View Full Version : Economic crisis and US

10th February 2011, 23:39
In-depth explanation

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11th February 2011, 07:25
I think your link might be broken or it has been censored here in the united state...would you might using bullet point sentences to summarize that page?

11th February 2011, 09:51
I think your link might be broken or it has been censored here in the united state...would you might using bullet point sentences to summarize that page?The translation link worked OK for me, in Texas (is that part of the US ;))?

The article begins with:
We have in a recent post drew public attention to the problems posed by the debt consolidation. We examined the structure of debt and flows that animate to show that the debt consolidation company since October 2008, raised more and more questions and concerns. We tried to place the issue of debt consolidation in view of the problems it raises. The debt consolidation we appeared inseparable from a broader debate on an exit from the crisis in inflation, new theme that we impose constraints on them ever more strongly (failure of the recovery, the rise of risk sovereign debt, trouble-term financing to tolerable levels of pay) and the recent pronouncements of Mr Nernanke.
The article ends with:
He is currently forming a triangle in the USA including the three fatal angles are: financial need stimulus, the level of public expenditure fundable with tolerable inflation, the level of disturbing the public bond bubble. The bond bubble is not composed only of $ 13 500 billion of debt. They need to add the 6 trillion debt of the GSEs and the 2000 billion of debt agencies that have entered the fold of the federal state. The U.S. is in a very risky situation where excessive monetization of debt can lead to a crash bond or financial difficulties without a name. The drama of the USA is too weak a monetization of debt consolidation still not used to much. It's a respite. Conversely a strong monetization at the height of a depression involves a danger of a crisis U.S. financial system and the global economy will be the epicenter of the swelling public debt on bases inflationary unhealthy.

I did not read much of the rest of the article.

11th February 2011, 11:16
I think your link might be broken or it has been censored here in the united state...would you might using bullet point sentences to summarize that page?

This site aims to provide explanations, accompanied by old statistics and present, on the causes of the crisis in the USA. It will examine the financial issues, the indebtedness public and private, trade deficits, and the flow of capital, the savings and investment, unemployment, the income, profits, heritages, trade, the budget, the real estate, the rates of interest and exchange, the state of banks, the securitization and financial innovation, productivity, inflation, the policy of the administration Obama. Federal debt for USA will be the subject of a monthly balance sheet, the emissions of Treasury Bills will be discussed once per quarter. Next post: The regulation difficult I, trade deficit, flows of capital, the role of the financial sector, currency

That holds the American Debt : it cracks !!! We have in a post recent attracted the attention of the public on the problems the consolidation of the debt. We have examined the structure of the debt and flows which the animate to show that the consolidation of the debt, company since October 2008, raised more questions and concerns. We have tried to put the question of the consolidation of debt in the perspective of the problems it raises. The consolidation of the debt we found inseparable from a broader reflection process on an exit from the crisis in the inflation, new theme that we impose constraints always more heavily on them (failure of the recovery, ascent of the risk on the sovereign debt, difficulty in term of financing at levels of remuneration tolerable) and the recent position taken by Mr Nernanke.

In this post, we are reworking those issues taking into account of developments in the holding of securities of the Treasury by investors abroad (B) and Americans (C). We are introducing this study by a reminder of major features of the consolidation of debt and the strategy for the management of titles by maturity (A). The coordination of these three parties we will in conclusion to inform a new day the policy of the EDF for substituting of Treasury for a value equivalent to the debts and claims residential real estate mortgage securitised (Residential Mortgage Backed Securities or RMBS) depreciated. These debts and RMBS, representative 1325 Md of $ in the balance sheet of the FED, are claims issued before the crisis and after it. Their purchase by the EDF has helped prevent a crash bond on the titles of GSE in 2009 and support the real estate modestly by the purchase of RMBS issued in 2009-2010 (T-1 and T-2)

This will further questioning the scenario of a output of crisis in the inflation in response to the awareness of the share of clutches of the FED and administration of the Treasury to a relative failure of the recovery. We will limit our questions voluntarily to the questions raised today the financing of the debt. It is of the fragility more virtual but real crunch which the press does not happen at all the echo.

The American debt looks like the ice floe more to before the debacle: the surface of the ice is still smooth, but it is hear the noise announcing its dislocation next. The American debt done the same, it continues to accumulate, but the concern begins at the work in depth. It is that anyone who follows the news statistics will have noticed that the training of the public debt has slowed because of a declining budget deficits and the transfers off budget since the first half, a reduction which explains the relapse of growth in T-2 2010. We will give this phenomenon an explanation taking the conditions for funding of the financial debts of the USA.

A – The consolidated debt and the three pillars of the debt.

1° The consolidation of the debt

The debt of market negotiable is the share of the financial debts whose securities may be disposed freely on the secondary market of the debt of Chicago. This debt has mainly been consolidated by the administration Obama. That is why the titles of less than one year (T. Bills) have consistently to lose importance in absolute and in the share of the debt of market negotiable. A contrario, the financing of the debt has appealed to the titles of maturity long among which the treasury bills of maturity ranging from 1 to five years (T. Notes) are carving the lion's share in the value in the share of funding. It should be noted that the treasury bills at maturity longer play an increasing role. The titles of maturity of 5-10 years (T. Notes) have regularly affirmed their role in the consolidation of the debt of the market.

It is not the same for the treasury bills of maturity of more than ten years (T. Bonds). These titles have increased in absolute value, but their share in the financing of the debt has remained the same. These are essentially the long titles of more than twenty years which have increased their importance in value and percent while the titles of 10-20 years have remained stable in absolute value, and ipso facto, lower in the share of financing of the debt of the market negotiable.

The result of the consolidation effort was to increase the maturity average of the whole Treasury Bills. We will not push here on the sense that we can give to the decision of the EDF of August 2010 : purchase Treasury Bills of maturity long (T. Notes & T. Bonds). This decision allows the FED acquire Treasury Bills at maturity long in cases where the market would be in default. It can also in its purchases influence the entire interest rates in the long term, the treasury bills, deemed without risk, fixing the rates long of the interest of the other forms of credit. That decision does that move the policy of low interest rate of real estate to the treasury bills by assuming a form of monetization of debt. Whose act, the EDF is placed in the situation of any default of the financing of the debt of market in which we extensively dealt with elsewhere. (Http://criseusa.blog.lemonde.fr/2010/09/20/la-dette-federale-au-30-08-2010-montant-structure-flux-problemes/).

2° The financial strategy of the USA.

This decision of the EDF cannot be understood that, in function of the realities of the financing of the whole of the American debt. The financial debt of the USA is based on three pillars distinguished by the maturities different titles. The debt long is based on the conversion of surpluses of auditors social (Funds and Trust funds) in Treasury Bills. The maturity average of this debt is 7-8 years. The debt of market is divided into debt to maturity medium short (2-in) held by the American investors and debt to maturity longer (around 5-6 years) held by foreign investors. The debt of market average is to 4 and a half years (for these medium-sized read the Treasury bulletin, TABLE FD-5.—Maturity Distribution and Average Length of MarketableInterest-Bearing Public Debt Held by Private Investors and http://criseusa.blog.lemonde.fr/2010/05/23/la-strategie-de-securite-financiere-de-l'etat-federal-l'envers-de-la-dette/) This structure this total financial debt has two advantages. It allows the USA to organize in extremis a rescheduling or a liquidation of their debt in conditions advantageous. This those foreigners are in effects which hold the share of debt long the most important, the flow of reimbursement, the linked to the USA. The share of social funds may be reassessed or liquidated without difficulty, it is under the supervision of Treasury and constitutes surpluses which have never been paid to their beneficiaries. In the share american, it can period of uncertainty or crisis to back to their holders rapidly because of the low maturity of its titles. The organization of the debt is therefore favorable to USA in the case of serious problems on the sovereign debt (Crash creeping or declared, difficulty of financing etc. ). By buying Treasury Bills at maturity long, the Federal Reserve gives the means to continue strengthening the debt and to preserve in the short term its organization. The developments in the financing of the debt does not allow much choice.

B – general developments of financing by the federal debt american

The graphic has the defect only cover a period of one little more than a year. The Treasury has had the good idea to modify the terms of the calculation of the series in middle of the crisis. This series new confirms what was already constable on the former series: the debt of the market of the USA is less and months supported by foreign investors. The total of foreign investors continues to evolve at the increase, but not enough strongly. It is therefore the American investors who have taken the relay the financing of the debt of the market negotiable of USA. Their market share has been steadily to increase to the point that they are passed to the top of foreign investors. American investors favoring the procurement of treasury shorter, one designs that the EDF to be forced to become an agent of consolidation of debt by promising to acquire the federal debt long, they can the relative weakening remedy of purchases of treasury by aliens for the reasons outlined in A.

C – foreign investment.

1° Investors by country.

The breakdown by country translated the worrying developments for the financing of the American debt. First evidence, the major Asian investors (Hong Kong-China, Japan, Taiwan) are constantly rolling back in percentage. Their share password of 52,5 to 48 %. China is the essential cause of this decline of the great Asian investors. The efforts of Japan partially compensate chinese disinvestment accentuates the caution of the financial center of Hong Kong. The support of the Treasury of USA is no longer ensured by the GB and Japan, which are the most ardent supporters of U.S. Treasury. A glance on the rest of investor countries shows very quickly that the financial structure of debt held by foreigners is more and more fragmented. This fragmentation is particularly sensitive if one considers the heading other which brings together the countries possessing only less than 50 Md of $Treasury Bills. Investors are declining means (Russia), stagnant (Luxembourg, Germany) or in low growth (Switzerland, of the OPEC countries, Brazil). We are leaving side the banks of the Caribbean, it is in fact of American capital expatriates of USA or not returnees to USA. The USA are thus exposed on the one hand to a decline of the major contributors support asian and to a fragmentation increased their funding weakening their debt. The withdrawal of support of China is difficult to interpret. As for other countries, the decline or stagnation of contributions, can be the expression of funding needs increased chinese to tackle the crisis and a growing confidence vis-à-vis the sovereign debt of the USA. THE one does not preclude the other.

2° Other standings of foreign investors

The growth of securities held by foreign investors was reproduced as well as the amount of the debt of the market in memory. Several elements are becoming very disturbing for a year. First of all, the investors official (States, central banks, sovereign fund) not invest almost more in the U.S. debt. We can try a correlation between the decline of the great Asian investors official and investors, then it could estimate that it is the major Asian investors who bear the greatest heavy responsibility in this stagnation. But this is only a hypothesis fairly plausible. What is certain is that the stagnation in the official leaves to investors private investors a greater role. The holding of securities is again found to exposed to a risk of fragmentation increased, the private investors always being more numerous and smaller size that investors official. The existence of a strong preference of investors for the Treasury Bills at maturity long (Investors official - T. Notes & T. Bonds) at the expense of Treasury Bills to maturity short (official investors – T Bills) could be brought to the assets of the Treasury of USA, this logic of purchase participates in the consolidation of the debt, but their volume is stagnant, this contribution to the consolidation of the financial debt is of little importance since it does not stick to the growth of the federal debt which the consolidation concerns mainly emissions of volume of Treasury Bills new dominated by the titles of debt long. We do not have a clear breakdown by maturity of the debt of the market held by foreign private investors. We assume that foreign investors cast rather on their vested on Treasury Bills with short in the maturity like their American counterparts. Their attitude remains less important than official investors that represent nearly 3/4 of foreign buyers of the debt of American market. The analyzes made in B 1° and 2° explain in all cases why the EDF must imperatively intervene. The consolidation of debt and the erosion of the pillar abroad of this last assumes that the EDF to ensure a growing role in this consolidation and be a substitute for investors foreign official boggling to continue to buy in increasing volume of the debt to maturity long. We return in conclusion on the wider problem posed by the evolution of the purchases of securities by foreign investors. They are not without link with the question of a possible output of crisis in the inflation which seems try the USA.

C – the American Investors

We have included on this graph the whole of the holders of the American debt, foreign investors understood. The holders "solid" and important of the U.S. debt are the EDF and the communities sub-federal (15,5 %). The holders the most fragile are households (12,4 %). The financial sector (gradient of green) is constituted by the insurance companies and the pension funds private and public, "banks" in the broad sense (saving bank, Union of credit, commercial bank) , the Money Market Mutual Funds (investing primarily in the T. Bills) and the Mutual funds. Finally, there are of investors modest as the companies brokerage of securities investing for their own account or that of their customers (Brokers and Dealers), the issuers of receivables securitised private or ABS issuers (Assets backed securities), the GSE (Freddie Mac, Ginnie mae and Freddie Mac), companies anonymous non-financial and SMES-SMIS. It is very difficult to measure the solidity of the investment the financial sector that is at the heart of the financing of the debt American. This solidity varies with the logic of investment and the confidence in the Treasury Bills. There is no detailed data available to assess those strategies. In total, the financial debt held by the American investors is characterized by two characteristic features: a relative fragmentation with at least a weak link: households. An appetite marked for debt securities low maturities which is the consequence of the role of quasi-money played by the treasury bills for the economic actors Americans with "floating liquidity".

The analysis of the evolution of detentions of titles may bring lights complementary. The investors who the strongest provided American support for the growth of the debt of market are households, corporations and pension funds public and private. The fragility of the first is offset by the solidity greater of the latter. The business investment non-financial anonymous is partially annulled by the declining investment of SMES-Smis. Among the “'within the meaning banks wide, only the commercial banks play a significant role to the contrary of savings banks and credit unions. It is even "investment funds" where Money Market Mutual Funds in decline are partially offset by the investment funds (Mutual funds). The progress of GSE is in turn canceled out by lower ABS issuers. As regards the Brokers and Dealers, their investments are saw tooth. The investments of the EDF should be reduced to their fair dimension, it is the recovery of the stock of Treasury in 2008 by started their sale to save the financial sector (- 300 Md of $). This stock has been reconstituted in 2009 and brought to a level neighbor to the amount of years preceding the crisis. By 2009-2010 T-1 and T-2, there has not had a real monetization of debt. Constant, investment of sub-federal administrations do not have to be the subject of an extensive analysis. This second table shows one thing. There are trends american very contradictory of financing of the debt. The shares of the investors are compensated often either that they are selling treasury bills, either because they buy. It is a fragility in the case of risk amount on the sovereign debt.


The developments of the sovereign debt allow to highlight the decision of the EDF to buy Treasury Bills. It can include this decision in different frameworks for analysis in order to grasp the various meanings. We do not pretend to be exhaustive.

1° Consolidation of debt and interest rates.

It seems clear that the defection of foreign investors assumes that the EDF to take over American investor less inclined to invest in Treasury Bills at maturity average. This policy transfers to the EDF the care of ensuring the consolidation of the EDF and become a of the fourth pillars of the training of the debt long. This operation weakens american sovereign debt in two ways. On the one hand, the stagnation of foreign investors official confers an increased role to private investors, private foreign and Americans. The debt becomes less controllable. In a context of economic uncertainty, the sovereign debt is therefore exposed to a risk of increased market, the slowdown of growth (which for us sign the failure of the resumed) can only weigh on the sovereign debt which recovery ultimate is a problem. The FED in promising to acquire Treasury Bills are found to be recognized the risk on the debt long, risk from the logics of American investment and overseas. It is ready to buy Treasury Bills to ensure the coverage of subscriptions to reasonable interest rates. This intervention is all the more pressing than the rate directors of the EDF are maintained at levels low, supposed regulate the whole of levels of interest. It must therefore that the mastery of interest rates of the debt of State, deemed without risk, is provided on the whole spectrum of its maturities, and particularly on the long maturities which are more risk during their emissions.

2° Monetary Problems and dollar

The FED is also faces a monetary problem of more and more disturbing. The coverage of the deficit of the balance of payments on current risk of being less and less well protected if the treasury bills are selling well abroad. The problem is twofold: 1. the USA record a crisis of financial investments on the compartment of the investments of door sheet. Since the beginning of the crisis, the Treasury Bills have been offset tumble destruction of the purchases of products of securitisation public (RMBS of GSE) and private sector (ABS Issuers). The FED in buying Treasury Bills to compensate for the inadequacy of foreign investments (and also undoubtedly american) is thus in position to deprive the American currency of a part of its coverage provided by foreign purchases of Treasury; 2° but the procurement of treasury by the FED will have the effect a deflation rate of the value of the debt. The policy of the FED thus leads to discourage a little more foreign investors who lose on the value of their investment, as the dollar goes down. And to the extent that it has long these investments are of savings free offered to the Americans – the balance of the balance of RPI is always favorable to USA - then the decision of the FED to buy treasury involves losses equivalent to the degradation of the value of the American currency.

The decision of the FED seems to have opened for the first time a disconnect between the financial interests Americans and the interests of the most foreign investors. Certainly, there remains the interest rate as a weapon supreme to attract foreign capital. But having regard to the current financial configuration, a revival of interest rates commensurée to the erosion of the value of the American currency is incompatible with the continuation of the reorganization of the American economy. The ice therefore hear a crunch who announces deep – perhaps – of great(s) mutation(s) monetary(s). We see that the difficulties of the resumption are not without technical effect on the consolidation of the debt and that the technical measures debt consolidation will affect the world monetary order. It is in the final analysis the role of the dollar as international currency that has arisen. __3° Margin inflationary – deflation – recovery.

A second problem, and not the slightest, is that the choice of the EDF also includes a risk inflationary. This risk is in the level of measures to support the economy its true measure. In the current state of things, it should be noted a convergence between the policy of redemption of securities by the EDF in the context of the strategy of consolidation of debt and a policy inflationary. In effect, one and the other will have a very negative effect on the value of assets held by aliens to USA. Between the devaluation of the American currency and the undervaluing of the value of investments under the action of inflation, there is a convergence. It will be difficult to make us believe that the EDF has taken the decision to monetize debt without taking the measure of this double risk for foreign investors. It is a sign that the FED is well in the heart of the financial policy of the USA and that it is engaged in a new direction. Foreign investors in financial assets Americans could very well face victim of a America First without state of soul.

3° Logic of partial decisions and sliding in the inflation.

In a post recent, we said that the USA might slide into the inflation without ever having made a choice. The choice of the EDF on horseback about technical constraints various is typical of these processes which become difficult controllable after having been actuated. This process would be even if the USA controllable was in recession, but the crisis is a deep depression which is not recognized as such. Wants a proof? We are not far from thinking that the reduction of the budget deficit to T-1 and T-2 2010 has been in part the consequence of the problems of external financing of the debt of market of the USA. The slowdown of growth or failure of the resumption therefore involves find a loophole in the financing of the needs of the Treasury by the market. With the necessary consolidation of debt, the only institution to support the Treasury for reactivating of budgetary expenditure and financial remains the EDF. The problem in these terms, it is finger or processes which may become landslides fatal.

The adoption of a policy of monetization of debt led to a risk of devaluation of the dollar that could involve a deflation of the value of foreign financial asset. It is a corner pressed between the American interests and the interests of foreign investors allocated on the entire planet. The question is to determine what are the margins of national inflation which could be retained in addition to the devaluation of the currency. The EDF has estimated at 400 Md of $that it could recover in 2011 thanks to depreciation of the debts of agencies and the GSE. $400 Md of it is roughly 3 GDP points. In admitting that the slowdown in the economy leads to a deflation of 1 per cent of prices, the federal reserve can therefore finance 1% against-deflation and 2 per cent of growth in purchasing of Treasury Bills. The market would be relieved of financing needs non negligible to meet the failure of foreign investors.

The great question which arises is to fix the point of articulation between the excavation of the debt of the market and the needs of support to the economy. We reported of consolidating operations of the debt feasible by the FED, but how much should set the budgetary expenditure and financial to avoid a stag-deflation. It is ask again the problem of the revival of a U.S. economy in phase depressive illness. Two policies are then possible

1° The Treasury continues to absorb the national savings, the monetization limited of the debt is ensured in the framework of the limits of the reservations of the institutions of deposit lodged to the EDF. A side of the market, it is make these last a instrument of uptake of the savings available without cause strong inflationary effects.

2° Or then, the requirements of exit from the crisis are calling for means with the height of a depression, the savings available in USA, less the weakening the net balance of capital flows leads to a shift in the national inflation commissioned by the need to larger deficits to revive the economic machine American. The America Malaysia leads inexorably to the formation of a federal debt even more important through public credit without consideration of savings equivalent. And it is through public budgets deficit that inflation is developing in the real economy. The USA have this capacity for a very simple reason: the institutions of deposits may cover the monetization of debt of the FED because the credit is contraction. Beyond the savings consumed by the treasury, there is a financial resource inflationary as we call the on-credit. The training of debt by on-credit exists as soon as the coverage of the debt is no longer assured by the available savings, but by the notional values which is growing thanks to the recovery of the whole speculative range of financial assets. This process led directly to measures in favor of the resumption of American system, with heavy losses for the financial wealth which will suffer the inflation. The scenario may seem unlikely, but by renouncing support the real estate for shortest debt of State, the EDF and the Treasury have already integrated a risk of increased losses on the value of real estate heritages Americans. The Couple EDF-Treasury can therefore play coldly the map of losses on financial wealth of foreign investors and Americans.

The final calculations can be done is to revive the economy on a scale increased for finally have sufficient resources to stimulate a real recovery and restore to the finish the value of heritages initiated by inflation. This scenario is not exclusive of a risk of rescheduling of the federal debt american, associated to a threat of bankruptcy of the federal State. The question which is not resolved in the framework is to determine whether the level of resources to mobilize is not incompatible with the thresholds of inflation tolerable. For our part, we express on this point the most serious reservations.

It is in the process of forming the USA, a triangle which the three fatal angles are: the financial needs of recovery, the level of public expenditure fundable with inflation bearable, the alarming levels of public bond bubble. This bubble bond only consists not only of the 13 500 Md of $ of the financial debt. You have to add the 6000 billion of receivables GSE and the 2000 Md of debts of agencies that are entered in the bosom of the federal State. The USA are in a situation very risky where the monetization too much of the debt may lead to a Crash bond or financial difficulties without a name. The tragedy of USA is that a monetization too low a remaining debt to consolidate will not serve to grand-thing. It is a respite. A contrario a strong monetization to the height of a depression contains a risk: a crisis for American financial system and of the world economy whose epicentre will be the swelling of the public debt on bases inflationary unhealthy.

The graphs are to consult on this page
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