Is a US dollar dump underway?

Zero Hedge notes the US Federal Reserve provides a weekly update known as the H.4.1.

Observers of the Federal Reserve's Custodial Treasury account follow these updates with keen interest. Recently they have been somewhat perplexed.  There has been a continued, weekly selloff of $56 Billion of US Treasury's.

Is the continued drop an asset rotation - under duress or otherwise - out of bonds and into stocks, to prevent the collapse of the global ponzi? Or, as Zero Hedge pondered, has the dreaded D-day in which foreign official and private investors finally start offloading their $2.7 trillion in Treasurys with impunity arrived?

Recall that a few months ago China has made it abundantly clear it will sell its Treasury holdings, the only question is when.

The most recent came out on January 4th and a further $17.7 billion has been "removed" from the Fed's custodial Treasury account.

The alarm bell that is going off her is that in six consecutive weeks, foreigners have sold off more government bonds in a sequential period of time than ever before. It means that someone, somewhere is very displeased with US paper, and, far more importantly, they want to make their displeasure heard loud and clear.

It is an interesting development worth watching.  The consolidated outflow notional is now a record high $77 Billion (beating the previous record of $52 Billion). Should the selloff accelerate, look for the Federal Reserve to have to step in.

The real question is what they are converting the USD into? And how much longer it will go on for?

The last thing the US can afford is a wholesale dumping of its Treasury's. The traditional diagonal rise in foreign holdings of US paper has not only pleateaued, but it is in fact declining: a first in the history of the post-globalization world.

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Sat. Post #2: The Greatest Trade of All Time

Excellent article from Sprott Asset Management this week that is definately worth reading.

A summary of the article:

On its way to becoming the world’s greatest superpower, the United States pulled off some truly remarkable trades. Two notable transactions come to mind and were both outstanding bargains: 1) The Louisiana Purchase (purchased from the French); 2) Alaska (purchased from the Russians).

For a mere $15 million, America instantly doubled its size with the 1803 purchase of the Louisiana territory. Sixty-fouryears later, oil-and mineral-rich Alaska was obtained for a paltry $7.2 million. 

Even adjusting for inflation, the combined value of these deals in today’s dollars would be very small. However, these two transactions pale in comparison to the greatest trade of all time, one which remains ongoing. This particular trade has allowed the US to exchange more than $8 trillion worth of paper for an unbelievably enormous amount of real goods and services over 36 straight years. We’re referring, of course, to the United States trade deficit.

Imports have exceeded exports every year since 1975. For much of the past decade, America’s annual trade deficit has soared past the $600 billion mark, while the accumulated trade deficit has moved relentlessly higher.

Sprott then goes on to question how long this trade deficit can continue.

We could include countless examples and all of them collectively would not do justice to what an amazing trade this has been for the United States. Stop and think for a moment about how many hours of labour, manufactured goods and non-­renewable resources the United States has been able to acquire over 3.5 decades in exchange for paper promises.

Exporting nations have willingly financed this $8 Trillion trade deficit by accepting US dollar dominated paper promises in exchange for tangible goods sold. But perhaps most important of all, they’ve continued to hold and accumulate these paper promises rather than exchange them for real assets.

Presumably, they have done so on the belief that one day they will be able to convert these paper promises for at least an equivalent value of goods and services. This requires faith that the purchasing power of the US dollar will not decline by more than the returns of their paper promises and that someone in the future will be willing to give up a tangible asset in exchange for them.

We believe that the growing US Budget deficit, the Federal Reserve’s “Quantitative Easing” Program and the ongoing US dollar decline has caused holders of US dollar reserves to question their faith, re-­examine their desire to accumulate additional US dollar reserves and also look to convert their existing US reserves into real goods. Holders of US dollars had the chance to see how the Federal Reserve and the US Government would react to fiscal difficulties and we believe this ‘look behind the curtain’ has permanently altered their faith in US dollar denominated debt and sovereign paper promises, generally.

Foreign investors are not being properly compensated for the risk associated with holding US promises today. We believe they are beginning to realize that this exchange of real goods for paper promises is a
losing trade.

The move to diversify out of US dollar reserves by surplus generating nations may be the trigger that causes a complete revaluation of the risk associated with holding faith-­based assets generally, and we believe that holders of faith-­based will increasingly look to convert them to real assets as quickly as possible.

History has shown us that fiat based currencies always suffer the same fate and eventually become worthless. It is hard to predict exactly when people will awaken from this mass delusion in faith-­based assets. But, it is certain that in these times it is wise to avoid gambling your wealth in faith-­based assets when the system that you must trust has a clear history of being untrustworthy. We therefore advise you to question your faith and know what you own.

Interestingly... this is very similar to what Charles DeGaulle said in 1965.

The full Sprott article is below...


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