"Other" Is The Largest Treasury Buyer?

Where Are We Going?

There have been many times in the past when people would question the numbers coming out of China in regards to their growth rates, economic reports and statistics. In the past, I have seen many look at other metrics like energy usage, etc. to determine if growth forecasts and other reports were actually true. It makes sense that you can’t really have a growing, thriving economy without the energy needed to power the infrastructure needed to continue marching forward.

In the past many have raised the prospect that China makes up their numbers as they go along similar to the old Soviet Union. They have raised the specter that if we looked at their actual energy usage we may be able to better discern how close to the truth the actual reported numbers actually were.

Since I have been saying for some time that all of our numbers here in the USA are basically made up as we go along also, I thought it would be good to see how “real” our numbers actually are also.

Funny, the EIA (US Energy Information Administration) says that as of 2016 we here in the USA are using LESS energy than we were using in the year 2000. (US energy consumption peaked in 2007 and has not recovered).

Asset prices have continued to climb but it appears that actual energy usage and economic growth have come to a halt. Could it be that we are conjuring money up out of nowhere (which requires little to no effort or energy of any kind) to give the illusion that the underlying fundamentals are ok when maybe they are not as solid as we might have thought?

Could this be a warning that we are near an inflection point where the years of monetary debasement and all of the unintended consequences may be ready to be exposed?

It appears to me that with $22 trillion in admitted national debt, along with possibly up to $200 Trillion of unfunded liabilities (Social Security, Medicare, Prescription Drug Coverage, etc.) along with trillion + dollar deficits going forward we are addicted to ever-increasing debt. Let’s not forget about the “missing” $21 trillion from the Department of Defense and HUD that Dr. Mark Skidmore exposed. All that tells me is that we are likely further down the debt-trap hole than we are aware of.

This debt that I mention does NOT include state and local debts, personal debts or underfunded pension obligations that exist throughout governments and private employers. Just these debts add tens of trillions more in debt to the mix.

It appears that we here in the USA have replaced hard work and creative new businesses with a printing press and leisure for far more than a productive society could ever afford.  The energy numbers appear to bear that out. While a small percentage of decrease in energy usage may be from some green initiatives the fact that we are using less energy than we were 20 years ago says a lot.

The only real growth that I am seeing is in asset prices (great for those that own them) and in debt (likely the real reason behind the rising asset prices).

As I have said many times before each and every intervention into the markets have to be bigger than the last one to get the same effect. This is why I believe we are seeing and will likely continue to see debt growth that is truly astounding. 

In another potentially dangerous situation, it appears, according to the latest Treasury bulletin, that the rest of the world may be catching on to the fact that we may not be as fiscally fit as we would like the rest of the world to believe. From 2009-2014 only domestic buyers have stepped up buying of Treasury Securities. Intra-government purchases remained steady while Federal Reserve buying fell and foreign buyers have gone on a buying strike. Among the domestic buyers banks, private investors, insurers and state and local governments are all buying LESS in 2015-2018 than they did from 2009-2014. This makes a lot of sense when you consider that these entities need to earn a decent amount of interest that the Treasuries are simply not paying due to the Fed’s interventions in that market.

Mutual funds are buying more and “OTHER” (pretty much unidentifiable buyers) have bought the lion’s share of Treasuries since 2015. Call me crazy but when you can’t determine who the buyers are it is likely that they would like to remain anonymous. The only reason I can come up with is that if their identity was exposed it may just expose how reliant we may really be on “printing” up money and buying assets to pay our bills. I am sorry to say that our economy appears to be being run by a banana republic type system.

Even though we have had MASSIVE economic stimulus in the last 10 years we are seeing tax receipts decrease and liabilities increasing in an exponential manner. It appears we are buying economic growth with debt. The problem here is that we are needing more and more debt to get less “growth”. This just means that we have borrowed future economic growth likely from FAR into the future.

How reliant are we on debt as real people? How about a recent Fed survey that said 40% of all adult Americans couldn’t come up with $400.00 without using a credit card or selling an asset. Even government workers during the recent shutdown were reported to be going to food banks and other aid centers to get by.

Stories like these make it hard to fathom that most people will be able to have a secure retirement when they stop working when they are not prepared for a few-week layoff when they are actively at work. This is not a swipe at those in this position- it IS a swipe at those who have put many of us IN this position with their distortion of ALL market prices.

It appears that the US economy is now totally dependent upon money “printing” and asset purchases to pay our bills and retire outstanding debt. It also appears that any disruption of this scenario could result in an immediate recalculation of asset values- those being propped up would likely fall hard and those being artificially held down would likely rally in a manner that most can’t fathom at this time. 

As I am heading towards retirement age myself I can’t help but be massively concerned about the total lack of morality and prudence in our current financial system. We are here in the USA but this problem is global. The entire global financial system appears to be under the spell of central banks planning outcomes rather than letting the market decide fair prices. The level of intervention is historic and untested. The result will ultimately likely be historical in the unwinding of all the entrenched false prices.

False prices typically create false outcomes. Many farmers can’t earn a living wage. Shipping companies are losing money on current shipments (Baltic Dry Index rates). Many regular people can’t afford homes and cars. More importantly, many who work still cannot afford to live. They work and still need help with rents (section 8) and food (EBT).

In a real market-based economy hard work would be rewarded. In the current environment it seems to be punished because those “collecting” government subsidies in many cases wind up financially better off short term. Keep in mind the “short-term” part as those who are currently collecting will likely suffer greatly when the liquidity river dries up and they find themselves with little to no marketable skills. At that point those that stuck to it and kept working will likely be in far better shape than those who have lost their edge.

It is also likely that those who have looked beyond the headlines, financial gameshow propaganda and have looked at real numbers and real news, will have a better understanding of what it may take to survive and hopefully thrive in a different type of economic environment than we have been seeing recently.

IF … this system was designed to last for a long time central banks would NOT be buying record amounts of gold (651 TONS in 2018)*. Countries would not be buying and repatriating record amounts of gold. Major banks would not be buying tons (literally) of gold. Many hedge funds and billionaires would likely not be buying either. But they all are. Are YOU?

Be Prepared!  

Mike Savage, Financial Advisor
2642 Route 940 Pocono Summit, Pa. 18346
(570) 730-4880.