Monday, March 2, 2009

‘Leave it to Beaver’ Savings Lifts U.S. Bond Holdings

"What if the Chinese don't buy our debt?"

Then Americans will. Or someone else. That worry has always been unfounded because the money to buy gov't securities comes from government spending itself.

Americans are lifting their purchases of government securities to levels not seen in decades according to this story:

U.S. government debt is gaining favor with a group of investors who lowered their exposure to Treasuries in nine of the past 11 years -- American citizens.

Merrill Lynch & Co. says U.S. bonds owned by individuals likely will account for 2 percent of households’ financial assets by 2013, up from 0.2 percent now. That level hasn’t been hit since the months following the Sept. 11, 2001, terror attacks, Federal Reserve data show. Americans’ direct purchases will rival the $1 trillion foreigners probably will buy in the next five years, Merrill predicts.

Read here.


Unknown said...

“When the savings rate rises, there will be more ownership of Treasuries,” said Miller Tabak’s Crescenzi. “The rise in savings is coming along at a very important time. There will be plenty of cash to fund the deficit.”

This is a gem isn't it? Doesn't understand that govt spending preceeds borrowing.

mike norman said...


It's funny you sent that to me. I saw that too and was going to highlight it in my post. It is quite a gem, you're right. Crecenzi is a well-known and highly followed bond analyst who's been around for a long time. This basic concept...he's just completely clueless and things it's just pure serendipity. Unreal!

cuOnTheOtherSide said...

-- Americans are lifting their purchases of government securities --

Is that a good thing or a bad thing?
Looking at the deflation of other assets Treasures are the safest bets.

Is that telling us we are saving more or there is a mass exit from other assets?

mike norman said...

It's bad.

It's bad because the rise in savings are not coming about as a result of rising wealth, but because people are hoarding whatever disposable income they have. It's Keynes's, "Paradox of Thrift."

The purchase of Treasuries by Americans is merely a reflection of the collapse of other assets, like stocks and real estate, which for so long have been the two main assets comprising household wealth.

googleheim said...

I was listening to Dr Lauffer on bizradio on last Monday, and he's directing all blame to Obama. What a GOP boy scout.

He also said he is buying farmland in Kentucky.

So he is following Ted Turner now, who put all his money in the dirt of Montana, New Mexico, and Argentina in the lowest entropy form of asset which cannot go any lower.

However, Ted Turner learned his lesson from the dot com implosion in which his 10 billion devalued down to 1 to 3 billion. This is what delayed his United Nation project funding.

So Turner should be insulated somewhat.

However, Dr Lauffer is like leave it to beaver and late in the game.

mike norman said...

Back in January 2008 at a BizRadio event that was held in Houston (and where I was in attendance), Laffer said his best investment idea was "France."

googleheim said...

His "Lauffer Curve of Tax Revenue" is a basic and good concept.

However, he does not apply it himself with the curve's own implications.

The bell curve optimizes revenue.

Left hand side - taxes too low and no revenue.

right hand side - taxes too high and no revenue.

However, most fiscal conservative tax cutters always are on the right hand side, and how can that be ? Never do they say taxes are to low ??