COMMENT: Hi Martin
I am a macro manager. I read your article on April 9th about Public/ private.
I agree it will happen but Commercial banks hold only a tiny part of the US Treasury as you will see from the graph attached. They will probably buy on the way up and China reserve growth is slowing making domestic buyers the prime target . There is scarcity of quality collateral with all new type of regulations (Dodd, Basel III etc..)
Thanks for your good work.
REPLY: The bank holding of Treasuries is not significant. With QE1-3, the banks complained that there would be no securities to park money in. Hence, the Fed created the Excess Reserve facility where banks park over $2 trillion in cash collecting 0.25%. That would have been an admixture of Treasuries and loans otherwise. Those who think everything is about fractional banking do not know what they are yelling about for to create that effect, the bank must lend. Between Excess Reserves and Treasuries, fractional banking is reduced – not expanded.
The debt bought in by central banks is unlikely to see the private debt markets ever again and new debt coming out will meet higher resistance when we begin to see a rude-awakening that the debt crisis is not the consumer and private loans which are largely backed by some collateral (even if it declines by 50%), but buy public debt that is totally UNSECURED and has no backing whatsoever. That is where the debt crisis comes into play – the new debt will rise causing interest rates to reverse and the budgets will explode exponentially. That is when it becomes more obvious to the general public that this is a government problem – not private this time.
Full article: The Coming Public Debt Crisis (Armstrong Economics)