Chart Of The Day……….Federal Reserve Custodial Accounts (U.S. Debt Holdings Of Foreign Central Banks)

Posted By on November 19, 2009

This chart says one thing bigger then anything else……..higher interest rates are only a matter of time.  The smartest guys on Wall Street starting with David Einhorn of Greenlight Capital  are betting on higher interest rates, forced by the market place, will happen sooner rather then latter starting in the United States and Japan.  (He is a critic of current investment-banking practices, saying they are incentivized to maximize employee compensation. He cites the statistic that investment banks pay out 50 percent of revenues as compensation, and higher leverage means more revenues, making this model inherently risky)

The chart below depicts the balance at the Federal Reserve of its Custodial Accounts, which for some of our new readers, is basically the US debt holdings of Foreign Central Banks around the world. As such, it is a good way to gauge the relative indebtedness of the US.

I have been constructing this chart every week now for many years and each week I look at it and post the new data, I have to sigh in despair at what is portends for my children. Our nation is hopelessly bankrupt for all practical purposes as there is no way under heaven that a debt of this magnitude will ever be repaid in its entirety unless of course the currency in which the debt is denominated is deliberately debauched and drops precipitously in value. This is precisely what China is angry about, and I might add, rightfully so.

For the Chinese to go out of their way to formally rebuke the US ruling elites and monetary officials about the commodity bubble that is occurring courtesy of the collapsing US Dollar, is quite remarkable given their penchant for etiquette and tact. One can easily discern just how irritated not only China, but all of Asia is with the US. At some point, this tension is going to erupt in a much larger way. Heaven help us all when it does because it will be marked by a period of soaring interest rates as a buyer’s strike occurs in the US Treasury market.

The middle class will be the victims in all of this as the find themselves unable to keep up with the rapid increases in the cost of living.

Custodial Holdings


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