Foreigners Puking Up U.S. Treasury BondsSubmitted by northstar on Wed, 01/28/2009 - 02:48
New York Times: “ All the key drivers of China's Treasury purchases are disappearing — there's a waning appetite for dollars and a waning appetite for Treasuries, and that complicates the outlook for interest rates,” said Ben Simpfendorfer, an economist in the Hong Kong office of the Royal Bank of Scotland.
I've talked extensively about the bubble in U.S. Treasuries in recent issues of Bourbon & Bayonets . The majority of the emphasis in my analysis was towards the massive amount of monetary inflation and the exponential growth of U.S. government liabilities. What I haven't talked about is the other side of the story.
As Mr. Simpfendorfer notes, we are seeing demand from the biggest foreign players in the Treasury market diminish. Obviously these guys aren't complete idiots and a lot of their decreased demand is from the above mentioned reasons. But why must it always be about us?
You see, that's the problem. Both politicians and the citizens of the U.S.A actually believe the Chinese care what we say. That's the equivalent of the bookie taking orders from the gambling addict that owes him $50,000. It's ridiculous. At any time the Chinese can cut off its funding to the U.S. and poof, there are no more wars in Iraq and Afghanistan . Social security and Medicare cease to exist, and the dollar collapses overnight resulting in complete chaos.
A perfect and very interesting example of this is the continued jaw-boning by the U.S. to get the Chinese to let the Yuan float in order to increase its value therefore reducing our trade deficit. Even Geithner was speaking out on this topic, shaking his finger at the Chinese Like I mentioned, the Chinese don't care, but the interesting thing is whether or not this notion would even work. There have been many occasions where a nation has let its currency float with the desire to strengthen it and reduce their trade surplus with the U.S. A large number of those cases have ended up having the exact opposite reaction with the domestic currency actually decreasing in value. Two clichés here: be careful what you with for and don't bite the hand that feeds you.
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