Or, is there a limit to global gullibility? Will the rest of the world continue to be held hostage to this "financial balance of terror"? As it turns out, the top two suckers--China and Japan--have actually been selling loads of dollar detritus in recent months. What's more, the rest of the world are following suit, intensifying movement away from greenback garbage:
China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries. The sales were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June [there is a two-month lag with this data series], a fifth straight month of outflows and the largest since August 2007, U.S. Treasury Department data showed on Thursday.
China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows.Bernanke spooking the markets by suggesting that the Fed will soon stop accumulating nearly unlimited Treasuries to lower borrowing costs is resulting in others' pre-emptive action to avoid near-term losses:
"The sell-off in Treasuries and Bernanke's tapering remarks are related," said Michael Woolfolk, global market strategist at BNY Mellon in New York. "Lightning doesn't strike in the same place twice, but Bernanke repeated his comments in June and that roiled the market."
He said the net Treasury outflow was the highest since at least 1977 when the government started compiling the data. June was the fifth straight month that foreign investors sold long-term U.S. securities, but the specific selling of long-term government bonds was the big turnaround as foreigners had bought $11.3 billion of Treasuries in May.Are we reaching the outer limits to global gullibility in buying Treasuries? Given the aforementioned time lag in reporting the data, it will be interesting to note from forthcoming reports whether rising interest rates Stateside are driven more by Bernanke signalling the end of "money for nothing" policies or by central banks worldwide dumping Treasuries en masse.
Heaven knows, this world would be a much better place if the latter trend continues. Central bankers of the world, don't be afraid to dump those treasuries and teach America a lesson; in the end, only you will be responsible for your people suffering losses from hanging on to such worthless pieces of paper in their name.
UPDATE: To be fair, the FT expects some bottom-fishing to buoy capital inflows into America in the next report.