From bill Holter at Le Metropole Cafe . . .
We are getting close
I believe the world's financial system is crossing a very important threshold as I write this. The world is now asking some very pertinent questions and questioning some very long held beliefs. For example, Germany has recently had more failed auctions, China is demanding "assurances" that the Dollar will be supported, several world leaders and organizations have identified the current world economy as in "depression", and here in the U.S. we look forward to more unfunded bailouts.
All of this revolves around one central flaw that has been obvious to anyone who has ever run, or been on a budget. I am not talking about the obvious fact that you cannot spend more than you make, nor borrow forever. As simple as it may seem, no one nor no entity [government] can borrow more money than there is in existence. This is exactly what the U.S. is proposing to do, it cannot be done mathematically but this is the plan. We used to hear about the possibility of the U.S. "crowding out" other borrowers from the credit markets, we are now far beyond this.
This past week Germany had its second failed auction of the year, with the proposed debt appetite in the U.S., it is now only a matter of time until we experience the same. When the U.S. has its first failed auction which I can already can smell, nothing will function, world finance will stop dead in its tracks. The current situation has been blamed on the "credit crunch", as I see it, by trying to borrow its way out of the credit crunch the U.S. is doubling down its bet and actually exposing its own bankruptcy.
Hilary Clinton is expected to go to China later this week to discuss funding and finance for the Treasury. Good luck! China wants assurances that the U.S. will support the Dollar? Again, lots of luck! Every trick in the book has already been thrown at supporting the Dollar to date, any assurances given will have no more value than the Dollar. The only question now is "when" does China pull the plug, they have to sooner or later because they simply don't have it to lend it. I believe it is now dawning on the rest of the world that the U.S. needs to borrow more than the sum total amount of the world's capital pool, impossible.
So the world is figuring out the math, global debt auctions have been touch and go, assets are continuing to deflate and the "D" word is now making the rounds, interesting to say the least. However, as reported by Chris Powell of Gata, and followed up on by Jim Sinclair, I think the most interesting chapter is about to open. "Where's the Gold" will be more riveting than anything we've seen so far, this chapter will in my opinion dwarf all other past frauds. Doing the simple math of how many ounces the Gold ETF's say they have, has some people scratching their heads. I would say "and rightly so" but it is not. The amount of Gold claimed to be held is certainly a fantasy because it had to come from somewhere and no exchange is saying that their inventories have depleted by even 1 ounce. Where did the supply come from? Yes, it had to come from somewhere or it is just fictitious accounting? In all likelihood all this "supposed bullion" is only paper and will burn with the rest of the system.
Common sense says the ETF's do not have the metal they claim to have, neither do the Central Banks. This little inconvenience will erupt into the scandal of all scandals. Once the ETF's are found out, next in line will be Central Banks and in particular the U.S. Treasury. I think that very soon pressure will rise for the U.S. to come clean about it's Gold reserves. I think we may never know for sure but when the stench of rotten fish begins to spread and the world starts asking for verification of reserves, the greatest scandal and Treasury looting in history will be front and center.
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The above was written over the weekend, this morning looks like a panic brewing. If Dow 7,500+-, and S+P 780+- breaks here, we will probably see a cascade downward. Make sure your pantry is stocked as the banks in Europe are imploding and one day soon we will wake to a closed market and banking system. I think we will see numerous gaps down when they are able to open markets, very similar to Russia over the past 6-8 months
Regards, Bill H.
Interesting thoughts on US bank nationalizations from Bill H at Le Metropole Cafe
Will it be this weekend that Citigroup, Bank of America, and Wells Fargo are nationalized? Ken Lewis has officially denied this so it must be true since nothing is ever official until it is officially denied. Seriously, it looks like this is the road we are travelling, the only way to keep the banks open is to nationalize the truly brain dead. But this will also have ramifications and unintended consequences.
First and foremost, the Treasury will now expose it's balance sheet to whatever losses and liabilities any bank has if they nationalize them. The biggest problem is that no rocket scientist alive can figure out what all the liabilities are. I don't believe that any of the banks even know what their true exposure and position is, how can the government know what they are stepping into. This is no ham sandwich affair, the derivative positions we are talking about run into the $ trillions. If Uncle Sam decides to step in front of this deflationary freight train, the word bankruptcy comes to mind.
Lending, or lack of has been a major concern for over a year now, does the government believe they can make better lending decisions? Maybe they can but past history shows that government ownership [ie. Amtrak] usually doesn't work as planned. Russia has already proven that central planning is not the answer. We are moving toward socialism on a grand scale.
Then what is next? The insurance companies, autos, airlines, housing? Where does it stop? Or does it? The bottom line is that the economic monster that was created is far bigger and in a deflationary hole that is so deep that if the government steps in to lend a hand, everything ends up getting sucked into the black hole. I think we are to far down the road now for anything resembling a "save". I have said many times that the current firestorm would result in a complete change of the system with a new banking system and currency, I still see no way around this. Sad.
I believe that if the US takes the step to nationalize the banks, private capital will begin to flee any questionable positions for fear of being nationalized. How will this work? The shareholders obviously get wiped out but are the bondholders left with anything? I don't know. I do think that once this "nationalization door" is opened, out of control will be an understatement. At this point no one knows what anything is truly worth, no one knows whether they are invested in a Ponzi scheme or not. If you have land or property you have no idea whether or not it will be taxed out from under you. The only thing that is a certainty is an ounce of Gold. It cannot go bankrupt, if in hand it is not a scheme, ownership [so far] is not a taxable event, and it spends. More and more are coming to this same conclusion, enjoy the ride. Have a pleasant weekend,
regards, Bill Holter
Cost of insuring U.S. 5 yr. Treasury bond is now 1%
Cost of insuring U.S. 5 yr. Treasury bond is now 1%
If an institution buys a 5-yr Treasury and then wants to turn around buy credit default protection on its purchase, it now must pay 1%. The yield on a 5 yr. T-bond is 1.92%. It now costs more than 50% of your rate of return on a T-bond to insure that you get your money back. This is an absolute disaster for our Government. The cost of credit default insurance is a real world, market assessment of the risk of default of the U.S. Govt, as opposed to the fantasy/fraudulent ratings issued by Moodys and S&P. As per this article, the default risk of the U.S. Govt is now considered to be higher than that of Japan, Germany and France. I would also argue that, given the risks being priced into our credit markets, including the Govt bond market, that the level of the Dow/S&P 500 is still way too high:
http://zerohedge.blogspot.com/2009/0...tion-risk.html
From Bill Holter at Le Metropole Cafe . . .
To all; by all rights the equity market is oversold, it was due yesterday's bounce and during normal times we should rally hard to 7,800 then the 8,800-9,000 level on the Dow. We are not in normal times and "waterfall" events generally come from oversold levels. The reverse is true for the metals, they are overbought and should relax and pullback somewhat here. I suspect this is not what is happening, it looks to me like $1,000 will be hurdled shortly in Gold and a "6" handle is what the Dow is looking at shortly. I think if this happens, psychology will be crushed worldwide.
No one has any answers and all the past "answers" turned out to be nothing more than "close your eyes and swing at the ball". I think we are very close to the past "business as usual" [fraud] no longer being tolerated. There has been little if any public uproar or shock to the Madoff and Stanford frauds, nor the bank and mortgage frauds, and the $700 billion TARP generated only short term anger. I sense that this will change shortly and go hand in hand with the current equity downleg deepening. This is obviously just one man's opinion but I sense more "squirming" now than in the past.
Again, this is just my gut feeling but I think there will be some type of event that just won't get by the public. There is no telling what it will be or from what sector it will come from, but I sense that it is out there. A terrorist event, political or financial scandal, bank or insurance run, a sovereign auction failure, war, it could be anything, IT WILL BE SOMETHING and unfortunately the entire world is all in the same boat. Every scandal so far has had the reaction of ho-hum to say the least. No scandal has yet to be really investigated [I wonder why?] nor has the money been followed. Mark to market, real audits, follow the money, none of this can be done because immediate panic would follow.
I don't usually blather "gut feelings" but something has been eating at me for over a week or so and it has to do with the complacency, lack of fear, and lack of outrage that we're witnessing. I sense a big wave coming.
Regards, Bill H.
Fiscal irresponsibility ie. Banana Republic
Quote:
Originally Posted by
Craig3215
. . . I must be missing something, and i'd be interested to hear what that something is?
your not missing anything Craig and neither is Bill Holter over at Le Metropole Cafe . . .
__________________________________________________ _
Fiscal irresponsibility ie. Banana Republic
What a complete farce we are living through now. President Obama submitted his budget with a $1.75 Trillion projected deficit, yeah this one's manageable, it is only about 12-13% of GDP. Can you say banana republic? Only a day after his "fiscal responsibility" speech we get the details of this porked out, bloated, nation destroying farce of a budget proposal. Did I mention the $643 billion for health care? Actually, I believe this amount was the "down payment" over 10 years, I can't wait until the final tax bill comes. We will probably witness more heart attacks, more inductions into insane asylums, and more ulcers as a reaction than they will cover the previously uninsured.
This is truly banana land and the market is sniffing it out. Yields on Treasuries are rising and the default insurance on a 5 year note now exceeds that of Germany, France, and Japan. But here is the funniest part of all, if the US were to default, who would be left standing to make good on the default insurance? Aren't the insurers the likes of AIG, GE, and JP Morgan? If the government defaults, would any public finance company be left standing to pay up in Dollars? Wouldn't these Dollars presumably have no value because the "full faith and credit" just went broke? Wouldn't it be a better idea to just take the insurance premiums and buy Gold bullion over the 5 years? Hey, at least at the end you would still have bullion even if there was no default. But the best part, you would have bullion if they did default! I am confused as to what board of directors, money managers, etc. would pay Dollars today [that could be converted into something real] to insure against default of the US, only to receive more currency of the bankrupt entity ? Buying credit insurance on US debt is the equivalent of buying a BIC lighter for fire insurance.
The whole show has gotten stupid, the autos, banks, insurers, home builders and lenders are all crippled because we went off a deflationary cliff and this in turn has dragged the balance sheet of the Fed and Treasury into a black hole. And what do we hear on CNBC? Now is the time to BUY BUY BUY, especially the banks! They will lead us out! I am no rocket scientist but I can do simple math on a scratch pad, the SYSTEM is broke and no amount of freshly created worthless monopoly money is going to change this. It is over the edge and the only thing we hear from Washington is "we will borrow more money to make the already over levered system right again"! I don't think so Tim.
This thing is busted, if it wasn't, then 0% rates, $ Trillions in bailouts and stimulus, plans A-Z surely would have turned us around. They haven't worked and in fact things are much worse now than 6-12-18 months ago. The history books will be read 100 years from now and I can already hear an astute 3rd grader asking, "who WERE these people"?
Regards, Bill H.
From Bill Holter at Le Metropole Cafe . . .
To all; the premier of China has said "We have made a huge amount of loans to the United States. Of course we are concerned about the safety of our assets. To be honest, I'm a little bit worried," Wen said at a news conference following the closing of China's annual legislative session. "I would like to call on the United States to honor its words, stay a credible nation and ensure the safety of Chinese assets."
This is it, this is the beginning of "banana republic" time. If the Chinese truly step back and do not support our Treasury auctions, the buyer of last resort will be the Fed. I am sure the Fed has already begun monetizing but without Chinese support, the Fed will be monetizing out in the open for all the world to see. All of the massive bailouts that have been promised will in essence be paid for by the Fed printing more Dollars to give to the Treasury. The Chinese "communicate" in this fashion, they have made a very strong statement to Washington. It is no longer a question of if, only a question of how rapidly the Dollar unwinds. We all knew this day was coming, the day that the markets see an auction without Chinese participation will be horrid. Strap in and hunker down.
Regards, Bill H.
http://www.breitbart.com/article.php...show_article=1
More from Bill on "Quantitative Easing"
To all; beyond stupid is all I can say about the Fed's announcement today! They are going to spend (read print) $1 trillion, to inject into the economy and buy Treasury bonds, can you say HYPERINFLATION! As a side note, CNBC reported "massive" call buying in long term Treasuries early today, can you say INSIDER TRADING! So I guess we are now all saved, again, for the umteenth time.
Treasury yields have immediately cratered about 1/2% in the 10 and 30 year Treasuries, this knee jerk reaction will soon be seen as nothing but a reaction by a bunch of jerks. So the Fed will expand it's balance sheet by another 50% and investors want to buy fixed income securities? They are buying bonds with lower yields when the Fed says they will create more Dollars to buy Treasury bonds that promise to pay in these same over issued Dollars? I don't get it. Well actually I do, and I think anyone buying bonds now will get it shortly, you know where. Mr. (I'm a student of the depression) Bernanke has thrown in the towel and is hyperinflating in plain sight, this will not work and will not stand when the G-20 meets in 2 weeks.
This is panic by the Fed, plain and simple. It is also the admission of failure, failure of all the past plans to unthaw the credit crunch. If you watched Gold today, you saw it down $30 plus Dollars until the Fed announcement, it is now up $30+. If you had any questions as to whether Gold was manipulated or not, today's action should do it for you. Gold had no reason to be down hard except for the fact that it was necessary to "retard" it so a $60 rally would look like a $30 rally, HOW PATHETIC!!! If you had any lingering questions about owning Gold, they should be completely gone as the Fed "rang the bell" today, WE WILL DESTROY THE CURRENCY TO SAVE THE BANKING SYSTEM! No ifs, ands, or buts, this is textbook hyperinflation.
The Dollar has had a huge one day collapse -3% (read, everything just got 3% more expensive in Dollar terms), stocks are giving up their gains, and Gold and the shares are running upward like scalded dogs, these are all to be expected. Treasuries however are very counterintuitive and anyone who owns them and doesn't sell into this rally (unless hedged by Gold) needs to have their heads examined. Yields should begin a huge rise very shortly as the world figures out what just happened today. I cannot stress enough how big today is, the implications are earth shattering. This is the Central Bank of the world's reserve currency admitting failure and panicking two weeks before they meet with their banking "brethren". Talk about bargaining from a weak position, Geithner, Bernanke and co. will be sent to the corner and ordered to wear a "dunce cap" (made of paper mache) when they arrive in London. They will show up to the gunfight with paper knives.
I knew this had to happen, I like everyone else hoped I was wrong. Now we will watch as the smoke pours from the Fed's money printing factory as the presses burn up and burn out. It is almost hilarious listening to CNBC's endless line up of idiots raving about how great this "quantitative easing" is, they don't even have a clue as to what is happening. Wecome to Zimbabwe, a loaf of bread costs $10 billion. I will leave you with this question to ponder, "what is the difference between U.S. Dollars and those of Zimbabwe"? The answer is in the title.
Regards, Bill H.
From Le Metropole Cafe . . .
And now the "REAL" Stress Test!
To all:
The much touted "stress test" of the U.S. banking system is nothing but a PR sham and in reality, completely meaningless. The "worst case scenario used is a 3+% drop in GDP, and a 10% unemployment rate. If real GDP and unemployment numbers were ever offered up, my guess is that we already have had a minimum 5% contraction in GDP and true unemployment is approaching 13-15%. The stress test only addresses "tier one capital", my question is this, what about all the "off balance sheet" crapola that surely renders these reckless banks insolvent? No, really, I WANT TO KNOW! By trying to control and manipulate ALL markets, these banks have taken $ trillions upon $ trillions worth of fraudulent transactions on (and according to their accounting, off) their books. They are walking corpses that cannot be saved.
On books, off books, what is this crap!? If you enter into a transaction, is it not still a transaction whether you "account" for it or not? Are you not responsible to perform on the contract, no matter how you account for it? I did business my entire life on a handshake, I never had "off balance sheet" business because A DEAL IS A DEAL. Period. Even if it was a bad deal, it was still a deal and I would learn a lesson but still perform.
The "originator", the biggest abuser, the teacher if you will, for off balance sheet shenanigans, IS the U.S. government. They have used fraudulent accounting for nearly 50 years. The have used a fraudulent currency for nearly 40 years, invoking the "never pay" model. And now they are providing a stress test for the banks? How quaint, how brazen of them. I believe that the biggest stress test of all time will be imposed on the U.S. Treasury and Federal Reserve very soon by Mother Nature (the markets). The Dollar has completed it's short covering rally, it has made no headway since last November. The Treasury market has retraced all of it's gains since the "quantitative easing" announced by the Fed in mid March. The 10 year has moved up from sub 2.5% to an even 3% in the span of 6 weeks, a move higher from here should accelerate this move. The equity market is at a moment of truth, in that it's momentum has also stalled but it must continue higher in order to "prove" all the talk of "green shoots" and to spur consumer spending and confidence.
Should ANY of these markets fail, the jig will be up for the other 2. Should the Dollar collapse, it will spur Treasury selling and thus higher interest rates. Should Treasuries collapse, the laughable "bottom" in real estate will be proven to be false, and thus will spur further negative sentiment and consumer retrenchment. Should stocks collapse, well, you will have pension shortfalls, even more consumer retrenchment, in short, a "depressionary environment". But here is the "big enchilada", it is the government who will be most harshly affected by this market imposed stress test. Uncle Sam cannot afford higher rates, the debt service alone will kill him. He cannot afford a lower exchange rate currency because this will spook foreigners into a "bank run", nor can he afford a lower equity market as that will expose the invalid "stimulus plans" and spook the entire world.
The current "remedies" virtually guarantee a lower Dollar and higher interest rates, the correct remedies (necessary almost 10 years ago) will result in the same, a collapsed currency and a debt market with few bids. In short, this credit contraction is now becoming a self fulfilling prophecy. Tax revenue is imploding while at the same time they decided to spend like drunken sailors. This is rapidly becoming a sovereign bankruptcy that will spread faster than swine flu. Upon further thought, the real stress test will be how we, as individuals and family units, cope with the conditions thrust upon us. The past rewarded those who were blatantly reckless, now, even those who were prudent and played by the rules will get swept away by this perfect, man made storm. Only those that understand the difference between real money and fake fiat will stand a chance to survive and thrive as the paper promises get swept away. Quite stressful to say the least.
Regards, Bill H.
Richard Russell dons the tinfoil hat, again!
Richard Russell dons the tinfoil hat, again!
To all; if the banking and financial systems were not so vitally important to our quality and way of life, what is beginning to happen now in Washington and on Wall Street would be comical. I wrote almost a year ago that Wall Street would begin to "eat their own", to some extent this has already happened on a corporate level, it is only just starting on a personal level. A "split", or rift, is becoming noticeable amongst the CNBC so called journalists regarding the lies that are starting to pop up like "green shoots". Public figures such as Paulson, Bernanke, Greenspan, Geithner, etc. are all taking incoming fire to some extent.
Former Secretary Paulson, it is now learned, told the banks that even if they refused TARP money, their regulators would demand they take it, and thus they would "wrapped up" in the TARP whether they liked it or not. Several groups have filed FOIA requests of Treasury and Fed discussions, only to be stonewalled, delayed, and "redacted". Theoretically, no, in reality, every Dollar that Treasury spends is OUR money, OUR tax money, or OUR future obligations. They have apparently "forced" many healthy institutions to take TARP money in their bid to control, (read socialize) the banking system. If I were "King", and knew that I must devalue my currency, I would certainly want to have control of as big a percentage of the banking system as possible before devaluing. When someone "owes" you, you tend to have a greater control or leverage over them, I believe this, along with "looting the Treasury" is the underlying motive behind the bailouts. They are transferring as much capital to favored banks while keeping their thumb on top of as many "rogue" conservative institutions as they can before the declaration of bankruptcy through currency devaluation as they can.
The Fed has also received FOIA requests, they simply say "bug off", we are not a government entity and don't have to reveal anything to anyone, EVER! The Fed has obviously blown their balance sheet up like a balloon, what has not been talked about is the amount of "off balance sheet" garbage they have shoved under their cashmere rugs. We may never find out, but I would not be shocked to see it in the tens of $ trillions.
Which leads me back to the rift that is starting to appear, we have been the recipients of lies to cover lies to cover lies, and just now, even some journalists can't stomach it anymore. They are starting to ask some real questions (imagine that?). Some want to know about the strong arming by Paulson of the banks, others are up in arms about the setting of pay levels at financial institutions that had the balls to "just say no" to TARP money, the "nationalization" of the auto sector is another one. They ask, how can senior debenture holders be considered "speculators" by the President, and why are there legal rights being trampled on? There has apparently been a group of bondholders that in their words were "threatened by the White House" if they got in the way of the Chrysler or GM deals. Some even want Fed transparency, GASP! I guess you could say that some of the Muppets are dissenting.
But, the debate and "discovery" of what happened to the Madoff monies has gone nowhere yet. It may, but I don't think we can be allowed to know since they did business with so many giants and purportedly the NY Fed, this would be pulling the skirt up too high. In any case, I sense the boiling level rising, the lies so pervasive, and the arm twisting to the point of breakage, that they can't hold the tent up much longer. When all is said and done, I believe we will find out that every market, everywhere, has had the fingerprints of government upon them. Whether it be on the butts of the Dollar, Treasuries, and stock markets to hold them up, or around the throats of Gold and Silver to suppress them, it has been everywhere. All those whacked out "tinfoilers" are beginning to gather some followers now that the manipulation, lies, blackmails, frauds, etc. have emerged everywhere and are too obvious to hide. Heck, I even remember when Richard Russell considered manipulation to be preposterous and conspiratorialist, well, for the third time now, he has come out declared market manipulation by the government is rampant.
THIS is a big deal! Mr. Russell is the original, most widely followed and respected, most on target financial writer alive (possibly in history). It took him a while, but I'm glad to see Mr. Russell wearing his new bright and shiny tinfoil hat proudly. Welcome to the club Mr. Russell!
Regards,
Bill Holter
Excerpt from this weeks Privateer.
A Dangerous Lunacy
Loop back for a moment to the beginning of this issue and the BIS report of a global shrinkage of “bank claims” totalling $US 1.8 TRILLION in the final quarter of 2008. Add in the combination of debt guarantees from the US government and its financial “authorities” since the start of the financial crisis. As reported in the Global Report the whole “package” adds up to $US 29.1 TRILLION. All of these guarantees have been made to artificially maintain the “value” of the paper instruments of indebtedness of all descriptions on which the system is built. Without them, that system would already have crashed.
Now look at the state of the REAL world as reflected in the crash dive in tax receipts which have been suffered by governments all over the world. Consider the fleets of merchant ships at anchor despite the fact that the cost of transport has plummeted to levels at which every container is carried at a LOSS.
In the middle of all this stand the financial markets, clinging to the illusion that the real capital necessary to create and maintain a productive and prosperous society can be run off a printing press or “guaranteed” by an entity which produces no wealth of any kind but merely confiscates and/or redistributes it. Markets have clung to this illusion many times in history but the contrast between “green shoots” and economic reality has never been as stark as it is today.
Permission hereby given to
quote short excerpts - provided
full attribution is given:
© 2009 - The Privateer
http://www.the-privateer.com
capt@the-privateer.com
(reproduced with permission)
not much longer USD is stuffed
Geithner enriches speculators in "sham" bank bail-outs
13/05/2009 | By Ambrose Evans-Pritchard in Doha | finance
“It’s a sham. The banks are insolvent. The US government is trying to sedate the public because they are down to the last $100bn (£66bn) of the $700bn TARP funds.
"We’re going to see a catastrophic increase in the number of LBO’s (leveraged buyouts) going into default because they’re knee-deep in debt and no solution exists since they can’t refinance.”
“The US government has thrown 29pc of GDP at this crisis compared to 8pc in the early 1930s. The Fed’s balance sheet has risen from $900bn to $2.7 trillion to bail out the system. America has to do it because the only way out is to debase the currency, but that is going to lead to some very high inflation three years down the road
Have China watchers never heard of a decoy?
Have China watchers never heard of a decoy?
By Adrian Douglas
Sunday, May 17, 2009
What amazes me is how financial journalism is at the level of sixth grade in terms of analytical thinking. Even so-called market analysts are not much better.
GATA put out a dispatch today citing this Agence France-Presse article published by the Sydney Morning Herald in Australia, "China Keeps Buying U.S. Bonds Despite Concerns":
http://news.smh.com.au/breaking-news...0517-b757.html
This article is a prime example. It reports that China was recently expressing grave concerns about its massive U.s. bond holdings is still buying more such bonds.
The simpletons in the press and financial world don't have a clue. What are these sleuths looking for? A $500 billion sell order posted with a New York broker on some rainy Monday morning? Have they never heard of a decoy?
The U.S. Treasury reports each month on foreign holdings of U.S. Treasuries. The Chinese would have no more than 30 days to dispose of almost a trillion dollars in Treasury debt before their selling would be public knowledge. Do these China watchers seriously think that the China's diversification strategy is going to involve unloading U.S. debt on the debt market?
You don't have to dispose of an asset to realize its cash value.
Didn't these people learn anything from the mortgage crisis? For bankers the best collateral in the world is U.S. Treasury debt. That is likely to change soon, but if we deal with the facts of today, the Chinese are holding what bankers perceive is the most liquid and highest-quality collateral. Do you think that this characteristic of U.S. debt has escaped the notice of the Chinese?
I would bet that the Chinese have been busy using their Treasury debt as collateral against FIXED-interest-rate loans. They will have used this money to buy real assets. We know they have bought at least 454 tonnes of gold. They are importing 70 percent more copper than they consume. They are filling up a strategic petroleum reserve. They have been going around the world making deals for raw materials and acquisitions of small-enough companies that they fly under the radar. (The Chinese learned their lesson from trying to buy Unocal.)
The interest rate on these fixed-rate loans will be partially offset by the interest paid on their U.S. bonds. When the bonds go tapioca, the Chinese will have two options. They can sell some of the assets they bought but at prices much higher than what they paid and so pay off the loans with worthless dollars, or they can simply default and lose their collateral of now-worthless U.S. bonds.
Just to obfuscate what they are doing, they make some complaints about U.S. debt one day and then buy some more a few weeks later.
Financial journalists should read the biography of Jesse Livermore to know how you can fool even the best traders.
The Chinese have a $300 billion sovereign wealth fund. If that is properly positioned in commodities, it alone will hedge China's entire bond portfolio.
The notion that the Chinese have accumulated this massive U.S. debt portfolio and only now are wondering what to do about it is so naive it doesn't warrant serious consideration. I have dealt with Chinese in business and they are the sharpest knives in the drawer. My guess is that China has already diversified most of its dollar holdings.
Now, like magicians, the Chinese keep the eyes of the China watchers fixed on the hat, because we all know that is truly where the magician has hidden the rabbit, right?
The Chinese have no interest in collapsing the U.S. Treasury market, but if you think that the Chinese strategy to protect themselves against such an eventuality is to sit tight, buy more, and keep their fingers crossed that everything will work out fine, then you shouldn't go out in public alone.
The Chinese have vault-loads of intrinsically worthless Treasury bonds that they no doubt have used as collateral to buy intrinsically valuable assets. In contrast, Western central bankers had vault-loads of gold they have loaned or sold to buy intrinsically worthless interest-bearing government debt.
I bet Confucius would have had something to say about that.
came across this very old article -Gold n silver as money
From today's Le Metropole Cafe . . .
Just a minor difference?
To all; with all the comparisons being made lately to the 1930's I am surprised that virtually no one points out the "small detail" that makes these times not only different but 180 degrees different. Yes I am speaking of money and the lack of "realness" and or backing by metal or anything else. Many advisors say "back in the '30's stocks did this and bonds did that and unemployment was whatever", I don't think a comparison to the thirties is even relevant because the U.S. Treasury was sound and the Dollar really "WAS as good as Gold".
Fast forward to this century and the Dollar is backed by nothing and the Treasury is the largest debtor on the planet that survives only at the whim of foreign lending. On any given day our creditors have the ability to pull the plug on the U.S. financially, as a matter of fact the Pentagon did a study on "financial warfare" last year. The result was the financial destructionof the U.S. by the Chinese. Back in the 30's WE were the Chinese, the U.S. was the biggest creditor to the world and of course we had "excess capacity" in the manufacturing arena as do the Chinese today. Back then the British were the fading power as we are today and they ran trade deficits which drained their Gold until they exited the Gold standard.
The point I am trying to make here is that the financial game is so different today because the money is different. The major players have changed seats at the table and are mostly 180 degrees backward from where they were during the depression. The problem that is unfolding and has become totally obvious to the rest of the world is that the Dollar is no longer as "good as Gold". This was the original deal they cut at Bretton Woods in 1944, then in 1971 we reneged on the Gold backing but got the Arabs to price oil in Dollars and thus the "petrodollar" era. Now even this is about to change as judged by statements from the world's oil producers.
The upcoming currency panic has it's roots in the U.S.. We have abused our right of creating the world's reserve currency and entangled the entire global financial system in our web, if we go down the rest of the world goes down with us. The "games" that the U.S. has played for 50 years or more portraying a stronger currency than in reality has finally caught up to us. The latest comical game being played is "the auction results". This year 80% of Treasury and Agency paper issuance has been bought up by the Federal Reserve and paid for with freshly printed Dollars and each auction is reported as a "success". God forbid the Fed's printer gets a "paper jam" or runs out of toner! Even scarier would be the Chinese or Japanese deciding they want out of what they already have.
Does the game blow up today? Tomorrow? Next week? I don't know and it doesn't matter as long as you know the end game. This end game will include a massive lowering of the standard of living across America. It will take far more Dollars to continue living in the manner we have become accustomed to. I am not talking about 5% or even 10% inflation, the end game for the Dollar will be hyperinflation. The books have been cooked, the Gold is long gone, all currencies are fake but don't worry because the recovery is just around the corner! The scary part is how many Americans know something is wrong but don't have a clue as to what it is because the media continuously points them in the wrong direction.
Regards, Bill H.
talk about risky business
well don't know about you guys but this is got to be bad for so called free market