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Give Us What We Want, Or Else. Or Else What?
TND Guest Contributor: Paul-Martin Foss |
The US Treasury Department has issued a new rule that would request foreign governments, foreign central banks, and international monetary authorities to report to the federal government if they hold large positions in US Treasury securities. With nearly $13 trillion in debt held by the public, and almost half of that held by foreigners, it’s understandable that Treasury is getting nervous about foreign governments using their Treasury holdings as leverage. Of course, the solution to that is not to issue trillions of dollars of debt in the first place.
But this new rule that ends the reporting exemption that foreign governments and international entities enjoyed is just the latest in a series of steps that the US government is taking that serve to irritate foreign nations. Does Treasury really think that foreign central banks are going to expend precious man-hours compiling information and filing reports that only benefit the United States? Since foreign purchases of Treasuries, along with Federal Reserve quantitative easing, have been the reason Treasury has been able to get away with running such huge deficits and issuing so much debt at such low interest rates, this smacks of Treasury biting the hand that feeds them. Is Treasury really that clueless? It may very well be.
In the NPR, Treasury proposed to eliminate the exemptions for foreign central banks, foreign governments, and international monetary authorities and request that these entities as well as U.S. Federal Reserve Banks for their own account voluntarily submit Reports if they meet or exceed the reporting threshold(s). We did not receive any comments on this proposed amendment and, therefore, we are adopting it as proposed.
I highly doubt that the People’s Bank of China, the Bank of Japan, or any other central bank or foreign government has any staff tasked with scanning the Federal Register every day to see what regulations the US government is seeking to apply to them. The idea that an agency of one government could expect to place unilateral burdens on governments around the world is ridiculous. Only American bureaucrats, with their views of American exceptionalism and their failure to realize that the sun has long since set on the American empire, could be so myopic.
Of course, the real lesson to be learned here is that if you’re asking for foreign governments to report how much of your debt they hold, you obviously have no clue who has bought it, who holds it, and who could hurt you by dumping it or calling it in. You’re flying blind, your spending is out of control, and if you don’t get a handle on it soon, you’ll be in deep, deep trouble.
***A little more technical discussion down here so as not to bore everyone up above.***
“Large position” has been redefined from $2 billion to at least 10 percent of the amount outstanding of a specified treasury security, for instance, a 3-month T-bill, a 5-year T-note, etc. Since QE3 focused on driving down interest rates through purchases of longer-term notes and bonds, what was left to the markets was mostly shorter-term debt. For the past several years, Treasury has been funding government operations through a significant amount of short-term debt issuance. This of course requires a steady rollover of debt, sometimes with hundreds of billions or over a trillion dollars worth of securities coming due in a short time frame. If a bondholder doesn’t want to roll over its debt, and instead asks for redemption, Treasury has to pay it.
What Treasury is probably worried about is a large bondholder such as China deciding to take a large position or large positions in short-term securities all coming due around a certain date and then demanding redemption. If it comes at the wrong time (for Treasury), even a few billion dollars could very well lead to default. Treasury wouldn’t have the cash to redeem the securities, they would be forced to default, and the consequences could be severe. Hence the reason Treasury wants foreign governments and central banks to file reports, and why those reports would seek to find out information about specific issuances of Treasury securities.
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About Paul-Martin Foss:
Paul-Martin Foss is the founder, President, and Executive Director of the Carl Menger Center for the Study of Money and Banking, an Arlington, VA-based think tank dedicated to educating the American people on the importance of sound money and sound banking.
Prior to founding the Menger Center, Mr. Foss worked in the U.S. House of Representatives for seven years, including six years as Congressman Ron Paul’s legislative assistant for monetary policy and financial services, and one year as Deputy Legislative Director for Congressman Thomas Massie.
As Congressman Paul’s legislative assistant, he assisted the Congressman in his duties as Chairman of the Subcommittee on Domestic Monetary Policy by helping to develop hearing topics, agendas, and briefing Congressmen and their staffs on monetary policy topics. Mr. Foss also was responsible for the management of Dr. Paul’s monetary policy and financial services legislation, including the “Audit the Fed” and “End the Fed” bills, and was co-editor of Ron Paul’s Monetary Policy Anthology, a multi-thousand page compilation of hearing transcripts, lecture transcripts, and other documents related to Dr. Paul’s chairmanship.
Mr. Foss received his Bachelor’s degree from The University of the South (Sewanee), and Master’s degrees from the London School of Economics and Georgetown University’s Edmund A. Walsh School of Foreign Service.
This article appeared on the Carl Menger Center for the Study of Money and Banking and is reprinted with permission, “Creative Commons 4.0.”
Source: http://thenewsdoctors.com/give-us-what-we-want-or-else-or-else-what/
