US treasury facing a crisis

Who will buy?: John Kemp
Thu Oct 30, 2008 7:53pm IST

By John Kemp

LONDON (Reuters) - The Treasury's need to shift a record volume of debt securities in the next twelve months recalls the rose seller in the musical adaptation of Charles Dickens' Oliver Twist. She asks "Who will buy my sweet red roses, two blooms for a penny?."

Finding no takers, she ends the disconsolately wondering "Must be someone .. who will buy?."

Anthony Ryan, the acting undersecretary for domestic finance at the U.S. Treasury, must be wondering much the same thing, as he wonders how to sell all the debt securities needed to fund the Troubled Asset Relief Program (TARP), the Federal Reserve's various emergency lending facilities, and the federal government's increasingly wide budget deficit for 2009.

The Treasury has borrowed $877 billion since the end of Aug - including $500 billion from the public - to boost the Federal Reserve's balance sheet and start funding the TARP.

But almost all of this borrowing has been done in the form of very short-term cash management bills - with $320 billion issued in September and another $520 billion issued in October. Little or none of it has been replaced yet with longer-dated bills, notes and bonds in the regular series.

ALMOST HALF DEBT TO MATURE WITHIN A YEAR

The result is a huge shift in the Treasury's debt profile, and a massive overhang of very short-term paper that must eventually be transformed into longer-dated paper, and in the meantime must be constantly rolled every few weeks.

The attached charts show the maturity profile of marketable Treasury securities issued to the public. The first shows the full maturity profile ( https://customers.reuters.com/d/grap...EBTEXT1008.gif ) while the second provides a more detailed look at just those securities maturing with the next five years ( https://customers.reuters.com/d/grap...USDEBT1008.gif ).

The massive issuance of short-term cash management bills in recent weeks to fund recent financial rescues is dramatically remaking the government's debt profile.

The debt profile at the end of July, before the latest crisis, showed just over a third of the outstanding debt due to mature in less than twelve months (37%), with similar amounts due to expire in 1-5 years (33%) and in over five years (30%).

But following heavy borrowing, the proportion of debt scheduled to expire within one year had risen to 41% at the end of September and looks set to rise to almost 50% by the end of October.

To put this in perspective, the amount of debt that the Treasury will need to refund within one year has jumped from $1.8 trillion at the end of July to $2.1 trillion at the end of September and is likely to reach almost $2.4 trillion by the end of this month.

Actual borrowing needs will be even higher than this because the Treasury has still not finished funding TARP (which could result in another $500 billion of debt issuance).

Nor has it even started funding the projected budget deficit for 2009 (which will amount to at least another $500 billion even before Congress considers additional tax breaks, support for homeowners and fiscal stimulus).

In total, the government will have to borrow more than $3 trillion in the markets in the next twelve months to replace maturing debt and fund new programs.

LIMITED APPETITE LONGER PAPER

Undersecretary Ryan admitted yesterday "this year's financing needs will be unprecedented." But he expressed confidence investors would value the liquidity and safety of government securities and be ready buyers for the flood of paper that will be offered them.

Ryan indicated the government was thinking about reinstating three-year notes to provide more intermediate funding options. But he also admitted the government might seek to lengthen the maturity of the cash management bills, a sign that officials and primary dealers are uncertain about the appetite for placing such a huge volume of debt securities and might have to rely on shorter duration funding for some time.

Placing all this debt will prove tricky. Buying medium or long-term Treasury securities in the current market could prove a very bad investment indeed.

Yields on Treasury securities are being artificially compressed by the flood of money seeking to avoid credit risk in the banking system and a safe home in the government debt market. But when the liquidity and credit premium eventually diminishes, as it must if the economy is to return to health, there is a risk yields will rise substantially, inflicting losses on anyone who bought them at more depressed levels.

Yields at 2.70% for five years and 3.80% for ten years do not look particularly attractive.

China's central bank dismisses buying American debt
(China Daily)
Updated: 2008-10-07 06:56

The central bank has denied media reports that China will buy up to $200 billion worth of US treasuries to help Washington combat the deepening financial crisis.

Bai Li, spokesman for the People's Bank of China, said that "it is the first time I have ever heard about such rumors".

According to Hong Kong media reports, China will initially spend $70-80 billion to buy US treasury bonds.

Bai said the official stance has been published on the central bank's website, which did not mention any such purchase.

The statement merely said China welcomes Washington's $700 billion bailout plan; and will cooperate with the international community to ensure financial security.

In another development, central bank governor Zhou Xiaochuan said Monday the bank views a stable currency and job creation as priorities.

In a statement on the bank's website, Zhou said that "the priority is to address questions such as how to keep a stable currency value, how to effectively promote employment and support consumption growth".

China's annualized economic growth slowed to 10.1 percent in the second quarter, down from 11.9 percent for the whole of last year.

Analysts expect the central bank to further relax monetary policy in the coming months after it cut benchmark lending rates and reduced the proportion of money banks must set aside in reserves.

The US ecconomy is going down like a flaming turd.
Buy food,bullets,silver and gold.
And grow your own money.

Declare bankruptcy,clean the slate and start over again. Its that simple. Of course it will never happen though because big money is still making big money.

Iran converts some foreign reserves to gold amid falling oil prices
Published: Saturday, November 15, 2008 | 11:37 AM ET
Canadian Press: THE ASSOCIATED PRESS

TEHRAN, Iran - Iranian newspapers are quoting a top adviser to President Mahmoud Ahmadinejad as saying the country has converted some of its foreign currency reserves into gold.

The papers published Saturday did not say how much of Iran's estimated $120 billion US in reserves were converted into gold. Iranian officials could not immediately be reached for comment.

The daily Jahan-e-Eghtesad, or Economy World, quoted presidential adviser Mojtaba Samareh as saying Ahmadinejad ordered the change.

The decision comes after a dramatic fall in oil prices recently triggered by a global financial crisis.

About 80 per cent of Iran's foreign currency revenue comes from oil exports.

Quote:

---

Originally Posted by maladroit

Iran converts some foreign reserves to gold amid falling oil prices
Published: Saturday, November 15, 2008 | 11:37 AM ET
Canadian Press: THE ASSOCIATED PRESS

TEHRAN, Iran - Iranian newspapers are quoting a top adviser to President Mahmoud Ahmadinejad as saying the country has converted some of its foreign currency reserves into gold.

The papers published Saturday did not say how much of Iran's estimated $120 billion US in reserves were converted into gold. Iranian officials could not immediately be reached for comment.

The daily Jahan-e-Eghtesad, or Economy World, quoted presidential adviser Mojtaba Samareh as saying Ahmadinejad ordered the change.

The decision comes after a dramatic fall in oil prices recently triggered by a global financial crisis.

About 80 per cent of Iran's foreign currency revenue comes from oil exports.

---

Isn't it really bad for us if the people who own our debt start dumping it like that?

And we don't want to talk with Iran, but we'll let them loan us money? HILARIOUS!

thanks to the stock market crash, the demand for US treasury notes is high right now so the usa can sell low interest treasury paper in the short term, but i worry about what might happen to interest rates a year down the road

China Passes Japan as Biggest U.S. Treasuries Holder

By John Brinsley and Rebecca Christie

Nov. 18 (Bloomberg) -- China surpassed Japan in September to become the biggest foreign holder of U.S. Treasuries, as foreign investors sought the relative safety of government debt as stocks plunged 9.1 percent that month.

Total net purchases of long-term equities, notes and bonds increased a net $66.2 billion in September from $21 billion the previous month, the Treasury said today in Washington. Including short-term securities such as stock swaps, foreigners bought a net $143.4 billion, compared with net buying of $21.4 billion the month before.

China led all foreign official investors in September by posting a net increase in U.S. Treasuries for the sixth month in the past seven, bringing its total ownership close to $600 billion. Japan was a net seller of Treasuries for the fourth month in the past six.

â??The details of the report paint a much more positive picture of cross-border investments than expected,â?� said Michael Woolfolk, a senior currency strategist at Bank of New York Mellon Corp. â??China, along with others, is showing more demand than anticipated for U.S. assets.â?�

Economists predicted international investors would buy a net $27.2 billion of long-term securities in September, based on the median of seven estimates in a Bloomberg News survey.

China leapfrogged Japan, increasing its Treasury holdings by $43.6 billion to $585 billion, the report said. Japan, now the second-largest foreign owner of U.S. government debt, reduced its holdings by $12.8 billion to $573.2 billion.

Chinaâ??s ownership of U.S. government debt has doubled since July 2005, while Japanâ??s holdings are down from a peak of $699 billion in August 2004.

let the free market decide the most efficient way to destroy money:

In The Know: Should The Government Stop Dumping Money Into A Giant Hole? | The Onion - America's Finest News Source