The Credit-Addicted West is Suffering from Withdrawal Symptoms…
An update of the daily treasury statement charts for 10/6/11 (I’ll be updating these charts on a weekly basis from now on). As has become evident from the sustained period of financial stress over the past month, the credit-addicted West is suffering from withdrawals symptoms at present…
The total operating balance of the US Treasury has fallen in the past week (from around $70 billion on 2/6/11 to around $30 billion on 9/6/11).
Even with one’s non-conspiratorial hat on, one cannot deny the amusing correlation between the stock market and the operating balance of the US Treasury. In recent weeks, this has become clearer due to the fact that the supplementary financing account program has been unwound (i.e. the purple line is flat).
In a way, this correlation shouldn’t be too surprising, after all; entrepreneurs are — in general — ‘long things and short money’. Therefore, they tend benefit from an increasing supply of money and tend to be hurt by a decreasing supply of money. So, given that the private sector reached a maximum capacity for leverage in either 2000 or 2008, the existence of the current class of speculators & entrepreneurs depends upon a levering government sector. As I often say here on greshams-law.com, we are currently witnessing a ‘short squeeze in dollars’, so – as with any other short squeeze – there arises periods of relief only when a huge seller comes in (which is a levering government sector in this case). As I have emphasized over the past few months, it seems like the government sector is pausing its net spending activities; this is bearish for the so-called ‘risk assets’.
The shorter term (and more alchemistic) interpretation of the daily treasury statement charts has been early. Nevertheless, the mechanical interpretation says that this current market stress may continue for a few more weeks. The broad thesis is that net government spending is bullish for asset prices (on a lagged basis) and net accumulations of cash are bearish for asset prices (on a lagged basis). For a more detailed interpretation of these charts see here.
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Recommended: Charting the Federal Reserve's Assets - 1915 to 2012