You Say "Tomato," I say "Hyper-Inflation"

There's no reason to panic yet, says Bloomberg:

International investors are increasing purchases of Treasuries on a bet U.S. inflation will remain subdued, even as the dollar falls to the lowest levels of the year and the budget deficit tops $1 trillion. Investors outside the U.S. bought 43.1 percent of the $1.41 trillion of notes and bonds sold by the Treasury Department this year, compared with 27.1 percent of the $527 billion issued at this point in 2008, government figures show. (Source)

The long-time concern amongst those few of moral fiber who have the courage to stand against Socialism is that the government's nearly pornographic predilection to stimulate can only last as long as U.S. savers (we're up to about seven now) and exchange-bearing foreigners continue to lend to us. But that willingness will diminish as soon as confidence returns to financial markets around the world and the U.S. dollar starts to fall. Or least so goes the argument.

And so despite the news as reported by Bloomberg, there are still those who have found in this recent round of economic data from the Fed reason to despair.

The degree of intermediation by the Federal Reserve in the issuance of US Treasuries hit a record in Q2, accounting for just under 50% of all net UST issuance absorption. This is a startling number, as the Fed's $164 billion in Q2 Treasury purchases dwarfs* the combined foreign/household UST purchases of $101 billion and $29 billion, respectively, over the same time period. (Source)

So on the one hand, international investors are remaining relatively steady in their commitment to our commitment to spending money that we don't have. In fact one might argue that an increase in treasury purchases of roughly half a trillion dollars from one year to the next isn't something to sneeze at. But on the shakier hand, the Treasury is issuing debt faster than any private or international actor can keep up with, the Federal Reserve is gobbling up an ever-increasing amount of the government's budgetary shortfall and, from the first to second quarter...

Foreign purchasers...have in fact been aggressively lowering their purchases of Treasuries (from $159 billion in Q1 to $101 billion in Q2, an almost 40% decline in appetite!)

While you might be swayed by the audacious combination of bold and exclamation, speaking from the convenient position of almost 100% ignorance, I would speculate first that $101 billion is still a hefty order (it only seems "dwarfed" in comparison to purchases during Q1 of 2009, when the treasury market played the over-valued black hole to all cash in the solar system) and, second, that certain lenders don't have a whole lot say in the matter. As the Bloomberg article points out, those countries aren't operating with a lot of short term wiggle room.

Foreign governments have little choice than to buy Treasuries because they hold so many dollars. The U.S. dollar accounts for 65 percent for world currency reserves, up from 62.8 percent in mid-2008, according to the International Monetary Fund in Washington.

Once upon a time, currency and asset values were propped up by the domestic central bank. But at least for now we're all in this one together.

*164 does not dwarf 130. That is not what that word means. I know that I'm nitpicking, but this is almost as aggravating as when people use the word "literally" when what they really should say is "the opposite of literally." No, you were not so embarrassed you literally died and 164 is only moderately larger than 130.