A GLOBAL LIQUIDITY SHOCK FROM $1T OF NEW & SOMA TREASURY ROLL-OFF IN FIRST 8 MONTHS OF 2018 ALONE

-- TAKEN FROM: 09-21-18 Global Macro Monitor - "The Gathering Storm In The Treasury Market" --

Global liquidity, in the form of base money is shrinking, but the monetary aggregates continue to grow, albeit slowly, which reflects credit is still expanding, and the continued creation of endogenous money.  The term “global liquidity” is not easily defined, it is an elusive and ambiguous concept, and almost impossible to measure.  We believe our analysis and work provides a much clearer framework and more concise picture of the current global market dynamics.

Emerging Markets – The Indicator Species Of Changing Financial Ecosystem 

Nevertheless, we are always looking for indicator species of a changing global monetary ecosystem, and the emerging markets and commodities are the best we have discovered.

 

Treasury_ETFs

“Sleeping With An Elephant”

Justin‘s father, the former Canadian Prime Minister and, more important,  husband of Margaret Trudeau, once said of living in a world with the United States,

Living next to you is in some ways is like sleeping with an elephant. No matter how friendly and even-tempered is the beast if I can call it that, one is affected by every twitch and grunt. — Pierre Trudeau.

Due to the relatively large size of the U.S. economy, just a small change in its funding requirements have outsize effects on the global financial system.   The table below illustrates this point.  It’s obese proportion relative to the global economy also makes the U.S. government a price maker in the global financial markets.

The issuance of marketable Treasury securities and the SOMA Treasury roll-off totaled $1.02 trillion in the first eight months of 2018.   That is

  • almost four times the sum of the ten largest 2018 estimated current account deficits in the emerging markets;
  • 2.4 times the combined current account deficits of all emerging markets;
  • 3.7 percent of the emerging market 2018 GDP, and
  • almost 5 percent of the GDP of all emerging markets x/ China.

Yuuge!

Treasury_EM_CABs

 

We cannot impress enough what a significant shock to the financial markets this has been in 2018.

The Treasury net take-out from the public was net-zero from January to August 2017.  Compare this to the first eight months of 2018, in which the U.S. G  hoovered up over a trillion dollars from the markets.

In the world of full-blown quantitative easing,  where central banks were printing reserves to purchase government bonds (among other assets) the effects were trivial, null, nonexistent.

Countries caught running large deficits are now having their Wile E. Coyote moment.

The times they are a-changin’.

 

Treasury_12mo_Change in CB BS

Source:  Zero Hedge