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Posts Tagged ‘Treasuries’

Central Banks Dump Treasuries As Dollar’s Reserve Currency Status Fades

March 16, 2011 Comments off

forbes.com

By AGUSTINO FONTEVECCHIA
Official inflows vs total reserve accumulation – Nomura

Demand for US assets, especially Treasuries, has been waning since the beginning of 2011, with central banks around the world increasing reserve accumulation while dumping the greenback.  More signs that the dollar is dead as the world’s only reserve currency?

Nomura’s FX research and strategy team analyzed the latest numbers from the Treasury’s International Capital System.  “It looks like the trend of weak central bank demand for USD assets is persisting into 2011 (after a very weak Q4),” wrote Nomura’s global head of G10 FX strategy, Jens Nordvig in an email.  From November to January, central banks reduced their US dollar holdings by $9 billion; “given a fairly strong trend in global reserve accumulation Read more…

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U.S. Treasury Secretary Admits U.S. Default is Imminent

January 24, 2011 Comments off

By James West

Timothy Geithner, U.S. Treasury Secretary, admitted in a letter to congress dated January 6th, that the United States Treasury would be forced to default on its credit obligations without clearance from congress to raise the amount of money tha the treasury is allowed to borrow.

After citing a list of “extraordinary measures” congress has had to resort to int he past to avoid entering a state of defualt, Geithner stated, “Once these steps have been taken, no remaining legal and prudent measures would be available to create additional headroom under the debt limit, and the United States would begin to default on its obligations. The extraordinary measures include, “suspending sales of State and Local Government Series (SLGS) Treasury securities; suspending reinvestment of the Government Securities Investment Fund (G-Fund); suspending reinvestment of the Exchange Stabilization Fund (ESF); and determining that a “debt issuance suspension period” exists, permitting redemption of existing, and suspension of new, investments of the Civil Service Retirement and Disability Fund (CSRDF).

That the United States has already defaulted on its obligations is beyond dispute, at this point, as its the rate at which its debt service obligations is growing exceeds the rate at which the United States GDP could possibly grow, meaning that, without drastic cuts to governmenbt spending, the debt can only continue to grow.

Before our very eyes, the so-called leadership of the world’s largest economy is intentionally bankrupting the country and devaluing its currency in what can only be a precursor to rampant inflation. Since the integrity necessary to manage this problem does not exist within the United States political system, the rest of the world has no choice but to stand by and watch the value of their United States Treasury Bills diminish incrementally on a daily basis. Selling them will only exacerbate the problem, but the question must be asked, how long until the remedy is preferred over the miserable condition?

Geithner goes on to say, in a remarkable baring of the national soul,

However, if Congress were to fail to act, the specific consequences would be as follows:

The Treasury would be forced to default on legal obligations of the United States, causing catastrophic damage to the economy, potentially much more harmful than the effects of the financial crisis of 2008 and 2009. Read more…

What is Plan B if China dumps its U.S. debt?

January 20, 2011 Comments off

By Emily Flitter

NEW YORK (Reuters) – When borrowing money it’s always good to have a Plan B in case a big creditor pulls the plug. That should be true whether the sum is a few thousand dollars or about a trillion, the size of the United States government’s debt to China.

With Chinese President Hu Jintao due to arrive in Washington on Tuesday, it is worth asking about U.S. officials’ Plan B just in case one day relations take a surprise turn for the worse and Beijing dumps its holdings of U.S. treasuries.

China is officially the United States’ biggest foreign creditor, with roughly $900 billion in Treasury holdings — or over $1 trillion with Hong Kong’s holdings included.

That means it could do severe damage to U.S. debt markets if it suddenly started selling large amounts.

Most experts say if there were signs of this happening, the U.S. government would go for a combination of persuading Americans to buy more U.S. debt, the same way they did in World War II, and finding friendly foreign governments to make additional purchases.

Banks could be called on to increase their holdings of treasuries, and as a last resort, the Federal Reserve could also be called on to fill the gap, though this could risk turning any dollar weakness into a slump. Read more…