The Name is Bond - Part V
At the end of 2003, foreign central banks held $2.1 Trillion in dollar denominated securities.
More or less 50% of the of the marketable outstanding Treasury debt. Yet this debt is NOT really held by foreigners.
To make a long story short, off shore joint ventures or wholly owned US subsidiaries make overseas profits in an export based foreign country.
These export based profits are invested into local foreign sovereign debt instruments that pay high yields, profiting from Forex (inter currency interest rate) arbitrage. i.e. 60% of Chinese export is traded by non Chinese companies.
These exporting foreign economies with dollar trade surpluses then exchange the high yield domestic debt instruments for US dollars, which in turn are used to buy low yield US bonds and other assets.
To review the above, the profits earned by offshore US operations are used to buy the local foreign government bonds, those foreign bonds are then exchanged for US dollars. The dollars are then used to buy US bonds and US assets.
So when Bernanke refers to a global savings "glut" and that foreigners need to spend more and save less, what he really means is the multinational corporations need to bust loose with some of their offshore bank.
Rather than making domestic capital investments to promote a durable economic base, the corporate chislers have profited by outsourcing our jobs to labor at the margin.
To add insult to injury, these robber barons have channeled our domestic savings away from local uses and into international capital markets to chase yield through arbitrage and money shuffling activities. This is true globalization at work.
Much like Communism, on paper, globalization is a nice intellectual theory. In practice nothing more than a euphemism for borderless multi national corporate rape and pillage. More to come on carry trades and the PPT in Part VI.
More or less 50% of the of the marketable outstanding Treasury debt. Yet this debt is NOT really held by foreigners.
To make a long story short, off shore joint ventures or wholly owned US subsidiaries make overseas profits in an export based foreign country.
These export based profits are invested into local foreign sovereign debt instruments that pay high yields, profiting from Forex (inter currency interest rate) arbitrage. i.e. 60% of Chinese export is traded by non Chinese companies.
These exporting foreign economies with dollar trade surpluses then exchange the high yield domestic debt instruments for US dollars, which in turn are used to buy low yield US bonds and other assets.
To review the above, the profits earned by offshore US operations are used to buy the local foreign government bonds, those foreign bonds are then exchanged for US dollars. The dollars are then used to buy US bonds and US assets.
So when Bernanke refers to a global savings "glut" and that foreigners need to spend more and save less, what he really means is the multinational corporations need to bust loose with some of their offshore bank.
Rather than making domestic capital investments to promote a durable economic base, the corporate chislers have profited by outsourcing our jobs to labor at the margin.
To add insult to injury, these robber barons have channeled our domestic savings away from local uses and into international capital markets to chase yield through arbitrage and money shuffling activities. This is true globalization at work.
Much like Communism, on paper, globalization is a nice intellectual theory. In practice nothing more than a euphemism for borderless multi national corporate rape and pillage. More to come on carry trades and the PPT in Part VI.
Comments