Loading ...U.S. Fiscal Position
A simple but devastating overarching explanation for recent tightening in U.S. short-term liquidity focuses less on the consensus angle of “insufficient bank reserves,” and more on the interesting twist of an “excess of collaterals.” While these phrases might at first sound like mirror images, it is their direction and slope which truly matter. Indeed, a growing number of prominent investors are postulating that an inflection point may have been reached in mid-September at which the Treasury is simply issuing more paper than can be financed by existing liquidity channels!
Figure 5a: U.S. National Debt (2012-11/1/19) Figure 5b: Net Foreign Purchases of U.S. Treasuries
[United States Treasury] (Trailing 12 Months) (1993-8/31/19) [Meridian Macro]
As shown in Figure 5a, above left, the U.S. national debt first surpassed $23 trillion on 10/31/19, having surged a mind-boggling $982 billion in the three months since Congress lifted the most recent debt ceiling on 8/1/19. During the past 12 months, U.S. national debt has now jumped $1.3 trillion, necessitating $1.2 trillion in Treasury issuance. Unfortunately, as shown in Figure 5b, above right, trailing 12-month net foreign purchases of Treasuries (through 8/31/19) have once again collapsed into negative territory.
Ironically, the debate about whether recent Fed asset purchases constitute QE could soon be supplanted by a more eye-opening discussion as to whether they constitute outright monetization of runaway federal deficits