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May 19, 2006

Pound Pilfering Pirates
by Rob Kirby

With the most recent release of U.S. TIC data, we learn that the United Kingdom has indeed been busy "feathering their nest" - to the tune of 120 billion over the past nine months - with U.S. debt obligations:

MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES [TIC DATA] (in billions of dollars) HOLDINGS 1/AT END OF PERIOD
Country	Mar 2006	Feb 2006	Jan 2006	Dec 2005	Nov 2005	Oct 2005	Sep 2005	Aug 2005	Jul 2005	Jun 2005
Japan	640.1	658.3	654.3	671.0	668.7	667.6	673.3	670.6	669.4	667.1
China	321.4	319.8	316.7	310.9	304.0	301.7	306.3	302.2	296.4	297.9
United Kingdom 2/	179.5	162.7	157.1	146.4	135.8	100.6	96.0	87.4	73.3	58.8
Oil Exporters 3/	98.0	96.2	89.4	78.2	79.3	75.3	66.0	65.3	64.1	68.5
Korea	72.4	72.8	71.2	68.9	68.8	63.7	64.0	62.4	62.6	63.0
Taiwan	68.9	68.9	68.7	68.1	68.3	68.9	68.8	68.4	68.8	67.8
Carib Bnkng Ctrs 4/	61.7	54.4	65.4	78.6	82.7	75.0	68.3	67.5	65.1	70.9
……………[more]……………

Sterling Observation:

We know empirically, that the U.K. ran a balance of payments DEFICIT [like the Americans] to the tune of 31.9 billion pounds [$US 57 billion] over the relevant time span:

Balance of Payments
Annual 2005: UK deficit widens

Furthermore, the I.M.F. tells us the U.K. ran a fiscal deficit over the same time period of approximately 3-1/4 % of GDP [2 Trillion economy] or roughly $U.S. 65 billion. With the U.K.'s national savings rate [pg.6] of only 4.6 % of GDP, this deficit is largely funded through the issuance of gilts, which the U.K. itself - coincidentally - relies on foreign participation to successfully issue:

"In FY2004/05, the overall public sector deficit was 3¼ percent of GDP and end-year net debt amounted to almost 35 percent of GDP."

"The gilts market is one of the most liquid and well-organized government bond markets in the world. Foreign buying is particularly strong in this market due to low inflation of the UK economy. The UK bond market is the 4th largest after, US, Japanese and Italian markets."

Show Me The Money and Let's Review:

The U.K. is running a collective deficit [current + fiscal account] of something like $U.S. 120 billion - about 6 % of GDP - with a national savings rate of 4.6 % of GDP. SOMEHOW they have managed to simultaneously increase their U.S. debt holdings - over a scant nine months - to the tune of an ADDITIONAL $U.S. 120 billion?

The numbers simply do not add up.

The "somehow" alluded to above, involves the U.K. [Bank of England] printing pounds "out of thin air" to buy dollars to keep the British currency unit from becoming "uncompetitive" versus the dollar. This blatant money printing should not be construed as real wealth creation - because it isn't. This is why the world is awash in a sea of liquidity. This blatant currency debasement is not only occurring in Britain - the Japanese, Chinese and every one else are doing the same thing. This is extremely INFLATIONARY. This, along with interference in free markets designed to obfuscate this truth, is why prices in everything from copper to zinc to gold to equities and real estate are all going up in nominal terms.

We need to remember that inflation [a.k.a. currency debasement] is in fact the lifeblood of fiat money.

Some central bankers - like Ben Bernanke - would have us believe that U.S. issuance of debt is doing the world a favor - "sopping up a global savings glut".

If you believe this spin, you've been hoodwinked. This is a RUSE. The U.K. requires ‘foreign participation' to successfully issue THEIR OWN DEBT.

The continual publication of erroneous TIC [and other] data by the Fed [Central Banks] and U.S. Treasury only demonstrate their proclivity to deceive us all that their fiat paper money is on the road to ruin. "Official numbers" published to support it are a sham.

This is why market luminaries like Sprott Asset Management's John Embry see trouble ahead for fiat paper money:

Embry Sees Trouble for Paper Money
By Levi Folk | Monday, May 01, 2006
We are "in the early throws" of paper money "getting seriously debased," warns John Embry of Sprott Asset Management, and the price of gold is headed higher from its current near-term high of over US$ 600 per ounce, by his estimation to $700 this year and $1000 conceivably within two to three years -- "maybe quicker."

This is why the I.M.F. recently sounded the alarm bell:

IMF acts to avoid markets meltdown
Heather Stewart, economics correspondent
Sunday May 14, 2006
The International Monetary Fund is in behind-the-scenes talks with the US, China and other major powers to arrange a series of top-level meetings about tackling imbalances in the global economy, as the dollar sell-off reverberates through financial markets…….

And this is why - left unchecked - we are categorically headed for HYPERINFLATION.

This is also why the commodities bull market will not end any time soon. In fact, it's just beginning.

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Rob Kirby
Kirby Analytics

Copyright © 2004 - 2006 Rob Kirby

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