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Confounded

What Is Going On Here?

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The UK bought/increased $US holding by over $40 billion dollars between May 09 and June 09 and added $85 billion since March 09

I thought we were strapped for cash, what is behind this?

http://www.treas.gov/tic/mfh.txt

Don't worry, I looked at this ages ago and thought the same thing. We have lots of banks. Read this from the treasury FAQ, I guess they get asked the question a lot.

7. What are the problems of geographic attribution for securities holdings and transactions in the TIC system?

The country attribution of foreign holdings of U.S. securities as reported in the position surveys is imperfect because some foreign owners entrust the safekeeping of their securities to institutions that are neither in the United States nor in the owner's country of residence. For example, a German investor may buy a U.S. security and place it in the custody of a Swiss bank. In the surveys of foreign holdings of U.S. securities, such a holding typically is recorded vis-à-vis Switzerland rather than Germany. This "custodial bias" contributes to the large recorded foreign holdings of U.S. securities in major financial centers, such as Belgium, the Caribbean banking centers, Luxembourg, Switzerland, and the United Kingdom. In addition, the country allocation in the data on transactions in long-term securities as reported on TIC Form S is also imperfect because transactions are recorded against the country of the foreign transactor dealing directly with the TIC Form S reporter. For example, when a U.S. resident purchases Japanese securities and the transaction is made using a financial intermediary in London, the purchase of foreign securities would be recorded against the United Kingdom, not Japan. If an Italian resident purchases U.S. securities using a financial intermediary in Switzerland, the sale of U.S. securities would be recorded vis-à-vis Switzerland, not Italy. Because cross-border securities transactions take place disproportionately in major international financial centers such as the United Kingdom and the Caribbean banking centers, large net transactions in those areas do not necessarily reflect acquisitions or sales by investors in those areas.

This "transactions bias" can further distort the country allocation of foreign holdings of securities when estimates of holdings are made for months not covered by the periodic surveys. These estimates are typically made by adding net transactions recorded against a given country to the most recently reported survey position for that country. (To get more reliable estimates, valuation changes should also be applied, especially for some types of securities such as stocks.) For some countries, the transactions bias will lead to an under-estimate of holdings, as some of the net purchases of U.S. securities recorded against international financial centers reflect net purchases of residents of other countries. For other countries, the transactions bias will lead to an overestimate of holdings by residents of those countries.

A useful example that illustrates both custodial and transactions bias is to consider estimated securities holdings by residents of the United Kingdom. The June 2006 survey measure of U.S. Treasury securities held by residents of the United Kingdom is $55.5 billion. This relatively high level of U.K. holdings primarily reflects the custodial bias of the United Kingdom: at $55.5 billion, the United Kingdom was the fourth largest recorded foreign holder of U.S. Treasuries. The estimate derived from the previous survey as of June 2005, adjusted forward by adding U.K. net purchases over the 12-month period until June 2006, is $200.9 billion. The difference between the 2006 survey measure and the estimate based on the 2005 survey measure primarily reflects the additional transactions bias of the United Kingdom as a major international financial center.

Custodial bias is not a problem for measured U.S. holdings of foreign securities in the periodic asset surveys, because the security-by-security construction of those estimates allows for accurate attribution of the country of issuance of the foreign securities. However, constructed estimates of U.S. holdings of foreign securities between surveys will be affected by transactions bias, as U.S. purchases of foreign securities also take place disproportionately in major international financial centers.

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Don't worry, I looked at this ages ago and thought the same thing. We have lots of banks. Read this from the treasury FAQ, I guess they get asked the question a lot.

Phew - I thought we'd been buying treasuries to kill the pound... oh hang on...

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Don't worry, I looked at this ages ago and thought the same thing. We have lots of banks. Read this from the treasury FAQ, I guess they get asked the question a lot.

That makes sense, it also ties in with what I have read elsewhere that they are using these foreign banks to buy treasuries so they are registered as foreign buyers so the claim can be made that foreign buyers still see the US as a safe place to invest, then the FED buys them back again a few days later.

Doesn't all this fill you with confidence in the system. :o

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Phew - I thought we'd been buying treasuries to kill the pound... oh hang on...

When I had a look last year the UK figures were going up by crazy amounts. I thought for a while that Gordon was buying them up to hedge against a £ collapse.

The reality is more boring but does mean you don't have to stock up on beans just yet.

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