The fed’s printing press running at full capacity: with the crisis in the economy the regulator is struggling, flooding the markets with cash. Only for the first quarter money issue has exceeded two trillion. The result — 26-trillionus debt and the risk of depreciation of the dollar. China is the second largest foreign creditor of the United States — decided not to wait devaluation and actively sells us debt securities.
In a pandemic coronavirus, the fed has taken unprecedented measures: virtually nullify its key interest rate, has launched a program of unlimited buying of government bonds and mortgage-backed securities. In the first quarter, the national economy has poured more than two trillion dollars. They just printed.
It is clear that the interest of speculators to the U.S. dollar sharply weakened, but other options but to continue lowering rates, not the fed.
Analysts of the largest banks in the world, the British Standard Chartered, has warned that the fed will move to negative rates. The fact that this scenario is increasingly likely in the background of a deep and prolonged economic downturn, noted in American Bank Goldman Sachs. The next decision the fed will take on June 10.
As suggested by the economists at Standard Chartered, the Federal funds rate at the level of minus 0.5 or minus one percent will result in a significant fall in yields, which will facilitate Washington debt service. But the dollar is not will benefit — the global shortage of the American currency will disappear and it will inevitably become cheaper.
According to Chinese portal Sohu, the Chinese authorities decided not to wait for the depreciation of the dollar and has begun the sale of US debt.
In Beijing, came to the conclusion that Washington cannot solve its economic problems without the help of the printing press, so the investment in us government debt is extremely risky.
Indeed, if in 2008 the fed printed a total of about eight trillion dollars before the end of 2020, will add another five trillion. With clear consequences for the exchange rate.
Last year China got rid of treasuries by 110 billion, and more recently for another ten. In may Washington has threatened Beijing with the waiver of debt obligations. This, according to the White house, should be the retribution of the PRC for the distribution of the coronavirus and the concealment of information about the pandemic.
Even then, the oldest English-language newspaper of Hong Kong South China Morning Post pointed out that China will continue dumping us securities, depending on how the situation will develop with requirements about compensation. Now added risks of the depreciation of the dollar, which still accounts for a substantial portion of Chinese reserves.
According to analysts, the sale of China even part of the portfolio of treasuries is extremely unpleasant for the U.S., Beijing strike to the government bond market at precisely the moment when Washington sharply increased issue to Finance programmes to combat the pandemic and its economic consequences.
Due to a trade war with the United States, China, and systematically got rid of these securities. As a result, by June 2019, the leadership among foreign holders of U.S. debt have moved to Japan: Tokyo treasuries by $ 1.12 trillion. As shown by the latest report of the U.S. Treasury, in February Chinese portfolio decreased to 1.09 trillion from 1.32 trillion in November 2013.
Russia in March, has cut investment in us government bonds to $ 3.8 billion, although 2010-2013 was 170 billion. Moscow was among the largest holders of treasuries. Participated in the sale and other countries. According to the Finance Ministry, in March, the flight of foreign investors — both private and public — was unprecedented: treasuries dropped to 256 billion dollars, reducing the total portfolio to 6.81 trillion dollars.
It does not promise Washington anything good, because polutoratonny the country’s budget deficit is covered mainly through the sale of state bonds. Estimates of the largest banks, in 2020 the difference between spending and revenues will reach four trillion, the high since the Second world war.
And the balance of the Federal reserve system to the end of the coronavirus crisis, according to analysts, will swell to ten trillion. Since all of these tools, in fact, the result of operation of the printing press, the flight of investors from the unsecured currency will increase.
© 2020, paradox. All rights reserved.