I proposed a hypothesis on US debt levels few weeks back: "US debt has dramatically expanded not (only) because of Bush administration but (also) because of the buyback of US currency as it shifts its status from 'absolute reserve' to 'leading reserve' ."
I asked around and didn't get any confirmation on the hypothesis of the managed washing of the US currency! Here's an indication that others are also spotting it. Anne Streiber writes:
There is evidence that the US is attempting to manage the decline by purchasing its own debt. As Asian purchasing of US paper declined last month, the slack was taken up by Caribbean and UK banks that would not normally have the liquidity to make such purchases. Therefore, they are acting for a third party, and the only party that would buy dollars when a loss in value is inevitable is the US Treasury.
Curiously, we've known about the USD washback to the US for years, in the sense of an expectation. And we've known that US debt levels have been soaring for a long time. But it took the confirmatory evidence from central banks around the world, post facto, before we were confident enough in our understanding to take the next step - join the two as causal.
Which means, the Fed does know a lot more than we think. We are years behind.Posted by iang at June 23, 2006 06:41 AM | TrackBack