the Last Time to Get Out of the Dollar
by Simon Black: Lessons
From Argentina’s Crash
secret that the United States government owes a pretty penny to
foreigners. Certainly, what America owes to foreigners pales in
comparison to what it owes to Ben Bernanke
but still, $4.45
trillion is no small number, even in these crazy times when terms
bajillion are more appropriate to quantify debt and entitlements.
China is the
largest foreign buyer of US Treasuries with around $1.15 trillion
Japan is the second largest at around $886 billion.
Curiously, the trend for China has been down the Middle Kingdom
has been steadily reducing its position since peaking in October
Japan, on the
other hand, has been steadily increasing its Treasury holdings over
the same period. Its government does have a long pattern of currency
intervention, and there has been much grumbling in Tokyo about the
effects of the strong yen on their exports.
to this past weekend. Earthquake. Tsunami. Volcano. Nuclear radiation.
Japan clearly has other things on its mind right now than to continue
financing the ongoing largess in Washington DC.
At a minimum,
Japan will likely slow (or eliminate) its US Treasury purchases,
instead focusing on dumping money into its own economy. At greater
risk, Japan may choose to allow much of its Treasury portfolio to
simply mature, requiring the US government to repay tens of billions
of dollars of principal (which it doesnt have).
With so much
uncertainty, many investors around the world are buying Treasuries
at the moment, so if Japan starts selling its portfolio into that
momentum, the impact may be negligible
for now. Rearranging
the deck chairs, if you will.
Come June 30th,
though, with the supposed end of the Im not printing
money money printing that is quantitative easing, the US government
will have lost, in theory, two of its biggest buyers the Federal
Reserve and Japan. And with both China and the OPEC nations slashing
their own Treasury purchases, it leaves one simple question:
Who will buy
all of this US government debt?
Below are some
of the possible outlets:
1) US commercial
banks. Theyre awash with cash and partially owned by the government
anyhow. The Treasury department could easily influence banks to
increase their net bond purchases. This would have the effect of
crowding out (once again) small businesses and individuals
access to credit.
the rest of the article
March 16, 2011
© 2011 Sovereign Man