Is it just a nightmare or we are serious here talking about "debt burden" like in any Third Word Country after "stabilising" IMF loan? With 5.2 trillion debt outstanding and 5% (we will come to discuss this figure later) interest payments by USA Corp. will be 260 billion dollars annually just to service these agencies debt, assuming that there will be no any dramatic Yield Rise in coming refinances demanded by potential buyers. To put it into perspective:
The FDIC oversees an industry-funded reserve, which currently stands at about $45 billion, used to insure up to $100,000 per account and $250,000 per individual retirement account at insured banks."
Every year you can build 6 FDIC funds to protect your citizens savings (here I have a question - does anybody still have any?) or make every year 6 Olympics games like they did in China (40 billion spent) in six different cities across USA. It will be nice to have "Bubble" pools all across the country in couple of years time.
The quality of assets which USA Corp. gets vs this "fixed" debt obligation are under question at least: Freddie, Fannie worse off than thought Housing values are still falling down and people are going away from their properties. More and more money will be printed to cover the gap.
Another food for thought with this kind of bail out and strain on the US balance sheet what government can do in another case of "Too big to fail"? Like GM or another investment bank?
Foreign buyers have cut dramatically on their appetite for Fannie and Freddie debt just before the bail out. Now when this debt will be substituted by Treasuries does it mean that its quality will be upgraded to their "AAA" status? I will think that contrary with deterioration of Federal Balance Sheet this debt quality will be downgraded. Buyers will demand discount on these "assets" in the form of higher yield. Next thing we will have to watch is TYX 30-Year Treasuries Yield, time of historical lows for the yield (now at 4.276%) is over, welcome to the 70s when Yield raise from below 8% in 1977 to over 14% in 5 years time. Should I remind how Gold behaved in those years?
Everything must be taken in comparison: recent intervention by central banks before "Operation Bail Out" was portrayed as "comparative" advantage of USA economical situation vs Europe troubles. I dare to think situation is different and magnitude of this intervention in the "free" markets will not be challenged by any other economy in the world or for this matter by all of the rest world economies combined. Europe CB and Bank of England have hold their respective rates at 4.25% and 5% last week. According to Jim Rogers China has raised its interest rates 7 times and increased Banks reserved requirements 15 times (!) in order to prevent overheating in the economy and take out pure speculation from its long term rising stock market.
Recent manipulation has brought new opportunities into the market :
1. Time is to sell USD assets using recent spike in its value.
2. It is The Inflation, forget about deflation and let FED to worry about it.
3. Sell Treasuries, buy Gold, Silver and commodities.
4. Emerging markets could be carefully considered on case by case bases as wave of new credit will penetrate the boarders.
5. Could not resist: this recent USD spike is not in favor of Google GOOG on shrinking market it has getting a nice boost from its overseas operation with falling US Dollar. Without that tail wind results are going to be on track showing slowing rate of growth further.
6. Oil is too political for me to consider any trade here, Saudi friends will help old buddies try to stay in office and can pump like there is no tomorrow, but long term life is going to be more like in 150-200 range at least.
"NEW YORK, Sept 4 (Reuters) - Foreign central banks reduced their U.S. agency security holdings at the Federal Reserve by $9.75 billion in the latest week to a total of $958.57 billion, according to data from the central bank released on Thursday.
The data may add to recent evidence that overseas investors are worried about the troubled mortgage giants.
The drop marked a seventh straight week of declines in offshore central bank holdings of bonds issued or guaranteed by government-sponsored enterprises like Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), which have recently taken center stage in the U.S. housing crisis.
Overall, the Fed's holdings of U.S. Treasury and agency securities kept for overseas central banks, including Treasury notes and bonds as well as agency securities, fell by $13.48 billion to stand at a total of $2.395 trillion in the latest week ending Sept. 3, the Fed data showed.
Overseas central banks reduced their Treasury debt holdings by $3.72 billion to stand at $1.437 trillion.
Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years, and own over a quarter of marketable Treasuries."
The data may add to recent evidence that overseas investors are worried about the troubled mortgage giants.
The drop marked a seventh straight week of declines in offshore central bank holdings of bonds issued or guaranteed by government-sponsored enterprises like Fannie Mae (FNM.N: Quote, Profile, Research, Stock Buzz) and Freddie Mac (FRE.N: Quote, Profile, Research, Stock Buzz), which have recently taken center stage in the U.S. housing crisis.
Overall, the Fed's holdings of U.S. Treasury and agency securities kept for overseas central banks, including Treasury notes and bonds as well as agency securities, fell by $13.48 billion to stand at a total of $2.395 trillion in the latest week ending Sept. 3, the Fed data showed.
Overseas central banks reduced their Treasury debt holdings by $3.72 billion to stand at $1.437 trillion.
Overseas central banks, particularly those in Asia, have been huge buyers of U.S. debt in recent years, and own over a quarter of marketable Treasuries."
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