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But China could reduce or halt future purchases. A less ravenous appetite for Treasurys is already evident: a New York Times article in January was titled: "China Losing Taste for Debt From U.S." One reason for fewer purchases would be diversification. Another would be to divert money toward its own 4 trillion yuan ($586 billion) stimulus package.
Reduced demand for Treasurys would drive up U.S. interest rates, probably pushing down home prices even more than they've already fallen, and also could start a run on the dollar.
If your boss slashes your pay, if you have no savings because you spent more than you earned for many years, and if your creditors are threatening to cut off your credit cards and home equity loan, what happens?
The answer, of course, is that you're in serious trouble. And this could be the situation for the U.S. government -- which is facing lower income tax receipts and ballooning deficits -- if China loses its appetite for extending more and more loans by buying U.S. Treasury securities.
China is the single largest foreign holder of U.S. Treasurys. The money it lends to the Feds finances our significant budget deficits.
Lastly, savings can always be relied upon whereas credit is ephemeral. Remarks this week from the Chinese premier Wen Jiabao should serve notice to all Americans that the day will soon come when the Chinese stop lending us their umbrellas. When that happens, the average American will be soaked to the bone.
Thousands still throng the shopping malls in Bangkok, but it’s all an illusion. From next month there will be bad news and more bad news.
THAIS are not jumping out of buildings just yet though Thailand is facing a more severe downturn than the 1997 Asian financial crisis which saw thousands committing suicide.
“It’s yet to come. By the second quarter of this year you should see many suicides,” said the man who counselled businessmen who contemplated committing suicide when they were hit by the Asian financial crisis.
Why the second quarter? Because by then those who have not given up hope yet will have no hope.
A FEW days ago Ben Bernanke, chairman of the Federal Reserve, was asked to identify the biggest obstacle to economic recovery. That “we don’t have the political will,” he replied.
Mr Bernanke showed his own will on Wednesday March 18th, when the Fed’s policy panel said it would purchase $300 billion in Treasury debt, mostly maturing in two to ten years, starting next week. It will also boost its purchases of mortgage-backed securities to a total of $1.25 trillion from a previously announced $500 billion, and its purchases of debt issued by Fannie Mae and Freddie Mac, the mortgage agencies, to a total of $200 billion from $100 billion.
The Fed had already said it was considering Treasury purchases, but expectations had waned in recent weeks. The announcement electrified investors, sending the Dow Jones Industrial Average up by 91 points, or 1.2%, and the ten-year Treasury bond yield down a stunning 50 basis points to 2.51%.
Has Back Door Debt Monetization Already Begun?
The answer to the title is “yes” but it is not back door and should have been obvious to any observer of the markets as early as last October. What if the United States Treasury under Hank Paulson set up a policy for the banks that received government financial assistance to ask them to use their offshore affiliates to purchase U.S. Treasury instruments to keep 10 year yields and thus mortgage rates artificially low?
Gold & Treasury Feeder System
by Jim Willie, CB. Editor, Hat Trick Letter | March 18, 2009
CONTROL FROM BERMUDA TRIANGLE
Notice how the primary impetus behind the supposed USTBond rally was the mountain of purchases this past autumn by the USGovt and UKGovt, as seen in the Caribbean banks, where their fingerprints are often found without any mention in the press whatsoever. The US & UK illicit games conducted in Caribbean banks is given cover from hedge funds and Arab accounts, but not enough to hide what is really happening. In July 2008, the Caribbean bank center ledger item showed $117 billion is USTreasurys. By October 2008 the amount zoomed up to $204 billion. This is not Bermuda and Bahamas redeeming sea conch shells, molasses barrels, and salvaged marine vessels for USTreasury Bonds. These are games played by the syndicates running the central banks
March 21 (Bloomberg) -- The dollar dropped the most against the currencies of six major U.S. trading partners since the Plaza Accord almost a quarter-century ago as the Federal Reserve’s plan to purchase Treasuries spurred speculation that it’s debasing the greenback.
“What it introduces is the problem of the currency to the extent that the Fed is buying what isn’t desired by foreign holders,” said Bill Gross, co-chief investment officer of Pacific Investment Management Co., in an interview on Bloomberg Television on March 19. “The Fed can keep interest rates where they want to keep them, at least for a 6- to 12- to 18-month period of time, but it will have consequences down the road.”
If China does that, then we will just have to nuke them.
China’s central bank on Monday proposed replacing the US dollar as the international reserve currency with a new global system controlled by the International Monetary Fund.