International dollar trend
POSTED BY: SIGNYM
UPDATED: Wednesday, August 26, 2026 00:49
VIEWED: 4395
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But I have no idea what the hell it means.
Sorry for the teaser, but one of my buddies has been pointing out this trend for the past six months, insisting that It's important! but for some reason, altho I see that it's happening, I can't figure out what it means:
With the incredibly reduced price of oil, all of the oil-exporting nations are getting a LOT fewer dollars for their product.
Much of that money was used to buy US Treasuries (USTs) and put into either a Sovereign Wealth Fund (SWF) or into foreign exchange reserves (FXR) (some nations distinguish between the two, some don't.)
But as a result of getting far fewer dollars since the oil price slump (which began over a year ago) a number of nations are having to dip into their reserves, selling their Treasuries for dollars and then using those dollars to "buy stuff" from abroad.
I've heard that Saudi Arabia and Qatar are in the boat, and I assume Venezuela, Brazil, and Russia are also doing the same.
FWIW, here is a list of oil-producing nations, ranked by volume of production. So all of the below listed nations (except the USA) may be liquidation their USTreasuries for cash:
Russia 10,107,000
SA 9,735,200
USA 9,395,000
China 4,189,000
Canada 3,603,000
Iraq 3,368,000
Iran 3,113,000
UAE 2,820,000
Kuwait 2,619,000
Mexico 2,562,000
Venezuela 2,501,000
Nigeria 2,423,000
Brazil 2,255,000
Angola 1,831,000
Kazakhstan 1,573,000
Qatar 1,553,000
Norway 1,539,000
Algeria 1,462,000
Colombia 1,003,000
What's interesting is that CHINA, altho not an oil exporter, ALSO has a huge stash of foreign reserves on-hand from its days as "factory to the world" - including a massive pile of US Treasuries. And curiously, it's ALSO liquidating its holdings of USTs at an unprecedented rate: from $4T at peak to $3T now, $94B in the last month alone.
So many nations, selling lots Treasuries. This means that the US government will have a harder time financing its debt because it will no longer be able to sell Tbonds for quite the same price.
Now, I know that both China and Russia are trying to "de-dollarize" their region and isolate their economies from western communications and financial sanctions. I also know that China is trying to become a world reserve currency via IMF blessing, but that the IMF has set hurdle after hurdle between China and its goal. I wonder if China has decided to throw in the towel on becoming a world reserve currency with official western blessing, and perhaps has decided to become a reserve currency anyway by the backdoor. (AIIB, BRICS Bank etc.)
However, the implications of these global Treasury sales somewhat eludes me. In the world of supply-and-demand, this SHOULD mean that - if the US government wants to keep financing its debt - it will have to offer a higher interest rate to attract buyers. A higher offered interest rate might accelerate a flight from stocks, and this would have all kinds of interesting implications, from a loss to banks (which lent for stock purchases) to an increase in the value of the (cash) dollar and the decline of other currencies. But things are seldom what they seem in the world of international finance.
I just posted this as a placeholder while I turn this information over to see if it assumes some sort of recognizable shape. But if anyone has anything to add, feel free! Because, while this is big, its ultimate affect is a puzzler.
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Quote:I look at the 10 and 30 year rate and I can't see the problem you are imagining. Rates going down, not up.
Originally posted by SIGNYM:
But I have no idea what the hell it means.
So many nations, selling lots Treasuries. This means that the US government will have a harder time financing its debt because it will no longer be able to sell Tbonds for quite the same price.
However, the implications of these global Treasury sales somewhat eludes me. In the world of supply-and-demand, this SHOULD mean that - if the US government wants to keep financing its debt - it will have to offer a higher interest rate to attract buyers.
10-Year US Treasury Constant Maturity Rate 2015-09-02: 2.20 Percent
30-Year US Treasury Constant Maturity Rate 2015-09-02: 2.97 Percent
Go to the Federal Reserve and look at the history of rates the US government pays. Those rates get lower every year.
https://research.stlouisfed.org/fred2/series/DGS10
https://research.stlouisfed.org/fred2/series/DGS30
If China was not dumping US Treasuries, would that mean interest rate would go negative? People paying the US Government to hold their money? It would be FREE MONEY. When rates are 2.2% and inflation is 2.15% then borrowing is very close to FREE MONEY. You can see the inflation here:
https://research.stlouisfed.org/fred2/series/T5YIFRM
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You're absolutely correct: Treasury rates are low. And yet, China is clearly dumping Treasuries (not easy to tell if that's by choice or of necessity) and other nations - like the Gulf Arab states are selling Treasuries to scratch up cash in order to make up for the shortfall in (oil dollar) revenues.
There is a lot of underlying data indicating that the world economy is heading toward recession/depression, if not already in one. Stock markets and Treasury rates notwithstanding. You have to separate "the financial markets" from "the economy" - they decoupled a long time ago, and no longer have any relationship to each other since central bank "quantitative easing".
I was convinced in early 2008 that disaster was just around the corner, and said so repeatedly. My reasoning was that the gap between the rich and everybody else was as high as it's been since 1929. Once the vast majority stops being able to purchase much, the economy goes into what's called a "vicious cycle" ... inventories go up, workers are laid off, jobs are lost, which means more purchasers are lost, which means inventories goes up, which means more workers are laid off, which means ...
The same still holds today. The Fed, and other central banks, threw money at their member banks, but that money really hasn't trickled down to the vast majority of people who create aggregate demand.
The exact mechanism of the failure - in 2008 it was the failure of speculative mortgages, which allowed consumption well beyond the incomes of many people - doesn't matter. The situation still holds. Demand is low. Production is low, and therefore commodities (the basic "stuff" required to "make stuff" like petroleum, copper, iron, and coal) are low. Commodity exporting nations - like Saudi Arabia, Venezuela, and Brazil- are hurting. Brazil's bonds were just downgraded to junk status.
The only thing holding up is the almighty dollar, which - once again, and still- allows the USA to purchase well beyond IT'S ability to ever pay anyone back in real goods.
It's like a game of Jenga - there's a huge pile of rickety economic blocks, and one by one circumstances are pulling them out. I believe that China and Russia are doing their best to pull out THE block which makes the whole thing come tumbling down. I'm just trying to figure out what that block is.
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You can't build a nation with bombs. You can't create a society with guns.
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Quote:You could tell a story in which USA becomes dependent on Chinese loans; then, when China gets in trouble, it demands repayment, pushing USA into crisis too. But any story along those lines has a corollary: we should be seeing a spike in US interest rates as its credit line gets pulled. What you actually see is falling rates.
Originally posted by SIGNYM:
You're absolutely correct: Treasury rates are low. And yet, China is clearly dumping Treasuries (not easy to tell if that's by choice or of necessity) and other nations - like the Gulf Arab states are selling Treasuries to scratch up cash in order to make up for the shortfall in (oil dollar) revenues.
Changing the subject to: the euro is bad for Europe. Fortunately, Poland does not use the euro. Good for them. I saw a very short article explaining, by comparing two backward European economies, Poland and Greece, how destructive the euro has been to the economy of Greece. Not using the euro has been a great advantage for Poland. http://krugman.blogs.nytimes.com/2015/09/11/poland-versus-greece/
Does Poland understand? Maybe! Maybe not. It wants to join the euro because the euro is sacred to a vision of a unified Europe.
www.telegraph.co.uk/finance/economics/11762020/Poland-will-never-join-
a-burning-eurozone-says-central-bank-governor.html
The euro is just one of many terrible economic decisions that are depressing the world. Does the world quickly learn from its bad decisions? No.
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It's not just the euro that's a terrible decision. I can point to terrible decisions everywhere:
The decision to allow savings banks to play with their deposits like investment banks (Thank you, Bill Clinton).
The decision to NOT prosecute banks for fraudulent and predatory loans, like Eliot Spitzer wanted to to (Thank you GWB).
The decision to appoint Timmy Geithner, Wall Street apprentice, as Treasury Secy (thank you, Obama).
The decision to transfer MOAR wealth to the wealthy, on the excuse that it would "trickle down" (Thank you, every Republican that's held office since Reagan was inaugurated - and most Dems too!)
The decision to allow virtually unregulated futures trading on commodities (Thanks again, Bill!).
The decision to outsource jobs to Mexico (Bill, again) and China (GWB).
China's decision to
1) Tie its development to exports to the USA (Walmart and Apple, specifically)
2) Use "investment" as a mainstay of their economy
3) Prevent cities and regions from having their own tax base, which required them to float risky bonds.
4) Depend on "shadow banking" to fill in for the PBoC.
5) Increase its official debt from $7T in 2008 to $28T today
6) Try to "stimulate" the economy by blowing a series of bubbles in real estate, commodities, and the stock market.
The overall allowance of ALL banks to be able to "print money" through fractional reserve lending. (Because, when a bank can lend money it DOESN'T HAVE ... which is what happens 95% of the time ... it is -actually - printing money: i.e. creating money out of thin air. If we tried that in our basements, we'd be accused of counterfeiting.)
The decision of the government to bail out the banks to the tune of about $17T (thanks GWB and Obama) and by The Fed to throw money at its member banks, and the correlated decision by Washington Republicans NOT to allow massive deficit spending to throw money at people. In fact, bailing out the banks was the stupidest decision, because of of the "multiplier effect" that Geithner convinced Obozo would work on his behalf actually worked in the wrong direction: in order to make each bank whole, the government handed out more money to each bank than if it had simply made bought each troubled mortgage by itself.
The reliance of world banking on the IMF and World Bank and SWIFT and BIS.
The decision by most of the world banks to agree to the mechanism of "bail-ins", in which the banks get to take depositor's money in case their risky investments go bad.
The decision by the Fed to lower interest rates to near-zero for its member banks (which then went on to either use that money directly to buy stocks, or to loan that money to businesses for their own stock buy-backs. Thank you Ben Bernanke and Janet Yellen!)
I could point to probably a dozen more very poor decisions, all leading to the clusterfuck that we have today, in which the "debt overhang" by banks and in futures is at least 20X the real world GDP, when you include (privately-traded) derivatives.
http://www.quora.com/How-can-the-worlds-total-financial-obligations-be
-20X-world-GDP
I haven't read Picketty's book, "Capital in the 21st Century", but by description the main thesis is that "finance" always has a higher rate of return than "production", and therefore money (investments) tend to gravitate towards lending for financial products such as stocks, futures, and derivatives. But these expectations of future rewards can't POSSIBLY be met by an underpowered economy: The only way to get a real 6% return is with a real 6% growth rate. With the level of indebtedness, the economy can't possibly grow that far, that fast, to meet those expected rates of return, so the only thing left for the various central banks to do is start printing more money for more loans to pay for the previous loans.
This is what the stock market is doing right now:
h
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BTW, I thought I should mention: ALL derivatives are priced in dollars. Japan is the largest Treasuries holder, China is second. The dollar is a world reserve currency. By agreement, it is also used to price and buy oil... i.e. West Texas Intermediate (WTI) and Brent crude. Every financial arrangement in the western world is based in some way on the dollar. And if for some reason the dollar should lose value, a lot of other things will come tumbling after.
CHINA is busy pulling out those Jenga blocks, and RUSSIA is doing what it can in the same direction. China seemed to have picked up the pace since the IMF declined to allow China Special Drawing Rights (SDR) about a month ago, in what appears to be a purely political decision. http://www.zerohedge.com/news/2015-08-19/no-sdr-you-imf-tells-china-wa
it-least-one-year-until-reserve-basket-inclusion
China has opened the Asia Infrastructural Investment Bank (AIIB), in which dozens of western nations chose to participate.
China opened its own gold fix market.
China just created the petro-yuan, and oil market in which oil is priced in yuan.
The Petroyuan Cometh: Launch Of Renminbi-Denominated Oil Futures Contract Imminent
http://www.zerohedge.com/news/2015-09-11/petroyuan-cometh-launch-renmi
nbi-denominated-oil-futures-contract-imminent
From its lesser economic status, Russia is creating dollar-free trade zones. Russia and China have created a SWIFT-free interbank exchange route, which I imagine will be extended to other nations.
In other words, China (and to a lesser extent) Russia are busy-busy-busy pulling out those Jenga-blocks.
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You can't build a nation with bombs. You can't create a society with guns.
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BTW, if it seems like I'm beating every reader to death with facts, I'm just hoping that if I toss enough stuff out here, somebody might see a pattern that I don't. So have at it!
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You can't build a nation with bombs. You can't create a society with guns.
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Quote:The pattern of failure is that economic decisions are being made based on gut instincts about how money and economies function. It just so happens that guts are not as smart as brains.
Originally posted by SIGNYM:
BTW, if it seems like I'm beating every reader to death with facts, I'm just hoping that if I toss enough stuff out here, somebody might see a pattern that I don't. So have at it!
OPEC is my favorite example because I live in Texas on top of an oil field. The cartel doesn't seem to me to be making smart decisions, but Forbes disagrees and sees low crude prices as a deeply clever plot to prevent competition from other energy producers: www.forbes.com/sites/danielfisher/2015/01/16/opec-losing-its-grip-no-t
he-saudis-are-partying-like-its-1981/
It is not just crude oil. It is everything about economics. No matter what dumb-ass economic decision is made, many will defend the decision as wise and to hell with facts, history, or economic modeling. Their gut instincts tell them they are right and nothing that happens but death or bankruptcy will ever change their gut feelings.
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So ... USA facing bankruptcy? Is that what it would take to reverse those terrible decisions? Because at this point, there's nothing behind the USA dollar except hot air. And the military. We must never forget that.
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What I see is a low-price oil strategy, which is designed to wring out the expensive producers from the market. I recall, from the days of the Iraq invasion, when ppl, were wondering about all of those oil wells and their future viability, a comment that you can't shut an oil well down for too long because then they clog up. So if Saudi Arabia manages to throttle shale oil and tar sands back, and maybe even fracked natgas and nuclear energy ... what would it take to get back on line? My guess is that most producers will keep their wells running... slowly. But you're from Texas, so what do you think? Is coming back on line after being idled a problem?
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You can't build a nation with bombs. You can't create a society with guns.
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Quote:Producing too fast hurts an oil field. Producing too slow hurts nothing.
Originally posted by SIGNYM:
... what would it take to get back on line? My guess is that most producers will keep their wells running... slowly. But you're from Texas, so what do you think? Is coming back on line after being idled a problem?
I saw an article this morning that reminded me why economies should NOT be run to satisfy the prejudices and gut instincts of business about economics. It is because the character and honesty of businessmen is very questionable. Money makes businessmen stupid about anything that gets in the way of making money. In their rush to make as much money as fast as they could, Blue Bell in Brenham Texas couldn't even make plain vanilla without chopping off workers' fingers in the ice cream machine and killing customers with listeria. Blue Bell is the fastest growing, biggest ice cream maker in Texas and was shutdown, temporarily, by the government.
www.houstonchronicle.com/news/houston-texas/houston/article/Inside-Blu
e-Bell-Grime-and-discontent-6499325.php
Inside Blue Bell’s factory: Grime and discontent
Ex-workers cite long-term issues at Brenham plant by Mark Collette
Benjamin Ofori sometimes watched a mush of strawberries and pecans flow into an ice cream tank even after his production line at Blue Bell had been scrubbed.
Low water pressure and temperature hampered Sabien Colvin’s cleanup efforts at the plant.
Another employee saw a steady drip, day after day, from a dirty air vent onto Fudge Bombstiks.
They say they all complained to supervisors.
Ofori also groused about a bypassed safety feature on his line. Later, that machine severed three of Colvin’s fingers.
In interviews with the Houston Chronicle, more than a dozen former employees of Blue Bell’s flagship Brenham plant described a company fighting to keep up with its growing customer base while sanitation and safety slipped. Cleanup workers regularly ran out of hot water, making machinery susceptible to pathogens and allergens. Reused packaging brought grime into the factory. Equipment went without safeguards for years, and several workers lost parts of one or more fingers.
The 14 employees have a combined 213 years of experience on the production lines. Their accounts are bolstered by the limited information reported by the Food and Drug Administration, including details about a contaminated machine that kept cranking out products even as a listeria crisis deepened. They’re also backed by an Occupational Safety and Health Administration investigation that blasted the company for failing to protect workers.
Blue Bell officials would not agree to an interview to discuss the ex-employees’ assessments of their operation.
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The world's economy is run to satisfy businessmen only motivated by money. I think that is very unwise, but businessmen disagree, obviously.
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