More US Dollars Flow Back to the US - Caleb Jones

Foreign central banks are continuing to rid themselves of US dollars. From November 2015 to November 2016, central banks have sold $405 billion US treasures, much of which back to the US government, which is a new record. Much of this treasury dumping was from Japan, which was its fourth month in a row of doing so. The biggest seller, unsurprisingly, was China. They dumped $66.4 billion of our treasuries in just one month, which was the biggest monthly sale in five years. China’s total US treasury holdings are now at their lowest levels in seven years.

None of this is good news for the Western world. As I discussed here, one of the possible collapse scenarios for the US (number 3a in that article) is that everyone starts dumping their US bonds, and billions of US dollars avalanche back into the US, crashing the value of the dollar and the purchasing power of all Americans.

We’re not exactly seeing an avalanche yet, but we’re clearly seeing a small river, and one that’s growing every month. A year ago, foreign governments owned $4.1 trillion in US bonds. Today they have $3.7 trillion. That’s not insignificant for a one-year change.

I glance at a few key economic numbers every morning, including the US dollar. The value of the dollar seems to be unaffected at the moment, but the value of gold has been rising sharply since the middle of December. On Dec 15th, 2016 it was $1130 per ounce; today it’s over $1200 per ounce. That makes me smile a little bit.

This could all be meaningless in the short to mid-term though. If a huge financial crisis hits the world, most people will idiotically flock to the dollar, since they think it’s a safe currency, when in fact it is not. This would be good for the dollar and bad for gold. In the long-term however, I don’t see mathematically how gold can’t explode in value. Exactly when, I have no idea, I just think it’s coming.

16 Comments on “More US Dollars Flow Back to the US

  1. Where’s the comparison with the start of other hike cycles? If this is the biggest monthly sale in only 5 years, it’s practically irrelevant, because it’s not even a half-cycle. Your “small river” was trickling more than this 5 years ago and nothing happened. By the way, gold was $1800 then

    Typical overthinking from Zero-Hedge. It’s like all the other media: They have to fill several articles per day so no amount of alarmism is too much.

    Credit is AWESOME after the panic of 1 year ago, back when we were all going to default on our debts because of low oil price. The raging corporate credit market shows any major downturn in stocks is at least 2 years away. S&P500 at 2500 is a matter of when, not if.

  2. You’re more or less right. I’m not saying this a catastrophe, or even a major problem (yet). It’s simply yet another indicator pointing in a certain direction. I said that myself in the article. Guys like Zero Hedge and Peter Schiff do tend to be too alarmist sometimes.

    And yes, it’s billion, not million (corrected).

    The raging corporate credit market shows any major downturn in stocks is at least 2 years away. S&P500 at 2500 is a matter of when, not if.

    On that you’re wrong. It doesn’t matter if the S&P hits 2500. What matters is why it hits 2500. Is it hitting that because that’s the true value of the companies there, or is it hitting that because of a bullshit stock/credit bubble? The answer is the latter, which is bad thing, not a good thing.

  3. And how does your point make me wrong? 🙂 You’re preaching to the choir about healthiness of valuations. Bubbles are bad but are there to ride them. As you like to say about politics, we cannot change anything. We may at least enjoy the ride knowing that it’s all bullshit. It seems delusional to me to deny the good signs there have been since last February (which to me was the end of a 9-month bear market that will never enter the books), and this is coming from someone who got interested in the market cycles through the writings of lately permabear John P. Hussman.

    There will come a year when the bubble will burst, but it is not this year.

  4. Why does it mean that usd are flowing back to usa?

    When foreign US bond holders sell their bonds back to the US, they’re essentially trading US dollars (that go to us) for their own currency (that goes to them). That’s not exactly how it works, but that’s the gist.

    And how does your point make me wrong?

    Because you were strongly implying that everything is just fine because the S&P will go to 2500 soon. Everything is not fine.

    Bubbles are bad but are there to ride them. As you like to say about politics, we cannot change anything. We may at least enjoy the ride knowing that it’s all bullshit.

    Agree completely, but the short-term future isn’t what I’m concerned with. It’s the long-term future I’m focused on.

  5. Why do you think gold will explode? Also, does anyone question the inherent value of gold (is has very little, really) and why not? Doesn’t anyone think this will change? It seems to me to be about the same as any currency; only valuable because other people think it is valuable.

  6. I agree with your sentiments on the USD – and your thinking
    Exporting US Dollars has essentially been the defacto, underlying engine (or more like the oil in the engine) of Global trade and growth since the Breton woods agreement – 70 odd years.
    And keeping the US Dollar as the worlds reserve currency, has been a national policy, in maintaining its position as the sole Superpower.

    (The reasons how this came to be are well discussed by other analysts)

    US Dollars returning “home” is definitely something that needs monitoring – and could be a precursor of a dollar “death” or Dollar revaluation.

    but currently it’s the best of a bad bunch.
    We’re likely to see two fed hikes of a 1/4 point in ’17.
    The U.K. Can’t , Europe is zero or negative, with QE continuing / expanding, Japan is well … Enuff said on Japan.

    China is a different story – they are slowly and purposefully detaching their ties with the USD construct.
    It’s always has been their plan.
    Once they sell most of their treasuries – unpegging the Yuan would be the natural step and disclosing the tonnage of gold they own, the next ( what is it 20k by some estimates)
    Will that happen in 2017 – unlikely
    Some point in the next decade – count on it.

    Thanks for posting on this BD – I think more people should be aware of what money is.

    it’s the ULTIMATE proof that Governments, do not have your best interests at heart.
    Inflation should not be a target!

    And why they suppress gold and demonize guns.

    Any thoughts on Bitcoin?

    The technology seems solid. – and the fact they will only produce 21 million coins, ever. Seems a promising proposition.

  7. Caleb, regarding the likely collapse and building personal security… I like the Alpha 2.0 strategy… but, I am curious what do you think about buying a piece of land, working towards getting off grid, learning to grow most of your own food, and putting roots down and building community. That seems like a good way to survive anything in my mind… what say you?

  8. Hi Caleb,

    I haven’t seen you address this on your blogs- regarding buying gold:
    When buying gold coins in person, at a dealer, with cash, what do you do to make sure they are real and legit? I know there are tester kits and stuff- is it necessary to invest in the expensive ones to make sure you don’t get screwed?

  9. Why do you think gold will explode?

    Because the value of the dollar will collapse (I use dollars to buy my gold).

    It will be a long time though.

    It seems to me to be about the same as any currency

    Incorrect. Trillions of dollars of gold can’t be printed at will like fiat currency can.

    Exporting US Dollars has essentially been the defacto, underlying engine (or more like the oil in the engine) of Global trade and growth since the Breton woods agreement – 70 odd years.

    Correct.

    Thanks for posting on this BD – I think more people should be aware of what money is.

    So do I. But they’re too busy screaming about more important issues like transgender bathrooms and minimum wage.

    Any thoughts on Bitcoin?

    Love it, and own it. However, I consider it a 1.0 technology. I’m patently waiting for a 2.0 version to be embraced. Then you’ll see some big changes (hopefully).

    I’ll be writing articles about Bitcoin and cryptocurrency soon.

    I am curious what do you think about buying a piece of land, working towards getting off grid, learning to grow most of your own food, and putting roots down and building community. That seems like a good way to survive anything in my mind… what say you?

    It’s not my style but I think it’s a wonderful thing to do, and is another version of living Alpha 2.0. I email with lots of Alpha 2.0s who are doing this, or working on doing this. Very cool and highly recommended.

    When buying gold coins in person, at a dealer, with cash, what do you do to make sure they are real and legit?

    That’s a complicated topic, but the short answer is to establish a close relationship with a local coin dealer that has been in business for A LONG TIME, only buy American Eagles, use your own tester, and learn how to spot counterfeits.

  10. I am surprised that you consider off-grid living/homesteading to be Alpha 2.0 since it is heavily location dependent and could be viewed as a decrease in freedom (since you may have to tend to the animals etc.). How do you reconcile this?

  11. I am surprised that you consider off-grid living/homesteading to be Alpha 2.0 since it is heavily location dependent and could be viewed as a decrease in freedom (since you may have to tend to the animals etc.). How do you reconcile this?

    You’re mixing up Alpha Male 2.0 with digital nomad / nomad capitalist / perpetual traveler. Those are two different things.

    The Alpha Male 2.0 has location independent income and lives in a place with reasonably low regulations and taxes.

    The digital nomad / nomad capitalist / perpetual traveler lives an entirely location independent lifestyle, and never lives anywhere longer than about six months, constantly moving and never settling. This is one type of Alpha Male 2.0, but the reverse is not true.

    Once 100% of your income (or close to it) is location independent, with diverse income sources, and you’re nonmonogamous, and you’ve moved to a place with reasonably low regs/taxes, you’re done; you’re Alpha 2.0. Provided you have the ability to move elsewhere in the world if you need to, how long you stay at your new home is completely up to you and has nothing to do with Alpha 2.0.

    I’m Alpha 2.0 and I plan on living in the house I low live in for another eight years. I can move out of the country sooner if I really need to, because of my location independent income and Alpha 2.0 life structure, but if I chose to stay at my current house for the next 30 years because it truly made me happy, that wouldn’t make me any less Alpha 2.0.

    So as long as the homesteader follows the above parameters, he’s as Alpha 2.0 as they come.

  12. Bitcoin will explode Caleb, not gold. Gold will hold value, maybe go up about 200-300%, but if you are smart you’ll realize it is bitcoin that will soar immensely

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