US Industrial Production Increased 3.0 Percent in Jul and 5.7 Percent
in Jun But Still 8.4 Percent Below The Level Before the Global Recession,
with Output in the US Reaching a High in Feb 2020 (https://www.nber.org/cycles.html), in the Lockdown
of Economic Activity in the COVID-19 Event, United States Manufacturing
Underperforming in the
Lost Economic Cycle of the Global Recession with Economic Growth
Underperforming Below Trend Worldwide, Squeeze of Economic Activity by Carry
Trades Induced by Zero Interest Rates, United States Economic Indicators Continuing
Recovery, Dollar Devaluation and Yuan Revaluation, Fluctuating Yields of
Sovereign Securities, Increase in Prices Worldwide, World
Cyclical Slow Growth, and Government Intervention in Globalization: Part VIII
Carlos M. Pelaez
© Carlos M. Pelaez, 2009,
2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
I United States Industrial Production
IIB Squeeze of Economic Activity by Carry Trades Induced
by Zero Interest Rates
III World Financial Turbulence
IV Global Inflation
V World Economic
Slowdown
VA United States
VB Japan
VC China
VD Euro Area
VE Germany
VF France
VG Italy
VH United Kingdom
VI Valuation of Risk
Financial Assets
VII Economic Indicators
VIII Interest Rates
IX Conclusion
References
Appendixes
Appendix I The Great Inflation
IIIB Appendix on Safe
Haven Currencies
IIIC Appendix on
Fiscal Compact
IIID Appendix on
European Central Bank Large Scale Lender of Last Resort
IIIG Appendix on
Deficit Financing of Growth and the Debt Crisis
Table VA-1 provides the
value of total sales of US business (manufacturers, retailers and merchant
wholesalers) and monthly and 12-month percentage changes. Sales of
manufacturers increased 9.8 percent in Jun and increased 3.0 percent in May,
decreasing 7.1 percent in the 12 months ending in Jun 2020 in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event. Sales of retailers
increased 6.8 percent in Jun and increased 17.3 percent in May, increasing 7.3
percent in 12 months. Sales of merchant wholesalers increased 8.8 percent in Jun,
increasing 5.7 percent in May and decreasing 3.2 percent in 12 months. Total
business sales increased 8.4 percent in Jun and increased 8.5 percent in May,
decreasing 1.3 percent in the 12 months ending in Jun 2020.
Table VA-1, US,
Percentage Changes for Sales of Manufacturers, Retailers and Merchant
Wholesalers
|
|
Jun 20/May 20 |
Jun 2020 |
May 20/ Apr
20 ∆% SA |
Jun 20/ Jun 19 |
|
Total
Business |
8.4 |
1,450,083 |
8.5 |
-1.3 |
|
Manufacturers |
9.8 |
483,608 |
3.0 |
-7.1 |
|
Retailers |
6.8 |
485,248 |
17.3 |
7.3 |
|
Merchant
Wholesalers |
8.8 |
481,227 |
5.7 |
-3.2 |
Source: US
Census Bureau https://www.census.gov/mtis/index.html
Chart VA-1
of the US Census Bureau provides total US sales of manufacturing, retailers and
wholesalers seasonally adjusted (SA) in millions of dollars. The series with
adjustment evens fluctuations following seasonal patterns. There is sharp
recovery from the global recession in a robust trend, which is mixture of price
and quantity effects because data are not adjusted for price changes. There is
stability in the final segment with subdued prices with data not adjusted for
price changes. There is recovery in the recent segment with occasional
vacillation. The data point in Apr 2020 shows sharp contraction followed by
increase in May-Jun 2020 in the global recession, with output in the US
reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-1, US, Total Business Sales of Manufacturers,
Retailers and Merchant Wholesalers, SA, Millions of Dollars, Jan 1992-Jun 2020
Source: US Census Bureau https://www.census.gov/mtis/index.html
Chart VA-1A shows of the US
Census Bureau provides total US sales of manufacturing, retailers and
wholesalers seasonally adjusted (SA) in millions of dollars from Jan 2019 to Jun
2020, showing the deep contraction in Mar-Apr 2020 followed by increase in May-Jun
in the global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-1A, US, Total Business Sales of Manufacturers,
Retailers and Merchant Wholesalers, SA, Millions of Dollars, Jan 2019-Jun 2020
Source: US Census Bureau https://www.census.gov/mtis/index.html
Chart VA-2
of the US Census Bureau provides total US sales of manufacturing, retailers and
wholesalers not seasonally adjusted (NSA) in millions of dollars from Jan 1992
to Jun 2020. The series without seasonal adjustment shows sharp jagged behavior
because of monthly fluctuations following seasonal patterns. There is sharp
recovery from the global recession in a robust trend, which is mixture of price
and quantity effects because data are not adjusted for price changes. There is
stability in the final segment with monthly marginal weakness in data without
adjustment for price changes with following recovery. There is sharp
contraction in Mar-Apr 2020 followed by increase in May-Jun 2020 in the global
recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-2, US, Total Business Sales of Manufacturers,
Retailers and Merchant Wholesalers, NSA, Millions of Dollars, Jan 1992-Jun 2020
Source: US Census Bureau
https://www.census.gov/mtis/index.html
Chart VA-2A
of the US Census Bureau provides total US sales of manufacturing, retailers and
wholesalers not seasonally adjusted (NSA) in millions of dollars from Jan 2019
to Jun 2020. There is sharp contraction in the data point in Apr 2020 followed
by increase in May-Jun in the global recession, with output in the US reaching
a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-2A, US, Total Business Sales of Manufacturers,
Retailers and Merchant Wholesalers, NSA, Millions of Dollars, Jan 2019-Jun 2020
Source: US Census Bureau
https://www.census.gov/mtis/index.html
Businesses added cautiously
to inventories to replenish stocks. Retailers’ inventories decreased 2.6
percent in Jun 2020 and decreased 6.2 percent in
May with decrease of 11.7
percent in 12 months, as shown in Table VA-2. Total business decreased
inventories 1.1 percent in Jun after decreasing 2.3 percent in May and
decreasing 5.8 percent in 12 months. Inventories sales/ratios of total business
stabilized at a level close to 1.30 under careful management to avoid costs and
risks, moving to 1.37 in Jun 2020. Inventory/sales ratios of manufacturers and
retailers are higher than for merchant wholesalers. There is stability in
inventory/sales ratios in individual months and relative to a year earlier with
increase at the margin.
Table VA-2, US,
Percentage Changes for Inventories of Manufacturers, Retailers and Merchant
Wholesalers and Inventory/Sales Ratios
|
Inventory
Change |
Jun 20 |
Jun 20/May 20
∆% SA |
May 20/ Apr
2020 SA |
Jun 20/Jun 19 ∆% NSA |
|
Total
Business |
1,892,654 |
-1.1 |
-2.3 |
-5.8 |
|
Manufacturers |
687,406 |
0.6 |
0.2 |
-0.4 |
|
Retailers |
579,948 |
-2.6 |
-6.2 |
-11.7 |
|
Merchant |
625,300 |
-1.4 |
-1.2 |
-5.6 |
|
Inventory/ |
Jun 20 |
Jun 2020 SA |
May 2020 SA |
Jun 2019 SA |
|
Total
Business |
1,892,654 |
1.37 |
1.50 |
1.39 |
|
Manufacturers |
687,406 |
1.51 |
1.65 |
1.38 |
|
Retailers |
579,948 |
1.23 |
1.35 |
1.46 |
|
Merchant
Wholesalers |
625,300 |
1.38 |
1.53 |
1.34 |
US Census
Bureau
https://www.census.gov/mtis/index.html
Chart VA-3 of the US
Census Bureau provides total business inventories of manufacturers, retailers
and merchant wholesalers seasonally adjusted (SA) in millions of dollars from
Jan 1992 to Jun 2020. The impact of the two recessions of 2001 and IVQ2007 to
IIQ2009 is evident in the form of sharp reductions in inventories. Inventories
have surpassed the peak before the global recession. Data are not adjusted for
price changes. Inventories decline in the global recession, with output in the
US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-3, US, Total Business Inventories of Manufacturers,
Retailers and Merchant Wholesalers, SA, Millions of Dollars, Jan 1992-Jun 2020
Source: US Census Bureau https://www.census.gov/mtis/index.html
Chart VA-3A of the US Census
Bureau provides total business inventories of manufacturers, retailers and
merchant wholesalers seasonally adjusted (SA) in millions of dollars from Jan
2019 to Jun 2020. Inventories sink in the global recession, with output in the
US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-3A, US, Total Business Inventories of Manufacturers,
Retailers and Merchant Wholesalers, SA, Millions of Dollars, Jan 2019-Jun 2020
Source: US Census Bureau https://www.census.gov/mtis/index.html
Chart VA-4 provides total
business inventories of manufacturers, retailers and merchant wholesalers not
seasonally adjusted (NSA) from Jan 1992 to Jun 2020 in millions of dollars. The
recessions of 2001 and IVQ2007 to IIQ2009 are evident in the form of sharp
reductions of inventories. There is sharp upward trend of inventory
accumulation after both recessions. Total business inventories are higher than
in the peak before the global recession. Inventories decrease in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-4, US, Total Business Inventories of Manufacturers,
Retailers and Merchant Wholesalers, NSA, Millions of Dollars, Jan 1992-Jun 2020
Source: US Census Bureau https://www.census.gov/mtis
Chart VA-4A provides
total business inventories of manufacturers, retailers and merchant wholesalers
not seasonally adjusted (SA) from Jan 1992 to Jun 2020 in millions of dollars.
There is sharp contraction in Mar-Jun 2020 in the global recession, with output in the
US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-4A, US, Total Business Inventories of Manufacturers,
Retailers and Merchant Wholesalers, NSA, Millions of Dollars, Jan 2019-Jun 2020
Source: US Census Bureau https://www.census.gov/mtis/index.html
Inventories follow business cycles. When recession hits sales
inventories pile up, declining with expansion of the economy. In a fascinating
classic opus, Lloyd Meltzer (1941, 129) concludes:
“The dynamic sequences (i) through (6) were intended to show
what types of behavior are possible for a system containing a sales output lag.
The following conclusions seem to be the most important:
(i) An economy in which business men attempt to recoup inventory
losses will always undergo cyclical fluctuations when equilibrium is disturbed,
provided the economy is stable.
This is the pure inventory cycle.
(2) The assumption of stability imposes severe limitations upon
the possible size of the marginal propensity to consume, particularly if the
coefficient of expectation is positive.
(3) The inventory accelerator is a more powerful de-stabilizer
than the ordinary acceleration principle. The difference in stability
conditions is due to the fact that the former allows for replacement demand
whereas the usual analytical formulation of the latter does not. Thus, for
inventories, replacement demand acts as a de-stabilizer. Whether it does so for
all types of capital goods is a moot question, but I believe cases may occur in
which it does not.
(4) Investment for inventory purposes cannot alter the
equilibrium of income, which depends only upon the propensity to consume and
the amount of non-induced investment.
(5) The apparent instability of a system containing both an
accelerator and a coefficient of expectation makes further investigation of
possible stabilizers highly desirable.”
Chart VA-5 shows the
increase in the inventory/sales ratios during the recession of 2007-2009. The
inventory/sales ratio fell during the expansions. The inventory/sales ratio
declined to a trough in 2011, climbed and then stabilized at current levels in
2012, 2013 and 2015 with increase into 2015-2016 and then decreasing at the
margin from 2016 into 2017-2019. Inventory/sales ratios increase sharply in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event.
Chart VA-5, Total Business Inventories/Sales Ratios 2011 to
2020
https://www.census.gov/mtis/img/mtisbrf.gif
Sales of
retail and food services increased 1.2 percent in Jul 2020, after increasing 8.4
percent in Jun 2020 seasonally adjusted (SA), in the global recession, with output in the
US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event,
decreasing 2.1 percent in Jan-Jul 2020 relative to Jan-Jul 2019 not
seasonally adjusted (NSA), as shown in Table VA-3. Excluding motor vehicles and
parts, retail sales increased 1.9 percent in Jul 2020, increasing 8.3 percent
in Jun 2020 SA and decreasing 1.5 percent NSA in Jan-Jul 2020 relative to a
year earlier. Sales of motor vehicles and parts decreased 1.2 percent in Jul
2020 after increasing 9.1 percent in Jun 2020 SA and decreasing 4.3 percent NSA
in Jan-Jul 2020 relative to a year earlier. Gasoline station sales increased 6.2
percent SA in Jul 2020 after increasing 14.8 percent in Jun 2020 in oscillating
prices of gasoline that are moderating, decreasing 16.8 percent in Jan-Jul 2020
relative to a year earlier.
Table VA-3, US,
Percentage Change in Monthly Sales for Retail and Food Services, ∆%
|
Jul ∆% SA |
Jun ∆% SA |
Jan-Jul 2020
Million Dollars NSA |
Jan-Jul 2020 from
Jan-Jul 2019 ∆% NSA |
|
|
Retail and
Food Services |
1.2 |
8.4 |
3,450,423 |
-2.1 |
|
Excluding
Motor Vehicles and Parts |
1.9 |
8.3 |
2,766,127 |
-1.5 |
|
Motor
Vehicles & Parts Dealers |
-1.2 |
9.1 |
684,296 |
-4.3 |
|
Retail |
0.8 |
6.8 |
3,102,505 |
0.7 |
|
Building
Materials |
-2.9 |
0.8 |
251,643 |
11.3 |
|
Food and
Beverage |
0.2 |
-1.5 |
494,895 |
12.8 |
|
Grocery |
0.4 |
-1.7 |
444,038 |
12.9 |
|
Health &
Personal Care Stores |
3.6 |
6.9 |
205,358 |
-0.5 |
|
Clothing
& Clothing Accessories Stores |
5.7 |
98.8 |
90,877 |
-36.5 |
|
Gasoline
Stations |
6.2 |
14.8 |
240,787 |
-16.8 |
|
General Merchandise
Stores |
-0.2 |
2.1 |
404,591 |
2.3 |
|
Food Services
& Drinking Places |
5.0 |
26.7 |
347,918 |
-21.4 |
Source: US
Census Bureau https://www.census.gov/retail/index.html
Chart VA-6
provides monthly percentage changes of sales of retail and food services. There
is significant monthly volatility that prevents identification of clear trends.
Sales collapsed in Mar-Apr 2020, in the
global recession, with output in the US reaching a high in Feb 2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event, with sharp recovery in
May-Jul 2020.
Chart VA-6, US, Monthly Percentage Change of Retail and Food
Services Sales, Jan 1992-Jul 2020
Source: US Census Bureau https://www.census.gov/retail/index.html
Chart VA-6A provides
monthly percentage changes of sales of retail and food services from Jan 2019
to Jun 2020.There is vertical increase in May-Jul 2020 after collapse in
Feb-Apr 2020.
Chart VA-6A, US, Monthly Percentage Change of Retail and Food
Services Sales, Jan 2019-Jul 2020
Source: US Census Bureau https://www.census.gov/retail/index.html
Chart VA-7
of the US Census Bureau provides total sales of retail trade and food services
seasonally adjusted (SA) from Jan 1992 to Jul 2020 in millions of dollars. The
impact on sales of the shallow recession of 2001 was much milder than the sharp
contraction in the global recession from IVQ2007 to IIQ2009. There is
flattening in the final segment of the series followed by another
increase/decrease. Sales collapsed in the lockdown of economic activity in the
COVID-19 event. Data are not adjusted for price changes. There is sharp decline
in Feb-Mar 2020 with sharp recovery in May-Jul 2020.
Chart VA-7, US, Total Sales of Retail Trade and Food
Services, SA, Jan 1992-Jul 2020, Millions of Dollars
Source: US Census Bureau https://www.census.gov/retail/index.html
Chart VA-7A
of the US Census Bureau provides total sales of retail trade and food services
seasonally adjusted (SA) from Jan 2019 to Jul 2020 in millions of dollars.
Sales jumped in May-Jul 2020 in recovery from the contraction in Feb-Mar 2020.
Chart VA-7A, US, Total Sales of Retail Trade and Food
Services, SA, Jan 2019-Jul 2020, Millions of Dollars
Source: US Census Bureau https://www.census.gov/retail/index.html
Chart VA-8
of the US Census Bureau provides total sales of retail trade and food services
seasonally adjusted (NSA) from Jan 1992 to Jul 2020 in millions of dollars.
Data are not adjusted for price changes. There is sharp contraction in Feb-Apr
2020, in the global recession, with output in the US reaching a high in Feb
2020 (https://www.nber.org/cycles.html), in the
lockdown of economic activity in the COVID-19 event, with sharp recovery in
May-Jul 2020.
Chart VA-8, US, Total Sales of Retail Trade and Food
Services, NSA, Jan 1992-Jul 2020, Millions of Dollars
Source: US Census Bureau https://www.census.gov/retail/index.html
Chart VA-8A
of the US Census Bureau provides total sales of retail trade and food services
seasonally adjusted (NSA) from Jan 2019 to Jul 2020 in millions of dollars.
Data are not adjusted for price changes. There is sharp recovery in May-Jul
2020.
Chart VA-8A, US, Total Sales of Retail Trade and Food
Services, NSA, Jan 2019-Jul 2020, Millions of Dollars
Source: US Census Bureau https://www.census.gov/retail/index.html
ww.census.gov/retail/index.html
Table VI-7C provides additional
information required for understanding the deficit/debt situation of the United
States. The table is divided into four parts: Treasury budget in the 2020
fiscal year beginning on Oct 1, 2019 and ending on Sep 30, 2020; federal fiscal
data for the years from 2009 to 2019; federal fiscal data for the years from
2005 to 2008; and Treasury debt held by the public from 2005 to 2019. Receipts
decreased 1.3 percent in the cumulative fiscal year 2020 ending in Jul 2020
relative to the cumulative in fiscal year 2019. Individual income taxes decreased
5.0 percent relative to the same fiscal period a year earlier. Outlays
increased 51.1 percent relative to a year earlier. There are also receipts,
outlays, deficit and debt for fiscal years 2013, 2014, 2015, 2016, 2017, 2018
and 2019. In fiscal year 2019, the deficit reached $984.4 billion or 4.6
percent of GDP. Outlays of 4,446.6 billion were 21.0 percent of GDP and
receipts of $3,462.2 billion were 16.3 percent of GDP. It is quite difficult
for the US to raise receipts above 18 percent of GDP. Total revenues of the US
from 2009 to 2012 accumulate to $9021.2 billion, or $9.0 trillion, while
expenditures or outlays accumulate to $14,104.5 billion, or $14.1 trillion,
with the deficit accumulating to $5083.3 billion, or $5.1 trillion. Revenues
decreased 6.5 percent from $9652.5 billion in the four years from 2005 to 2008
to $9021.2 billion in the years from 2009 to 2012. Decreasing
revenues were caused by the global recession from IVQ2007 (Dec) to IIQ2009
(Jun) and by growth of only 1.2 percent on average in the cyclical expansion
from IIIQ2009 to IIQ2020. In contrast, the expansion from IQ1983 to IVQ1993 was
at the average annual growth rate of 3.7 percent and at 7.9 percent from IQ1983
to IVQ1983 (https://cmpassocregulationblog.blogspot.com/2020/08/contraction-of-united-states-gdp-at-32_57.html and
earlier https://cmpassocregulationblog.blogspot.com/2020/06/mediocre-cyclical-united-states.html).
Because of mediocre GDP growth, there are 38.5 million unemployed or
underemployed in the United States for an effective unemployment/underemployment
rate of 22.3 percent (https://cmpassocregulationblog.blogspot.com/2020/08/thirty-eight-million-unemployed-or.html and
earlier https://cmpassocregulationblog.blogspot.com/2020/07/increase-of-total-nonfarm-payroll-jobs.html).
Weakness of growth and employment creation is analyzed in II Collapse of United
States Dynamism of Income Growth and Employment Creation (https://cmpassocregulationblog.blogspot.com/2020/07/contraction-of-household-wealth-by-14.html). In contrast with the decline of
revenue, outlays or expenditures increased 30.1 percent from $10,838.2 billion,
or $10.8 trillion, in the four years from 2005 to 2008, to $14,104.5 billion,
or $14.1 trillion, in the four years from 2009 to 2012. Increase in expenditures
by 30.1 percent while revenue declined by 6.5 percent caused the increase in
the federal deficit from $1185.8 billion in 2005-2008 to $5083.3 billion in
2009-2012. Federal revenue was 14.8 percent of GDP on average in the years from
2009 to 2012, which is well below 17.3 percent of GDP on average from 1962 to
2019. Federal outlays were 23.3 percent of GDP on average from 2009 to 2012,
which is well above 20.1 percent of GDP on average from 1962 to 2019. The lower
part of Table VI-7C shows that debt held by the public swelled from $5803
billion in 2008 to $13,117 billion in 2015, by $7314 billion or 126.0 percent.
Debt held by the public as percent of GDP or economic activity jumped from 39.4
percent in 2008 to 79.2 percent in 2019, which is well above the average of
41.7 percent from 1962 to 2019. The United States faces tough adjustment
because growth is unlikely to recover, creating limits on what can be obtained
by increasing revenues, while continuing stress of social programs restricts
what can be obtained by reducing expenditures. The Congressional Budget Office (CBO)
provides a preliminary estimate of the impact of Public Law 116-136 of Mar 27,
2020, CARES Act or Coronavirus Aid, Relief and Economic Security Act (https://www.cbo.gov/system/files/2020-04/hr748.pdf). This preliminary estimate finds that
the CARES Act “will increase federal deficits by about $1.8 trillion over the
2020-2030 period (https://www.cbo.gov/system/files/2020-04/hr748.pdf).
Table
VI-7C, US, Treasury Budget in Fiscal Year to Date Million Dollars
|
Jul
2020 |
Fiscal
Year 2020 |
Fiscal
Year 2019 |
∆% |
|
Receipts |
2,823,564 |
2,860,202 |
-1.3 |
|
Outlays |
5,630,859 |
3,727,014 |
51.1 |
|
Deficit |
-2,807,295 |
-866,811 |
|
|
Individual
Income Tax |
1,357,699 |
1,428,904 |
-5.0 |
|
Corporation
Income Tax |
160,097 |
171,323 |
-6.6 |
|
Social
Insurance |
805,260 |
766,132 |
5.1 |
|
|
Receipts |
Outlays |
Deficit
(-), Surplus (+) |
|
$
Billions |
|||
|
Fiscal
Year 2019 |
3,462.2 |
4,446.6 |
-984.4 |
|
%
GDP |
16.3 |
21.0 |
-4.6 |
|
Fiscal
Year 2018 |
3,329.9 |
4,109.0 |
-779.1 |
|
%
GDP |
16.4 |
20.2 |
-3.8 |
|
Fiscal
Year 2017 |
3,316.2 |
3,981.6 |
-665.4 |
|
%
GDP |
17.2 |
20.6 |
-3.5 |
|
Fiscal
Year 2016 |
3,268.0 |
3,852.6 |
-584.7 |
|
%
GDP |
17.6 |
20.8 |
-3.2 |
|
Fiscal
Year 2015 |
3,249.9 |
3,691.8 |
-442.0 |
|
%
GDP |
18.0 |
20.4 |
-2.4 |
|
Fiscal
Year 2014 |
3,021.5 |
3,506.3 |
-484.8 |
|
%
GDP |
17.4 |
20.2 |
-2.8 |
|
Fiscal
Year 2013 |
2,775.1
|
3,454.9
|
-679.8 |
|
%
GDP |
16.7 |
20.8 |
-4.1 |
|
Fiscal
Year 2012 |
2,450.0 |
3,526.6 |
-1,076.6 |
|
%
GDP |
15.3 |
22.0 |
-6.7 |
|
Fiscal
Year 2011 |
2,303.5 |
3,603.1 |
-1,299.6 |
|
%
GDP |
15.0 |
23.4 |
-8.4 |
|
Fiscal
Year 2010 |
2,162.7 |
3,457.1 |
-1,294.4 |
|
%
GDP |
14.6 |
23.3 |
-8.7 |
|
Fiscal
Year 2009 |
2,105.0 |
3,517.7 |
-1,412.7 |
|
%
GDP |
14.6 |
24.4 |
-9.8 |
|
Total
2009-2012 |
9,021.2 |
14,104.5 |
-5,083.3 |
|
Average
% GDP 2009-2012 |
14.8 |
23.3 |
-8.4 |
|
Fiscal
Year 2008 |
2,524.0 |
2,982.5 |
-458.6 |
|
%
GDP |
17.1 |
20.2 |
-3.1 |
|
Fiscal
Year 2007 |
2,568.0 |
2,728.7 |
-160.7 |
|
%
GDP |
18.0 |
19.1 |
-1.1 |
|
Fiscal
Year 2006 |
2,406.9 |
2,655.1 |
-248.2 |
|
%
GDP |
17.6 |
19.5 |
-1.8 |
|
Fiscal
Year 2005 |
2,153.6 |
2,472.0 |
-318.3 |
|
%
GDP |
16.8 |
19.3 |
-2.5 |
|
Total
2005-2008 |
9,652.5 |
10,838.2 |
-1,185.8 |
|
Average
% GDP 2005-2008 |
17.4 |
19.5 |
-2.1 |
|
Debt
Held by the Public |
Billions
of Dollars |
Percent
of GDP |
|
|
2005 |
4,592 |
35.8 |
|
|
2006 |
4,829 |
35.4 |
|
|
2007 |
5,035 |
35.2 |
|
|
2008 |
5,803 |
39.4 |
|
|
2009 |
7,545 |
52.3 |
|
|
2010 |
9,019 |
60.8 |
|
|
2011 |
10,128 |
65.8 |
|
|
2012 |
11,281 |
70.3 |
|
|
2013 |
11,983 |
72.2 |
|
|
2014 |
12,780 |
73.7 |
|
|
2015 |
13,117 |
72.5 |
|
|
2016 |
14,168 |
76.4 |
|
|
2017 |
14,666 |
76.0 |
|
|
2018 |
15,750 |
77.4 |
|
|
2019 |
16,803 |
79.2 |
|
Source:
https://www.fiscal.treasury.gov/reports-statements/mts/
https://www.treasury.gov/press-center/press-releases/Pages/sm0184.aspx https://home.treasury.gov/news/press-releases/sm806 CBO, The budget and economic outlook:
2018 to 2028. Washington, DC, Apr 9 https://www.cbo.gov/publication/53651
CBO, The budget and economic outlook: 2017-2027. Washington, DC,
Jan 24, 2017 https://www.cbo.gov/publication/52370 CBO, An update to the
budget and economic outlook: 2016 to 2026. Washington, DC, Aug 23, 2016.
https://www.cbo.gov/about/products/budget-economic-data#6
CBO (2012NovMBR). CBO (2011AugBEO); Office of Management and
Budget 2011. Historical Tables. Budget of the US Government Fiscal Year 2011.
Washington, DC: OMB; CBO. 2011JanBEO. Budget and Economic Outlook. Washington,
DC, Jan. CBO. 2012AugBEO. Budget and Economic Outlook. Washington, DC, Aug 22.
CBO. 2012Jan31. Historical budget data. Washington, DC, Jan 31. CBO.
2012NovCDR. Choices for deficit reduction. Washington, DC. Nov. CBO. 2013HBDFeb5.
Historical budget data—February 2013 baseline projections. Washington, DC,
Congressional Budget Office, Feb 5. CBO. 2013HBDFeb5. Historical budget data—February
2013 baseline projections. Washington, DC, Congressional Budget Office, Feb 5.
CBO (2013Aug12). 2013AugHBD. Historical budget data—August 2013. Washington,
DC, Congressional Budget Office, Aug. CBO, Historical Budget Data—February
2014, Washington, DC, Congressional Budget Office, Feb. CBO, Historical
budget data—April 2014 release. Washington, DC, Congressional Budget
Office, Apr. Congressional Budget Office, August 2014 baseline: an update to
the budget and economic outlook: 2014 to 2024. Washington, DC, CBO, Aug 27,
2014. CBO, Monthly budget review: summary of fiscal year 2014. Washington, DC, Congressional
Budget Office, Nov 10, 2014. CBO, The budget and economic outlook: 2015 to
2025. Washington, DC, Congressional Budget Office, Jan 26, 2015.
https://www.cbo.gov/about/products/budget-economic-data#6
https://www.cbo.gov/about/products/budget_economic_data#3 https://www.cbo.gov/about/products/budget_economic_data#2
Risk aversion channels funds toward US
long-term and short-term securities that finance the US balance of payments and
fiscal deficits benefitting from risk flight to US dollar denominated assets.
There are now temporary interruptions because of fear of rising interest rates
that erode prices of US government securities because of mixed signals on monetary
policy and exit from the Fed balance sheet of four trillion dollars of
securities held outright. Net foreign purchases of US long-term securities (row
C in Table VA-4) weakened from minus $82.4 billion in May 2020 to $70.6
billion in Jun
2020. Foreign residents’ purchases minus sales
of US long-term securities (row A in Table VA-4) in May 2020 of $59.1
billion strengthened to $78.8 billion in Jun 2020. Net US (residents) purchases
of long-term foreign securities (row B in Table VA-4) weakened from $59.0
billion in May 2020 to $34.2 billion in Jun 2020. Other transactions (row C2 in
Table VA-4) changed from minus $35.7 billion in May 2020 to $42.4 billion in
Jun 2020. In Jun 2020,
C = A + B + C2 = $78.8 billion +
$34.2 billion - $42.4 billion = $70.6 billion.
There are minor rounding errors. There is
strengthening demand in Table VA-4 in Jun 2020 in A1 private purchases
by residents overseas of US long-term securities of $91.9 billion of which
strengthening in A11 Treasury securities of $49.5 billion, strengthening in A12
of $28.5 billion in agency securities, weakening of 17.4 billion of corporate
bonds and weakening of $31.2 billion in equities. Worldwide risk aversion
causes flight into US Treasury obligations with significant oscillations.
Official purchases of securities in row A2 decreased $13.0 billion with
decrease of Treasury securities of $20.6 billion in Jun 2020. Official
purchases of agency securities increased $9.5 billion in Jun 2020. Row D
shows increase in Jun 2020 of $55.9 billion in purchases of short-term dollar
denominated obligations. Foreign holdings of US Treasury bills increased $78.9
billion (row D1) with foreign official holdings increasing $26.8 billion while
the category “other” decreased $23.0 billion. Foreign private holdings of US
Treasury bills increased $52.1 billion in what could be arbitrage of duration
exposures and international risks. Risk aversion of default losses in foreign
securities dominates decisions to accept zero interest rates in Treasury
securities with no perception of principal losses. In the case of long-term
securities, investors prefer to sacrifice inflation and possible duration risk
to avoid principal losses with significant oscillations
in risk perceptions.
Table VA-4, Net
Cross-Borders Flows of US Long-Term Securities, Billion Dollars, NSA
|
Jun 2019 12 Months |
Jun 2020 12
Months |
May 2020 |
Jun 2020 |
|
|
A Foreign
Purchases less Sales of |
98.3 |
-90.4 |
59.1 |
78.8 |
|
A1 Private |
277.4 |
81.0 |
25.5 |
91.9 |
|
A11 Treasury |
192.2 |
-214.8 |
-46.7 |
49.5 |
|
A12 Agency |
158.8 |
214.6 |
-12.1 |
28.5 |
|
A13 Corporate
Bonds |
62.3 |
-74.8 |
8.9 |
-17.4 |
|
A14 Equities |
-135.9 |
156.1 |
75.4 |
31.2 |
|
A2 Official |
-179.0 |
-171.4 |
33.6 |
-13.0 |
|
A21 Treasury |
-254.7 |
-346.5 |
10.0 |
-20.6 |
|
A22 Agency |
84.7 |
152.5 |
14.5 |
9.5 |
|
A23 Corporate
Bonds |
-8.9 |
13.4 |
4.7 |
0.7 |
|
A24 Equities |
-0.1 |
9.2 |
4.4 |
-2.6 |
|
B Net US
Purchases of LT Foreign Securities |
308.3 |
359.4 |
59.0 |
34.2 |
|
B1 Foreign
Bonds |
266.5 |
278.3 |
33.0 |
14.8 |
|
B2 Foreign
Equities |
41.8 |
81.1 |
26.0 |
19.4 |
|
C1 Net
Transactions |
406.6 |
269.0 |
118.1 |
113.0 |
|
C2 Other |
-164.9 |
-335.0 |
-35.7 |
-42.4 |
|
C Net Foreign
Purchases of US LT Securities |
241.7 |
-66.0 |
82.4 |
70.6 |
|
D Increase in
Foreign Holdings of Dollar Denominated Short-term |
|
|
||
|
US Securities
& Other Liab |
68.3 |
431.3 |
83.5 |
55.9 |
|
D1 US Treasury
Bills |
-42.9 |
333.0 |
80.4 |
78.9 |
|
D11 Private |
6.1 |
237.8 |
55.7 |
52.1 |
|
D12 Official |
-49.0 |
95.2 |
24.7 |
26.8 |
|
D2 Other |
111.3 |
98.3 |
3.1 |
-23.0 |
C1 = A + B;
C = C1+C2
A = A1 + A2
A1 = A11 + A12 +
A13 + A14
A2 = A21 + A22 +
A23 + A24
B = B1 + B2
D = D1 + D2
Sources: United
States Treasury
https://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticpress.aspx
http://www.treasury.gov/press-center/press-releases/Pages/jl2609.aspx
Table VA-5
provides major foreign holders of US Treasury securities. China is the second
largest holder with $1074.4 billion in Jun 2020, decreasing 0.9 percent from
$1083.7 billion in May 2020 while decreasing $38.1 billion from Jun 2019 or 3.4
percent. The United States Treasury estimates US government debt held by
private investors at $13,886 billion in Mar 2020 (Fiscal Year 2020). China’s
holding of US Treasury securities represents 7.7 percent of US government
marketable interest-bearing debt held by private investors (https://www.fiscal.treasury.gov/reports-statements/treasury-bulletin/). Min Zeng,
writing on “China plays a big role as US Treasury yields fall,” on Jul 16,
2014, published in the Wall Street Journal (http://online.wsj.com/articles/china-plays-a-big-role-as-u-s-treasury-yields-fall-1405545034?tesla=y&mg=reno64-wsj), finds that
acceleration in purchases of US Treasury securities by China has been an
important factor in the decline of Treasury yields in 2014. Japan increased its
holdings from $1122.8 billion in Jun 2019 to $1261.3 billion in Jun 2020 or 12.3
percent. The combined holdings of China and Japan in Jun 2020 add to $2335.7
billion, which is equivalent to 16.8 percent of US government marketable
interest-bearing securities held by investors of $13,886 billion in Mar 2020
(Fiscal Year 2020) (https://www.fiscal.treasury.gov/reports-statements/treasury-bulletin/). Total
foreign holdings of Treasury securities increased from $6625.9 billion in Jun
2019 to $7038.9 billion in Jun 2020, or 6.2 percent. The US continues to
finance its fiscal and balance of payments deficits with foreign savings (see
Pelaez and Pelaez, The Global Recession Risk (2007). Professor Martin Feldstein, at Harvard
University, writing on “The Debt Crisis Is Coming Soon,” published in the Wall Street Journal on Mar 20, 2019 (https://www.wsj.com/articles/the-debt-crisis-is-coming-soon-11553122139?mod=hp_opin_pos3), foresees a
US debt crisis with deficits moving above $1 trillion and debt above 100
percent of GDP. A point of saturation of
holdings of US Treasury debt may be reached as foreign holders evaluate the
threat of reduction of principal by dollar devaluation and reduction of prices
by increases in yield, including possibly risk premium. Shultz et al (2012)
find that the Fed financed three-quarters of the US deficit in fiscal year
2011, with foreign governments financing significant part of the remainder of
the US deficit while the Fed owns one in six dollars of US national debt.
Concentrations of debt in few holders are perilous because of sudden exodus in
fear of devaluation and yield increases and the limit of refinancing old debt
and placing new debt. In their classic work on “unpleasant monetarist
arithmetic,” Sargent and Wallace (1981, 2) consider a regime of domination of
monetary policy by fiscal policy (emphasis added):
“Imagine that
fiscal policy dominates monetary policy. The fiscal authority independently
sets its budgets, announcing all current and future deficits and surpluses and
thus determining the amount of revenue that must be raised through bond sales
and seignorage. Under this second coordination scheme, the monetary authority
faces the constraints imposed by the demand for government bonds, for it must
try to finance with seignorage any discrepancy between the revenue demanded by
the fiscal authority and the amount of bonds that can be sold to the public.
Suppose that the demand for government bonds implies an interest rate on bonds
greater than the economy’s rate of growth. Then if the fiscal authority runs
deficits, the monetary authority is unable to control either the growth rate of
the monetary base or inflation forever. If the principal and interest due on
these additional bonds are raised by selling still more bonds, so as to
continue to hold down the growth of base money, then, because the interest rate
on bonds is greater than the economy’s growth rate, the real stock of bonds
will growth faster than the size of the economy. This cannot go on forever,
since the demand for bonds places an upper limit on the stock of bonds relative
to the size of the economy. Once that limit is reached, the principal and
interest due on the bonds already sold to fight inflation must be financed, at
least in part, by seignorage, requiring the creation of additional base money.”
Table VA-5, US,
Major Foreign Holders of Treasury Securities $ Billions at End of Period
|
Jun 2020 |
May 2020 |
Jun 2019 |
|
|
Total |
7038.9 |
6978.0 |
6625.9 |
|
Japan |
1261.3 |
1260.4 |
1122.8 |
|
China |
1074.4 |
1083.7 |
1112.5 |
|
United
Kingdom |
445.6 |
445.8 |
341.1 |
|
Ireland |
330.4 |
324.2 |
261.8 |
|
Luxembourg |
267.6 |
262.7 |
230.5 |
|
Hong Kong |
266.4 |
269.0 |
217.3 |
|
Brazil |
264.1 |
264.4 |
311.7 |
|
Switzerland |
247.4 |
243.1 |
232.4 |
|
Cayman
Islands |
222.0 |
216.7 |
225.0 |
|
Belgium |
218.7 |
212.1 |
200.1 |
|
Taiwan |
204.6 |
199.2 |
175.1 |
|
India |
182.7 |
169.9 |
162.7 |
|
Singapore |
150.5 |
142.1 |
139.6 |
|
France |
144.2 |
130.5 |
131.5 |
|
Foreign
Official Holdings |
4142.3 |
4105.9 |
4146.1 |
|
A. Treasury
Bills |
382.5 |
355.7 |
287.3 |
|
B. Treasury
Bonds and Notes |
3759.8 |
3750.2 |
3858.7 |
Source: United
States Treasury
http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticpress.aspx
http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/index.aspx
https://ticdata.treasury.gov/Publish/mfh.txt
© Carlos M. Pelaez, 2009, 2010, 2011, 2012, 2013, 2014, 2015, 2016, 2017, 2018, 2019, 2020.
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