This past week saw alarming developments for the United States in several arenas. Unsettling data showed that foreign investors (including key creditors Japan and China) are dumping their U.S. Treasuries at a rate never before witnessed.
At the same time, the European Union financial services head threatened to lock out U.S. banks from the European financial system if President Trump moves forward on his recently signed executive order to review and repeal parts of the stricter banking standards implemented under the Dodd-Frank Act.
It’s not only the U.S. financial industry which is potentially in trouble. Last week saw two major British/Swiss banks announce plans to drastically slash staff as profits continued to disappoint at various European-based banking giants.
Meanwhile, Germany shook the world gold markets and stirred up the gold community with the announcement that their long-planned efforts to repatriate their gold home to Germany are well ahead of schedule and are halfway through the process of bringing the world’s second-largest gold reserves back to Berlin. These and ongoing geopolitically and financially unstable news bytes should encourage you to protect your retirement assets with bullion gold.
Foreign Countries Dumping Treasuries in Alarming Development
This past week, data showed a disturbing new trend has emerged in the world of U.S. Treasuries which finance the American government’s spending abilities. In 2016, for the first time, foreign transactions of American government debt instruments were a net negative for the year. Purchases by international governments, central banks, organizations, banks and financial institutions, businesses, and investors had dropped to almost even for 2015.
Yet in the final year of President Obama that culminated in the surprise election victory of President Trump, Japan, China, Britain, Germany, and other holders of U.S. Federal government bonds and T-bills began to dump their positions in a worrying development as the chart below plainly shows.
Foreigners have pulled away from American government debt as they have never done in the past. Japan registered its first back-to-back selling of Treasuries since the beginning of 2014 in December. China has been a net seller of the all-important U.S. debt since last May. It now boasts a seven year long low in American debt assets.
The negative trend is not only an Asian problem either. In London, BlueBay Asset Management with its $50 billion worth of investment grade debt is in the process of selling off its U.S. government debt in an effort to protect itself from rising American interest rates which will inversely affect the value of their bond holdings, causing them to decline even as the Federal Reserve raises interest rates later this year.
Central banks in both Europe and Japan are continuing to play with their experimental negative interest rate policies, which is encouraging their own investors to purchase local bonds that will rise inversely to the declining interest rates there.
The issue bears close watching as any continuous decline in foreign demand such as 2016 demonstrated so shockingly will lead to long-lasting negative impacts on the ability of the American government to finance its spending needs inexpensively. This is especially worrying in light of the new administration’s fiscally ambitious goals to spend over a trillion U.S. dollars on infrastructure, slash taxes, and make “America First.”
EU Financial Services Head Threatens US President Trump for Seeking to Undo Dodd-Frank Act
In the past two weeks, President Trump has signed a flurry of executive orders. Among the more controversial ones internationally has to do with the Dodd-Frank Act. The President will be reviewing the raft of internationally agreed upon rules which the U.S., EU, and other important economies throughout the world signed up for in the midst of the global banking collapse.
In response to the American administration’s decision to undo some of the restrictive and unpopular (with financial institutions anyway) banking legislation, the EU Financial Services Chief Valdis Dombrovskis (who is also Vice President of the European Commission) stated that the internationally concurred on rules from the 2007-2009 financial crisis have to be maintained in order to preserve financial stability:
“International finance needs international regulatory cooperation. Without it, we run the risk of regulatory arbitrage and renewed instability. We are sensitive to talk of unpicking financial legislation which applies to carefully negotiated international standards and rules. Lax regulation in one country can create conditions for inadequate regulation and contagion throughout the world.”
The Europeans are not just bluffing with this tough talk. Financial Services Chief Dombrovskis backed up his insistence with the threat last Friday of locking out “some” American financial institutions from the European markets in the event that the Trump administrations repeals international rules which took effect following the financial crisis.
European Banks Slashing Staff and Posting Severe Losses Again
European banks have struggled to recover effectively from not only the financial crisis of 2007-2009, but also the sovereign debt crisis of 2012. In the latest evidence that all is not well across the pond, two enormous British and Swiss banks are electing to massively cut back their global staff in an effort to improve profits or even erase quarterly losses.
Britain’s Royal Bank of Scotland Group PLC is planning to slash staff and even close branches in order to cut back over a billion pounds sterling (amounting to $1.25 billion) in its yearly operating expenses. Though the figures are not yet official, the U.K. Sunday Times reported that the RBS bank will cut 15,000 staff positions, which represents over 16 percent of the entire global group’s employees. In order to achieve these enormous staff cutbacks, they plan to reduce administrative employees and new accounts opening personnel.
Swiss banking giant Credit Suisse, the second largest financial institution in banking haven Switzerland, just reported a final quarter of 2016 loss of 2.35 billion Swiss francs (around $2.34 billion). To compensate for their still-staggering losses, the Swiss banking legend will cut up to 6,500 staff positions in 2017 in an effort to become profitable again.
The shocking news is that these are actually their improved results with cost savings coming online ahead of schedule. The silver lining for investors and account holders of Credit Suisse is that they should not be forced into selling off their beloved and historic Swiss banking unit, the universal banking division.
Germany Repatriates Gold
Last week, the Bundesbank announced it had completed the first half of its gold reserves repatriation program three years ahead of schedule. This has once again stirred the pot of rumors surrounding why Germany concocted this plan in the first place back in 2013.
Original suppositions had been that in the wake of the financial crisis and sovereign debt crisis, trust had degenerated sufficiently between the world’s major central banks that the German government no longer trusted the U.S. government in general and the New York Federal Reserve in particular to hold the world’s second largest gold holdings.
Now suspicions and rumors in the world gold community are once again rife as the Bundesbank confirmed last Thursday that it has successfully relocated 583 tons of gold from New York and Paris back to Germany. One of the leading current theories reported by Reuters is that Germany may require its enormous gold bullion reserves in order to “back a new deutsche mark, should the euro zone break up.”
What is good for fiscally conservative Germany is sensible for you as well. Consider moving at least a portion of your retirement holdings into IRA approved gold bullion now before world stability deteriorates any further.