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Posts Tagged ‘U.S. Treasuries’

Tsunami of Inflation to Hit U.S. with Japan Crisis

March 17, 2011 Comments off

inflation.us

The earthquake, tsunami, and nuclear disaster that hit Japan this past week and the destruction that it caused is nothing compared to the tsunami of inflation that will soon hit the U.S. as a result of this crisis. A tsunami of inflation in the U.S. will mean a complete collapse of our monetary system, which could lead to millions of deaths due to a lack of food and heat. 44 million Americans are now dependent on food stamps, but when the U.S. dollar becomes worthless as a result of hyperinflation, the government will no longer have the power to support these Americans and many of them will simply starve to death.

Japan’s citizens were smart enough to save up $885.9 billion in U.S. treasuries to spend in a situation like it finds itself in today. The U.S. has no such savings and is the world’s largest Read more…

Japan catastrophe could make U.S. debt costlier

March 15, 2011 Comments off

reuters.com

The U.S. Treasury market could feel financial aftershocks from Japan’s tragic U.S. Treasury. Offloading some of the Asian giant’s $1 trillion of foreign reserves could raise cash to help rebuild after Friday’s disaster. Meanwhile, the Federal Reserve is due to end its Treasury bond-buying program in June. If Japan, the second-biggest foreign holder, starts selling that’s another support gone — with the potential to make borrowing more expensive for the U.S. government.

It’s too early to estimate the cost the Japanese government and private sectors will have to shoulder for reconstruction efforts. But bond investors can’t any longer take for granted that Japan will leave its ample reserves intact as it has, broadly speaking, for the past several years. For the government, cashing in could be more palatable than yet more borrowing. Japan’s debt already amounted to more than 200 percent of Read more…

IMF Calls for Dollar Alternative

February 11, 2011 1 comment

The IMF is trying to move the world away from the U.S. dollar and towards a global currency once again.  In a new report entitled “Enhancing International Monetary Stability—A Role for the SDR“, the IMF details the “problems” with having the U.S. dollar as the reserve currency of the globe and the IMF discusses the potential for a larger role for SDRs (Special Drawing Rights).  But the IMF certainly does not view SDRs as the “final solution” to global currency problems.  Rather, the IMF considers SDRs to be a transitional phase between what we have now and a new world currency.  In this newly published report, the IMF makes this point very clearly: “In the even longer run, if there were political willingness to do so, these securities could constitute an embryo of global currency.”  Yes, you read that correctly.  The SDR is supposed to be “an embryo” from which a global currency will one day develop.  So what about the U.S. dollar and other national currencies?  Well, they would just end up fading away.

CNN clearly understands what the IMF is trying to accomplish with this new report.  The following is how CNN’s recent story about the new IMF report begins….

“The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world’s reserve currency.”

That is exactly what the IMF intends to do.

They intend to have SDRs replace the U.S. dollar as the world reserve currency.

So exactly what are SDRs?

Well, “SDR” is short for Special Drawing Rights.  It is a synthetic currency unit that is made up of Read more…

U.S., Japan told time running out to deal with debt

January 28, 2011 Comments off

IMF warns Japan and United States on need to tackle debt

* Politics make reining in U.S., Japan deficits difficult

* S&P downgrades Japan, sees no strategy to handle debt

* Bond markets calm on Friday, Japan vows fiscal discipline (Adds bullet points)

By Tetsushi Kajimoto and Lesley Wroughton

TOKYO/WASHINGTON, Jan 28 (Reuters) – Japan and the United States faced new pressure to confront their swollen budget deficits as the IMF and rating agencies demanded more evidence they can bring their public debts under control.

The International Monetary Fund said the G7’s two biggest economies needed to spell out credible deficit-cutting plans before the markets lose patience and dump their bonds.

On Friday, Japan’s Prime Minister Naoto Kan vowed to push ahead with tax reforms aimed at curbing the country’s debt, but an uncooperative opposition and divisions within his own party on policy make the chances of success slim.

“The important thing is to maintain fiscal discipline and ensure market confidence in Japan’s public finances,” Kan, who took over in June as Japan’s fifth premier since 2006, told parliament’s upper house.

Ratings agency Standard & Poor’s cut Japan’s long-term debt rating on Thursday for the first time since 2002, and hours later Moody’s Investors Service warned the risk of the United States losing its top AAA rating, although small, was rising. Read more…

Gold is to China as paper currency is to US

January 25, 2011 Comments off

Bill Bonner

We’d still like to see a deep decline in the gold price. Too many people are getting onto gold. Most of them have no idea of what they are doing. Like readers of MONEY magazine, they’re buying the yellow metal as a speculation. Most likely they’re going to lose money. Almost everyone who speculates on gold loses money. Don’t ask us why. It’s just one of those Iron Laws of investing.

Gold goes up for 10 years straight. Speculators notice. They jump on board. And then the train runs off the tracks.

That’s just the way it works.

Besides, remember that this Great Correction is not over yet…not by a long shot. It has barely begun to correct the excesses of the Bubble Era. A quarter of all homeowners are said to be underwater on their mortgages – that still needs to be sorted out. And the whole financial industry – with the collusion of the Fed – is sitting on trillions of dollars’ worth of mortgage backed securities, pretending that they are good credits.

There are still major bankruptcies ahead…and deflation of assets prices. And in all the sturm and drang of it, the price of gold could go down too.

But if you’re acquiring gold, you have some powerful competition. As nations become rich and powerful, they accumulate gold. Those that are getting weak and poor give it up. Here’s The Financial Times with the latest news: 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…

QE2 Reality Check

January 19, 2011 Comments off

The Federal Open Market Committee (FOMC) announced on November 3, 2010 that it would purchase longer-term Treasury securities at a pace of $75 billion dollars per month through the Federal Reserve’s Permanent Open Market Operations (POMO) facility by the end of the second quarter 2011 and potentially beyond. The Quantitative Easing Two (“QE2”) program, championed by Ben Bernanke, chairman of the U.S. Federal Reserve, is expected to total at least $600 billion — and may well total more, if Bernanke and the FOMC deem it to be necessary.

Currently, QE2 is expected to continue until the end of 2011, i.e. up to $1.2 trillion, although there is ongoing policy debate within the Federal Reserve amidst growing fears that the policy may backfire.

MB plus QE2 

Chart courtesy of Shadow Government Statistics

Monetary inflation is one result of QE2 because when the Federal Reserve buys U.S. Treasuries it injects newly created money into the financial system which, in turn, reduces the value of the U.S. dollar (due to the increase in the quantity of dollars). A lower U.S. dollar could stimulate U.S. exports but could have unintended consequences, such as creating excess liquidity that could lead to asset price bubbles in the U.S. Read more…