Supporting the Beach Ball!
The Blogger & Peter Schiff
This could easily be the most important story in the end of year run up of political & economic Bombshells - and it is likely to be completely over looked। With all smoke being blown up everyone's butts by the shenanigans surrounding the Senate health care debacle and the Copenhagen farce, this little story copied below got buried।
As Dollar Busters go - this very well could stand as the " other shoe" that many Dollar watchers have been predicting.
In The Fall of 2009, I attended a talk by given by Euro Pacific's President and erstwhile US Senate Candidate for Conn., Peter Schiff , where he predicted exactly this scenario. Schiff, a long time dollar critic and gold tout asks the question that no one in the US Government wants to hear:
When will "they" ( foreign sovereignty funds & the Chinese in particular ) stop buying our debt?
"The situation is not unlike a beach ball being supported by the hand of an outstretched arm " Schiff remarked. "Our currency & economy are that beach ball and the Chinese purchases of our Treasury notes are the outstretched arm. What happens to the beach ball when that arm is withdrawn? "
As this dollar watcher see it, there are two scenarios for the beach ball in the near term, neither of which is appealing.
#1। The "arm" is suddenly withdrawn and the market for US debt goes into collapse।The "Ball" gets dropped!
Whether it bounces or hits like a ripe melon is academic?
#2 The "arm" still supports the ball, but as the US's "beach ball" get heavier, becoming more like a 16 lbs shot put, the effort, as in the cost required to support it will go up.
The cost of the US debt goes up substantially.
What is the interest only payment on 14 Trillion?
Currently, the greatest influence on the "arm" is that most of the other "balls" in the game are getting heavier as well।
Omar P। Bounds III
The Bounds Auction Company
Published on ShanghaiDaily.com (http://www.shanghaidaily.com/)
http://www.shanghaidaily.com/sp/article/2009/200912/20091218/article_423054.htm
Harder to buy US Treasuries
Created: 2009-12-18 0:13:35
Author:Zhou Xin and Jason Subler
IT is getting harder for governments to buy United States Treasuries because the US's shrinking current-account gap is reducing supply of dollars overseas, a Chinese central bank official said yesterday.
The comments by Zhu Min, deputy governor of the People's Bank of China, referred to the overall situation globally, not specifically to China, the biggest foreign holder of US government bonds.
Chinese officials generally are very careful about commenting on the dollar and Treasuries, given that so much of its US$2.3 trillion reserves are tied to their value, and markets always watch any such comments closely for signs of any shift in how it manages its assets.
China's State Administration of Foreign Exchange reaffirmed this month that the dollar stands secure as the anchor of the currency reserves it manages, even as the country seeks to diversify its investments.
In a discussion on the global role of the dollar, Zhu told an academic audience that it was inevitable that the dollar would continue to fall in value because Washington continued to issue more Treasuries to finance its deficit spending.
He then addressed where demand for that debt would come from.
"The United States cannot force foreign governments to increase their holdings of Treasuries," Zhu said, according to an audio recording of his remarks. "Double the holdings? It is definitely impossible."
"The US current account deficit is falling as residents' savings increase, so its trade turnover is falling, which means the US is supplying fewer dollars to the rest of the world," he added. "The world does not have so much money to buy more US Treasuries."
China continues to see its foreign exchange reserves grow, albeit at a slower pace than in past years, due to a large trade surplus and inflows of foreign investment. They stood at US$2.3 trillion at the end of September.
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