I've asserted that the Fed likely uses offshore locations to maintain Treasury purchasing. What I've neglected to show is a potential means and opportunity to achieve this (motive is obvious).
The means and opportunity to this scheme appear to be the Fed's creation of currency swaps to provide US dollars to other country's central banks. In December of 2007, the FOMC (Federal Open Market Committee) announced that it had authorized temporary reciprocal currency arrangements (central bank liquidity swap lines) with the ECB (European Central Bank) and the SNB (Swiss National Bank) to provide U.S. dollars to these central banks. By April '09, the swap lines were extended to 11 more central banks including banks of England, Japan, Australia, Brazil, Canada, Mexico, Korea, Sweden, Denmark, Norway, and Singapore. The Fed's opaque accounting on this topic has maintained that the swaps are not being utilized. However, in October 2013, the Federal Reserve and the partner central banks announced that their existing "temporary" liquidity swap arrangements--including the dollar liquidity swap lines--would be converted to standing arrangements that will remain in place until further notice. Interesting that something not in use would be converted to permanent status?!?
The chart below highlights the purchasing of US Treasury debt since 2002 by nations without Fed sponsored central bank swap lines (specifically China, Russia, & OPEC) vs. the nations mentioned above, all with central bank Fed swap lines since April '09...(July '11 seems to have been a breaking point due to the US debt ceiling debacle...on this month, long held trends in Treasury buying reversed).
- China, Russia, and OPEC (on record dollar trade surplus' over the July '11 period until now) did not follow previous patterns of recycling nearly 50% of dollar surplus' into Treasury debt. Instead, sitting on record dollar trade surplus', they turned to net US Treasury sellers from July '11 onward.
- Since the advent of the central bank swap lines in these 13 nations, the nations with little or no dollar surplus', purchased unprecedented quantities of US debt. The only notable change in these nations being the addition of the Fed swap lines allowing these central banks to create and loan untold quantities of US dollars...the dollars to be utilized to maintain the appearance of market demand for record low yielding US debt (one can only speculate if dollars were/are also loaned by these central banks for other purposes?).
The chart below highlights the radical change in the largest purchasers of US Treasury debt...China, Russia, and OPEC. As of July '11 these buyers owned 36.5% of foreign held Treasury debt but today have fallen to 26% of total foreign held. Stunningly, on their combined departure as a net buyer, "foreign demand" for US Treasury debt was so high that yields were pushed to record lows?!?
On the largest buyers departures, where did the new demand come from? Since '08, BLI (Belgium, Luxembourg, and Ireland) purchased a stunning $567 billion in Treasury's. More shockingly, since July '11 BLI purchased $409 billion vs. $158 billion in Treasury purchases for the 5 core EU nations...all while China, Russia, and OPEC net sold $110 billion.
A review of all the nations with Federal Reserve swap lines and their ramping US Treasury purchases (Denmark is omitted).
So, though no one can "prove" the Federal Reserve is providing the backdoor funding for foreign held US Treasury's and correlation doesn't necessarily imply causation...the evidence sure seems to point that way.