To be clear, the “household sector” is misnamed. It is the residual account with a fancy name. So given this, what does it mean when the residual account soars? We would suggest that it means there is a measurement problem. In this case, the Federal Reserve cannot “find” the buyers of Treasuries thanks to the exploding deficit. They correctly assume that the buyer exists (otherwise the market would not exist) and therefore place the “missing” buying in the residual account. Since this account is called the “household sector”, we all assume that “mom and pop” bought this sum.
If “mom and pop” were really the end buyers we would expect to see similarly booming numbers from the mutual fund industry. However, as we will detail in part 2 of this post tomorrow, mutual fund purchases are a somewhat insignificant portion of domestic buying.
Our guess is the domestic buyer is a leveraged carry trader, a mutual fund, a brokerage subsidiary or other group that does not have its own category so it gets “dumped” into the default category of “households.”
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http://www.ritholtz.com/blog/2012/06/what-is-a-household-and-why-are-they-buying-treasuries/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheBigPicture+%28The+Big+Picture%29
Realist - Everybody in America is soft, and hates conflict. The cure for this, both in politics and social life, is the same -- hardihood. Give them raw truth.
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