Financial Times/Tom Mitchell, Joe Rennison & Eric Platt/12-16-2016
“China’s foreign exchange holdings, much of which are invested in US Treasuries, have fallen about a quarter since early 2014 to just over $3tn. The decline has been driven partly by central bank selling of dollars to support the renminbi, which has fallen more than 15 per cent against the US currency over the same period.”
MK note: That drop in China’s Treasuries’ holdings is significant and translates to sales of almost $1 trillion in U.S. government paper. One has to wonder who is on the other end of these transactions. Some speculate that, if the current liquidation trend continues, a new round of quantitative easing (QE4) may be necessary to finance that portion of the deficit not picked up by foreign buyers. It seems we are locked into a self-perpetuating financial merry-go-round wherein foreign sales of U.S. Treasuries drive down their value which in turn pushes up rates, which in turn drives the dollar even higher, which in turn forces the sale of more U.S. Treasuries and the cycle repeats itself – a closed circuit with many layers and nuances that is likely to get considerable attention as we move into 2017. The Fed is not really raising rates so much as it is confirming the rate levels the marketplace has already imposed.
