Are Brits Dumb Enough to Hold $511B in Treasuries?

♠ Posted by Emmanuel in ,, at 1/19/2011 12:02:00 AM
(OK, so that's an obviously loaded question. But hey, this is a blog for crying out loud.)

With apologies to our Chinese colleagues, I generally hold one's Treasury holdings as a yardstick for one's gullibility. If you're dumb enough to own so much stake in a sunset nation like America, then you really have no one but yourself to blame when it inevitably goes down like, well, a Led Zeppelin. And speaking of the homeland of that legendary band, something striking that has not gained much notice is the United Kingdom supposedly having accumulated over half a trillion in these papers by November 2010. In a year's time if we are to believe US government figures, UK Treasury holdings have increased by a scarcely believable $356.3 billion, from $155.5 to $511.8B.

Brad Setser usefully pointed out how monthly Treasury data was subject to annual revisions that usually resulted in the UK tally being marked down significantly while that of China being marked up significantly. The same is probably true here. As before, London's status as a global financial centre is being used to facilitate Treasury purchases by those wary of being identified as avid purchasers of American debt for obvious reasons. In this day and age, announcing that you're an enthusiastic buyer of American debt is rightfully identifying yourself as a target for ridicule. Simply put, why invest in a country whose best years are well behind it instead of one whose fate is most likely the opposite on existing trends? China certainly has a habit of not promptly updating its reserve figures...I wonder why.

CNNMoney has an interesting article on China being the new landlord of the US--a somewhat less bold assertion than mine that the Chinese are the real owners of that dissipated place. Hyperbole (but not much) aside, the point is alluded to that most UK holdings are probably attributable once more to the Chinese attempting to hide the extent of their folly--especially to domestic audiences wary that so much money could be spent in so many far more socially productive ways:
There's also the issue of just how much U.S. debt China really owns. The official number reported by the Treasury is just a hair under $900 billion. But the actual amount could be higher, said Nancy Vanden Houten, an analyst with Stone & McCarthy Research Associates in Princeton, N.J.

That's because it is widely believed that China has used dealers in the United Kingdom to scoop up Treasuries. Those purchases would then show up on the holdings for the U.K., not China. And while the amount of China's debt holdings are roughly the same now as at the start of 2010, the U.K.'s holdings has surged from $208 billion in January to $511 billion in November.
Which brings us to a larger point: China shouldn't complain too much about characteristically self-important, bratty American behaviour insofar as it has indulged so much of it (and tried to hide it out of shame). It's bad parenting pure and simple, but more on this later. Aside from being hard up and currently embarking on a pretty hardcore austerity programme, the UK is certainly in no position to fritter away so much money. Nor is there any massive public outcry here over how the government is ploughing hundreds of billions into Treasuries. The only reasonable conclusion is that the UK is being used by an entity or a group of entities as an intermediary for very large scale purchases of US sovereign debt. If historical precedent is accurate, then the revisions should point to China. You can bet your bottom dollar that China has more than an unfathomable $3 trillion in reserves by now.

But then again, as Yankee impresario PT Barnum said, a fool is born every minute. That pretty much sums up modern US grand strategy--hoodwink others into believing the US is a "safe" investment--though I don't think the UK is culpable despite what the figures indicate at the moment.