A New Concern: Falling US Treasury Demand

American Institute of Economic Research ^ | November 8, 2022 | Peter C. Earle, Zachary Shuter, and Zhezheng Zhang

[C19fan]

Media coverage of inflationary effects primarily focuses on the impact of rising price levels upon consumers and producers, but there are clearly effects beyond those. As monetary authorities initiate policies intending to stem the upward trend of prices, financial markets may become more volatile than normal. Should inflation prove stubborn, or particularly unpredictable and thus difficult for contractionary monetary policy to counteract, financial markets may become excessively volatile. High levels of volatility dissuade investment, and at very high levels, careening markets may pose a threat to financial stability. In either case, the prices that guide economic calculation become less reliable. Supply- and demand-driven changes in relative prices, which provide information to entrepreneurs and seasoned managers alike, can be completely masked by broad moves in the general price level.

Early in the pandemic, the Federal Reserve undertook one of the fastest quantitative easing campaigns in its then-107 year history, under conditions ostensibly necessitating such actions. But like all major government programs, unintended consequences are likely; we may be experiencing some early effects at present.

[C19fan]

I spent a summer at the American Institute of Economic Research. Beautiful place in the Berkshires of Western Massachusetts. The institute is libertarian although for some reason the person running it at the time was very big into John Dewey. I tried to read some Dewey and received headaches as a reward. Never could reconcile, with my Wikipedia knowledge of Dewey, what seems trying to mix oil and water. I was talking to a coworker at work who does hedging. He mentioned his world has been crazy as the demand for all fixed income securities has collapse due to uncertainty with inflation and Federal Reserve policy. I know part of the Fed reducing its balance sheet is attrition through maturing bonds. In a sense this current market, might put a halt to the Fed actively trying to reduce its balance sheet leaving much more inflationary kindle ready to burn.

[Erik Latranyi]

Pefect time for the Chinese Yuan to become the world reserve currency for oil.

The collapse is coming.

[C19fan]

I have my doubts about the Yuan with Dictator Xi in charge. There was an article about Chinese businessmen wanting to get away from Mao 2.0 before it is too late.

[DesertRhino]

Hate to say it, but the securities collapse and the resulting depression is probably what it will take to restore America now. The American voter hasn’t been in enough pain to cause them to stop voting for trivial reasons.
Depression will be our friend… as a fever kills a virus

[Bayard]

Depression historically was good for Democrats. They are really good at blaming others for failures they caused. How would that be different?

[pierrem15]

Perfect time for the Chinese Yuan to become the world reserve currency for oil.

Saddled with even more debt than we have and an even more corrupt dictatorship? Not likely.

[DesertRhino]

They need to be hungry and living in a tent with no heat… then maybe roe vs Wade or global warming won’t be their main concern when voting.

[Erik Latranyi]

Saddled with even more debt than we have and an even more corrupt dictatorship? Not likely.

You don't get it. If oil gets traded in Yuan, China will have more access to debt and the US will lose its funding for debt.

China will thrive and the US will collapse.

[Fai Mao]

I welcome the collapse. The left ha e robbed us, lied and cheated, let them starve, I will die happy knowing they are miserable.

[Bayard]

Has this been shown to actually turn people to Republicans in any city where they already are in tents?

[griswold3]

Of course they have the answers to our ills. None of them good. Biden imagines himself as FDR, transformational “Progressive”.

[griswold3]

The Left will find scapegoats who will be punished for their economic crimes by civil forfeiture of their assets. Private Property rights are not recognized.
Think of the Vault in CA that was raided with a false warrant. The FIB gets to keep the $86M
https://www.foxnews.com/us/judge-sides-with-fbi-in-86m-beverly-hills-private-vault-seizure-prompting-lawyers-4th-amendment-outcry

[Fai Mao]

They will still starve in the dark. May God have mercy on them.

[Alberta's Child]

According to the link you posted, the FBI did not keep the $86 million. At least $50 million of the assets had been returned to the customers of the vault/storage company by the time the article was written, and all the customers were instructed to apply to get their money and/or valuables back.

[pierrem15]

And from where will everyone get Yuan to trade for oil? The US dollar became the reserve currency because the US allowed the accumulation of dollars by other countries via trade deficits.

Just think of what would happen should the Yuan become tradable for oil: demand for Yuan would skyrocket, the exchange rate of the Yuan would soar and China would lose hundreds of billions in exports.

Neither China nor the EU will ever give up their mercantilist policies, so neither the Euro nor the Yuan will ever become reserve currencies.

[Vermont Lt]

That must have been an interesting experience.

Was that in college, or as part of a job?

[C19fan]

I spent the summer there with other students enrolling in graduate school in the fall.

[Vermont Lt]

Did it change the way you were thinking? Or did it enhance what your undergrad degree taught you?