collapse by marching to fresh highs. The FTSE 100 finished with a 3.2 per cent gain for the week.Analysis of industry data for the Financial Times shows the number of deals placed through execution-only stockbrokers rose to more than 4m in the three months to June, a number surpassed only in spring 2000.
Stock market trading by small investors has surged to levels last seen during the "dotcom" boom, with many thousands of people buying into the strong recovery in shares that on Friday sent the FTSE 100 to its highest this year.
Some of the country's biggest brokers say a "tide" of individual investors - frustrated with the low interest rates on offer in cash savings accounts and wary of buying into property - have turned to equities in the hope of riding a six-month rally that has propelled the blue-chip index to levels almost 50 per cent above its March low.
Despite fears of an autumn correction, stock markets this week marked the anniversary of Lehman Brothers' collapse by marching to fresh highs. The FTSE 100 finished with a 3.2 per cent gain for the week.
Analysis of industry data for the Financial Times shows the number of deals placed through execution-only stockbrokers rose to more than 4m in the three months to June, a number surpassed only in spring 2000.
WHEEEEE! The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman
The current downturn may keep jobless rates in developed economies elevated for longer than was the case after previous recessions, in part because conditions got so bad so quickly, the Organization for Economic Cooperation and Development reported Wednesday.... The O.E.C.D. forecast that unemployment among its 30 member countries would rise to nearly 10 percent by the end of 2010, from 5.6 percent in 2007, and above its previous post-1970 peak of 7.5 percent in 1993....When compared with the overall resources available in the fiscal stimulus packages enacted by major economies, the increase in spending on labor market policies, like unemployment benefits and retraining, has been "rather modest in many countries." "This looks like a missed opportunity," said John P. Martin, director at the O.E.C.D. for employment. Although the stimulus measures have added to public debt, additional spending on reducing the jobless rate "can be justified on cost-effectiveness grounds," he said.
"This looks like a missed opportunity," said John P. Martin, director at the O.E.C.D. for employment. Although the stimulus measures have added to public debt, additional spending on reducing the jobless rate "can be justified on cost-effectiveness grounds," he said.
Just after returning to New York from Japan, Britain, and economically devastated Iceland, Stiglitz paints a picture of a U.S. economy that has stanched the most serious bleeding but remains deeply wounded. "I think we would be lucky to be out of the recession by 2012," Stiglitz says. "2010 may be a year of positive growth, though far weaker than would be necessary to get unemployment down significantly." Central to the grim diagnosis, Stiglitz says, is the lack of new jobs -- an argument echoed by the Organisation for Economic Cooperation and Development, which this week said high unemployment in the world's wealthiest countries could last years.
According to the BBC, the issue of the Tobin Tax, which as we reported previously, had garnered some vocal proponents recently, but was never expected to be anything than mere discussion points, has gotten a firm G-20 supporter in the face of French president Nicolas Sasrkozy. And while the opposition of the US is a certainty, the recent overtures by FSA Chairman Adair Turner in which he announced he would consider a Tobin tax implementation, means the US could be all alone in its disapproval of this form of taxation. Recently many talking heads have come out and discussed how much of an adverse impact a Tobin Tax would have on the US economy, yet the simple fact is that the majority of retail investors already pay substantial transaction fees to their brokers and would not notice a theoretical 0.1% transaction tax increase in fees. Furthermore, brokerages which are now enjoying record speculative mania, could easily lower their fees to compesnate for any new trade taxation. This leaves only big institutions, and specifically those that traffic in either HFT, churning, painting the tape, or all three, as adversely impacted by a tax. Yet it is these very same entities that are benefitting from a record steep yield curve: an ongoing boon compliments of the US taxpayer. In essence: when firms get a gift from the Federal Reserve, they will take it no questions asked, yet when there is even the slightest hint of a proposition introduced that could take away even some of these profits generated courtesy of taxing the general population, which is what QE is, everyone screams bloody murder. One (and by one, one, of course, means Goldman Sachs and other HFT titans) can only hope that the AFL-CIO and US democrats do not get much more involved in this issue. As we reported previously, the Tobin tax issue could quickly turn ugly as instead of a purely economic issue, it would start having political overtones. It is a well known feature of government that it will sniff out any segment of the economy that is abnormally profitable, and quickly seek to tax this excess profitability out of it - if you throw in the ethical considerations against HFT, and the purported strong opposition of the US against Tobin Tax could quickly dissolve.
Recently many talking heads have come out and discussed how much of an adverse impact a Tobin Tax would have on the US economy, yet the simple fact is that the majority of retail investors already pay substantial transaction fees to their brokers and would not notice a theoretical 0.1% transaction tax increase in fees. Furthermore, brokerages which are now enjoying record speculative mania, could easily lower their fees to compesnate for any new trade taxation. This leaves only big institutions, and specifically those that traffic in either HFT, churning, painting the tape, or all three, as adversely impacted by a tax. Yet it is these very same entities that are benefitting from a record steep yield curve: an ongoing boon compliments of the US taxpayer. In essence: when firms get a gift from the Federal Reserve, they will take it no questions asked, yet when there is even the slightest hint of a proposition introduced that could take away even some of these profits generated courtesy of taxing the general population, which is what QE is, everyone screams bloody murder.
One (and by one, one, of course, means Goldman Sachs and other HFT titans) can only hope that the AFL-CIO and US democrats do not get much more involved in this issue. As we reported previously, the Tobin tax issue could quickly turn ugly as instead of a purely economic issue, it would start having political overtones. It is a well known feature of government that it will sniff out any segment of the economy that is abnormally profitable, and quickly seek to tax this excess profitability out of it - if you throw in the ethical considerations against HFT, and the purported strong opposition of the US against Tobin Tax could quickly dissolve.
Willem Buiter: Forget Tobin tax: there is a better way to curb finance (September 1 2009)
What problem would a Tobin tax on financial transactions solve? Lord Turner asserts, in an interview with Prospect magazine, that the UK financial sector has grown too big; that some financial sector activity is worthless from a social perspective; that the sector is destabilising the British economy; and that new taxes may be required to curb excessive profits and pay in the sector. "If you want to stop excessive pay in a swollen financial sector you have to reduce the size of that sector or apply special taxes to its pre-remuneration profit," he says. Even if all these assertions are correct, they do not imply the need for a Tobin tax. ... The financial sector is too big throughout the overdeveloped world in part because much of it enjoys a free state guarantee against default on its unsecured debt. Retail deposits are explicitly insured, but at premiums that imply a taxpayer subsidy. Other counterparties of banks and other systemically important financial institutions also benefit from implicit default guarantees. The cost of capital to the banking sector is subsidised, causing the sector to be too large. The solution is clear, and it is not a tax on financial transactions: bring default risk back into the calculations of unsecured creditors and other counterparties of the financial sector. This would eliminate the capital subsidy to the industry. The obvious way to do this is through the creation of a "special resolution regime" as an alternative to bankruptcy for all systemically important financial institutions. This would permit their unsecured creditors and other counterparties to be forcibly and swiftly converted into shareholders, until the institutions are adequately capitalised. It must be possible to achieve such a mandatory recapitalisation by unsecured creditors and counterparties for any institution overnight, and without interrupting normal business. A regularly updated "will" for each systemically important financial institution would eliminate any remaining "too big, too interconnected, too complex and too international to fail" obstacles to the Darwinian discipline of the market, which has been sorely missed in the financial sector.
...
The financial sector is too big throughout the overdeveloped world in part because much of it enjoys a free state guarantee against default on its unsecured debt. Retail deposits are explicitly insured, but at premiums that imply a taxpayer subsidy. Other counterparties of banks and other systemically important financial institutions also benefit from implicit default guarantees. The cost of capital to the banking sector is subsidised, causing the sector to be too large.
The solution is clear, and it is not a tax on financial transactions: bring default risk back into the calculations of unsecured creditors and other counterparties of the financial sector. This would eliminate the capital subsidy to the industry. The obvious way to do this is through the creation of a "special resolution regime" as an alternative to bankruptcy for all systemically important financial institutions. This would permit their unsecured creditors and other counterparties to be forcibly and swiftly converted into shareholders, until the institutions are adequately capitalised. It must be possible to achieve such a mandatory recapitalisation by unsecured creditors and counterparties for any institution overnight, and without interrupting normal business. A regularly updated "will" for each systemically important financial institution would eliminate any remaining "too big, too interconnected, too complex and too international to fail" obstacles to the Darwinian discipline of the market, which has been sorely missed in the financial sector.
The obvious way to do this is through the creation of a "special resolution regime" as an alternative to bankruptcy for all systemically important financial institutions.
Impose a healthy Tobin Tax, say .5% of transaction amount for all transactions. That will cause everyone to consider whether and for how long each "investment" should be made. Then direct the proceeds to a public election finance fund!
OK; Big trader me has no objection to $50 on every $10,000 going in, and hopefully coming out.
But I think that you are going to have to start defining exactly what you mean. There are trillions in the currency exchange market weekly...much by government to government...is that exempt? what about bank to bank?
Commodities...I suppose I pay the tax on the entire contract, even if I am buying on margin? should I pay more if I don't have any intention of taking any delivery (Good idea on both, says I~!)
I see from NASDAQ Daily Summary that there was an daily average of 45 billion in trading just on that floor last week. That would put a daily 225 million into the public election coffers.
It will take a long time to find and figure all the stats for what you are talking about...but it appears that the definition needs to get refined.
Not that I am against it at all. Never underestimate their intelligence, always underestimate their knowledge.
Frank Delaney ~ Ireland
By my rough estimate from your numbers NASDAQ would generate ~$58 Billion a year on existing volume, but the point of the Tobin Tax is to calm things down and extend horizons beyond the minute, hour and day. My own disederata also include creating longer investment horizons and putting a stop to nonsense like HFT trading alogs, even if the SEC allegedly is banning them, and in general to pour salt on the Wall Street leaches that are attached to the economy.
A 0.5% Tobin Tax on financial transactions, probably excluding those between individuals and corporations and their bank checking and savings accounts, but including all other transactions between individuals and corporations and all other bank or financial service entities, including precious metals, Forex, stocks, bonds, mutual funds, hedge funds, etc., would likely cut the transaction frequency by a factor of at least three. HFT by prop desks and to create bogus "liquidity", etc. is thought to comprise >60% of the volume on a typical day currently. It should be madness to execute transactions that last less than a minute with that kind of tax. It would also reduce the amount of day trading.
Even if it divided volume by five, then NASDAQ would generate about $1.17 billion a year. With all US exchanges included the annual yield would likely be over $10 billion. Put the extra $8 billion or so/year into publicly funded news gathering. Between publicly financed elections and publicly financed news coverage we might be able to start making democracy of the people, by the people and for the people more than the joke it is today.
Accomplishing those two goals would drive a stake through the heart of the current system of vampire economics. So, accomplishing it would be comparably resisted. It would have to be done at high noon on the longest day of the year and under a cloudless desert sky. But such a reform would probably give our children and grandchildren at least another hundred years to piss away such liberties as they were born with, whereas the way things stand, they are truly screwed. Perhaps then they could effectively attempt to stave off the looming environmental catastrophy. That is something worth fighting for. As the Dutch said while fighting the Spanish: "It is not necessary to have hope in order to persevere."
On September 25, 2007, the President's Working Group on Financial Markets, better known as the Plunge Protection Team, announced the formation of two private sector committees, one comprising of Asset Managers and the other, of Investors. It is the first one that is more interesting, as the committee is chaired by one Eric Mindich, best known for his Goldman Sachs wunderkind status, who at 27, was the youngest Goldmanite ever to be promoted to partner. In 2004, Eric split off from Goldman, nonetheless maintaining a favorable relationship with the mothership through its "Fund of Funds" division (we jest), and its various Prime Brokerage client platforms, by starting Eton Park, which with its starting capital of $3 billion, is still likely a record of highest AUM at a fund's inception. So what was the justification for the creation of this specific committee. From its Mission Statement: PRESIDENT'S WORKING GROUP ON FINANCIAL MARKETS ASSET MANAGERS' COMMITTEE Mission Statement The Asset Managers' Committee is comprised of representatives from a broad array of asset managers. Its purpose is to facilitate an exchange of information between the alternative asset management community and the agencies comprising the President's Working Group on Financial Markets ("PWG"). It will be a standing committee, and its members serve at the behest of the committee's chairperson for three-year terms. Members may be reappointed for additional terms. It is expected that the committee will develop best practice guidelines, as described below, and also subsequently review and reassess, and if necessary revise, those guidelines. The first task of the committee is to develop detailed guidelines that would define "bestpractices" for the alternative asset management industry, including practices regarding information, valuation, and risk management systems. They would foster efforts to enhance market discipline, mitigate systemic risk, augment regulatory safeguards regarding investor protection, and complement regulatory efforts to enhance market integrity. These guidelines would review and build on existing industry work and the principles and guidelines released in February 2007 by the PWG, particularly Principle 9, where possible. The initial focus will be on practices for hedge fund managers. (Bold per Zero Hedge)
So what was the justification for the creation of this specific committee. From its Mission Statement:
PRESIDENT'S WORKING GROUP ON FINANCIAL MARKETS ASSET MANAGERS' COMMITTEE Mission Statement The Asset Managers' Committee is comprised of representatives from a broad array of asset managers. Its purpose is to facilitate an exchange of information between the alternative asset management community and the agencies comprising the President's Working Group on Financial Markets ("PWG"). It will be a standing committee, and its members serve at the behest of the committee's chairperson for three-year terms. Members may be reappointed for additional terms. It is expected that the committee will develop best practice guidelines, as described below, and also subsequently review and reassess, and if necessary revise, those guidelines. The first task of the committee is to develop detailed guidelines that would define "bestpractices" for the alternative asset management industry, including practices regarding information, valuation, and risk management systems. They would foster efforts to enhance market discipline, mitigate systemic risk, augment regulatory safeguards regarding investor protection, and complement regulatory efforts to enhance market integrity. These guidelines would review and build on existing industry work and the principles and guidelines released in February 2007 by the PWG, particularly Principle 9, where possible. The initial focus will be on practices for hedge fund managers. (Bold per Zero Hedge)
ASSET MANAGERS' COMMITTEE
Mission Statement
The Asset Managers' Committee is comprised of representatives from a broad array of asset managers. Its purpose is to facilitate an exchange of information between the alternative asset management community and the agencies comprising the President's Working Group on Financial Markets ("PWG"). It will be a standing committee, and its members serve at the behest of the committee's chairperson for three-year terms. Members may be reappointed for additional terms. It is expected that the committee will develop best practice guidelines, as described below, and also subsequently review and reassess, and if necessary revise, those guidelines.
The first task of the committee is to develop detailed guidelines that would define "bestpractices" for the alternative asset management industry, including practices regarding information, valuation, and risk management systems. They would foster efforts to enhance market discipline, mitigate systemic risk, augment regulatory safeguards regarding investor protection, and complement regulatory efforts to enhance market integrity. These guidelines would review and build on existing industry work and the principles and guidelines released in February 2007 by the PWG, particularly Principle 9, where possible. The initial focus will be on practices for hedge fund managers. (Bold per Zero Hedge)
Yet less than a year later, the economy and capital markets collapsed, forcing Hank Paulson to launch an unprecedented sequence of events to prevent the full meltdown of the Western World. Indeed, the same Hank Paulson who one year prior to Lehman's collapse had this to say regarding the Asset Managers' committee: (And here it gets interesting:) "These groups are drawn from among the industry's finest in their respective areas," said Treasury Secretary and PWG Chairman Henry M. Paulson, Jr. "The market will benefit if experienced participants develop and implement best practices." (My bold) It is safe to say that whatever the committee's true mission was, its stated one was an unmitigated failure. For reference purposes, the full committee consists of the following: * Eric Mindich, Chair, Eton Park Capital Management * Anne Casscells. AETOS Capital, LLC * James S. Chanos, Kynikos Associates LP * Anne Dinning, D. E. Shaw & Co., L.P. * Jonathon S. Jacobson, Highfields Capital Management * Marc Lasry,Avenue Capital Group * Edward A. Mulé, Silver Point Capital * Daniel S. Och, Och-Ziff Capital Management * Daniel H. Stern, Reservoir Capital Group * William Von Mueffling, Cantillon Capital * Michael Vranos, Ellington Management Group LLC Pardon our hypocrisy, but virtually all of these funds (with the likely exception of Kynikos) would have gotten destroyed had Bernanke, the Chairman of the PWG and the President, decided not to intervene. Furthermore, as is well know, the President's Working Group on Financial Markets has long been not only the front for the elusive Plunge Protection Team, but is an organization this is so wrapped in secrecy that not even minutes of its meetings are kept as John Crudele of the NY Post found out post his US Treasury FOIA submission. Yet the Asset Managers' Committee seems to be in that gray area where it is not totally consumed by the PWG, and thus it is possible that a record of its actions may actually not disappear into the void once any market critical decision is made.
"These groups are drawn from among the industry's finest in their respective areas," said Treasury Secretary and PWG Chairman Henry M. Paulson, Jr. "The market will benefit if experienced participants develop and implement best practices." (My bold)
It is safe to say that whatever the committee's true mission was, its stated one was an unmitigated failure. For reference purposes, the full committee consists of the following:
* Eric Mindich, Chair, Eton Park Capital Management * Anne Casscells. AETOS Capital, LLC * James S. Chanos, Kynikos Associates LP * Anne Dinning, D. E. Shaw & Co., L.P. * Jonathon S. Jacobson, Highfields Capital Management * Marc Lasry,Avenue Capital Group * Edward A. Mulé, Silver Point Capital * Daniel S. Och, Och-Ziff Capital Management * Daniel H. Stern, Reservoir Capital Group * William Von Mueffling, Cantillon Capital * Michael Vranos, Ellington Management Group LLC
Pardon our hypocrisy, but virtually all of these funds (with the likely exception of Kynikos) would have gotten destroyed had Bernanke, the Chairman of the PWG and the President, decided not to intervene. Furthermore, as is well know, the President's Working Group on Financial Markets has long been not only the front for the elusive Plunge Protection Team, but is an organization this is so wrapped in secrecy that not even minutes of its meetings are kept as John Crudele of the NY Post found out post his US Treasury FOIA submission. Yet the Asset Managers' Committee seems to be in that gray area where it is not totally consumed by the PWG, and thus it is possible that a record of its actions may actually not disappear into the void once any market critical decision is made.
The "Blueprint for a Modernized Financial Regulatory Structure" (1,2) recommends additional memberships to the PWG. See more recently a reported outline of Sen. Dodd's "superagency" proposal.
LOL. Diversity is the key to economic and political evolution.
"If you're doing tech investing you don't care too much what's going on in Washington with regulatory policy, but it absolutely matters with clean tech -- it's a big driver," said Marianne Wu, a partner at the Sand Hill Road firm Mohr Davidow Ventures. "I don't think anyone from our IT group has been to D.C. in the last year. But our clean-tech group certainly is going to D.C. often." Silicon Valley venture capitalists have always been about inventing the future -- taking a wild idea, nurturing it with cash and creativity and giving birth to new products, companies and industries we once couldn't imagine and now can't conceive of living without: the Web, Google, the iPhone, Twitter. But as green technology becomes the latest tech wave to break from the nation's entrepreneurial epicenter, it's now all about companies reinventing the past. Solar power companies, electric car start-ups and algae biofuel ventures aim to remake century-old trillion-dollar industries on a global scale. Venture capitalists poured $4 billion into green-tech start-ups in 2008 -- nearly 40% of all tech investments in the U.S., according to a survey by PricewaterhouseCoopers. Green-tech investment plunged in the first half of 2009 to $513 million as the recession dragged on, but there are signs of a rebound: Silicon Valley's Khosla Ventures announced this month that it had raised $1.1 billion -- the biggest first-time fund in a decade -- that would be largely devoted to investing in green-tech start-ups, many in Southern California. But green-tech companies face unique challenges, including global markets, tough technological hurdles and a future shaped by government incentives and regulatory policy. Those challenges are changing the game on Sand Hill Road.
Silicon Valley venture capitalists have always been about inventing the future -- taking a wild idea, nurturing it with cash and creativity and giving birth to new products, companies and industries we once couldn't imagine and now can't conceive of living without: the Web, Google, the iPhone, Twitter. But as green technology becomes the latest tech wave to break from the nation's entrepreneurial epicenter, it's now all about companies reinventing the past. Solar power companies, electric car start-ups and algae biofuel ventures aim to remake century-old trillion-dollar industries on a global scale.
Venture capitalists poured $4 billion into green-tech start-ups in 2008 -- nearly 40% of all tech investments in the U.S., according to a survey by PricewaterhouseCoopers. Green-tech investment plunged in the first half of 2009 to $513 million as the recession dragged on, but there are signs of a rebound: Silicon Valley's Khosla Ventures announced this month that it had raised $1.1 billion -- the biggest first-time fund in a decade -- that would be largely devoted to investing in green-tech start-ups, many in Southern California.
But green-tech companies face unique challenges, including global markets, tough technological hurdles and a future shaped by government incentives and regulatory policy. Those challenges are changing the game on Sand Hill Road.
So, the Fed has given a boost to stocks while keeping the bond market priced for deflation. That's quite a trick. One market is flashing "recovery" while the other is signaling "contraction". Bernanke has worked this miracle, by simply changing the definition of "indirect bidders" (which used to mean "foreign buyers" of US Treasuries) to mean just about anyone, anywhere. Here's an explanation of this latest bit of chicanery from the Wall Street Journal in June: "Is foreign Demand as Solid as it Looks?", Min Zeng. WSJ "The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems. "When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit. "But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners." Pretty clever, eh? So, if the Treasury doesn't want dupes like us to know when foreign demand drops off a cliff, they just twist the definitions to meet their needs. My guess is that the Fed is building excess bank reserves (nearly $1 trillion in the last year alone) with the tacit understanding that the banks will return the favor by purchasing Uncle Sam's sovereign debt. It's all very confusing and circular, in keeping with Bernanke's stated commitment to "transparency". What a laugh. The good news is that the trillions in government paper probably won't increase inflation until the economy begins to improve and the slack in capacity is reduced. Then we can expect to get walloped with hyperinflation. But that could be years off. For the foreseeable future, it's all about deflation.
"Is foreign Demand as Solid as it Looks?", Min Zeng. WSJ "The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems. "When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit. "But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners."
"The sudden increase in demand by foreign buyers for Treasurys, hailed as proof that the world's central banks are still willing to help absorb the avalanche of supply, mightn't be all that it seems.
"When the government sells bonds, traders typically look at a group of buyers called indirect bidders, which includes foreign central banks, to divine overseas demand for U.S. debt. That demand has been rising recently, giving comfort to investors that foreign buyers will continue to finance the U.S.'s budget deficit.
"But in a little-noticed switch on June 1, the Treasury changed the way it accounts for indirect bids, putting more buyers under that umbrella and boosting the portion of recent Treasury sales that the market perceived were being bought by foreigners."
Pretty clever, eh? So, if the Treasury doesn't want dupes like us to know when foreign demand drops off a cliff, they just twist the definitions to meet their needs. My guess is that the Fed is building excess bank reserves (nearly $1 trillion in the last year alone) with the tacit understanding that the banks will return the favor by purchasing Uncle Sam's sovereign debt. It's all very confusing and circular, in keeping with Bernanke's stated commitment to "transparency". What a laugh. The good news is that the trillions in government paper probably won't increase inflation until the economy begins to improve and the slack in capacity is reduced. Then we can expect to get walloped with hyperinflation. But that could be years off. For the foreseeable future, it's all about deflation.
