Monetization of US Treasury Bonds. A Deep Dollar Devaluation Comes!
- The Feds is borrowing something like US$200B-250B/mth officially. Unofficially, I think the figure is closer to US$300B/mth. Last fiscal year, the US government borrowed something like US$360B for the entire year! You see the enormity of the problem now? The debt market is finite. It consists of not just government debt but also corporate debt, private debt…etc. If the government takes up such an enormous amount of capital from the entire market, where are corporations going to get their funding? Now that foreigners are refusing to finance these debts what is Uncle Sam going to do?
- The US government has 2 options.
Option 1: Continue monetizing debts ie print money out of thin air to buy its own debts. Something Bernanke said he will not do beyond the announced US$300B. He has already used up US$260B.
Option 2: Devalue the USD by revaluing gold upwards massively. The US government has about US$250B of physical gold based on current price. They can simply declare the physical gold as now worth US$15T, ie a 60X revaluation upwards. And via this ‘voodoo’ economics, they can pay off all their debts and need not borrow any more.
- Even if the government opts for continuing option 1, it means the USD will be devalued by stealth. So, which ever way you choose, the USD is toast. Option 2 sounds like some kind of black magic sleight of hand. Well it is! The US government has done this in 1932-33 and Nixon has also done something similar during the 70s. If you think it cannot happen, think again!
- To restore confidence, after the massive devaluation of the USD, the Feds may decide to issue another currency back by gold. So, if the Amero happens, it will not surprise me at all. Devaluation means a stealth taxation of existing holders of USD. It is in effect ‘stealing’. This will piss off foreign creditors, citizens….etc. No government has ever inflated their way out of an economic problem successfully. But many governments have opted for it. It is their favored method of getting out of the shit hole, they have dug for themselves.
- Jim Willie opines :
The chart (see above) provided by CIGA Eric covers several important types of US$-based bonds, their inflow and outflow, and the aggregate GrandNet. The financial data is publicly available from the USGovt TIC Reports. The messages are clear. Inflows of foreign funds are dwindling.
In the case of USAgency Mortgage Bonds and USCorp Bonds, the nation is witnessing something unprecedented, the net outflow of funds.This is outright rejection. This chart exposes the isolation problem of the USDollar in the bond world, clearly the most important market beneath the currency market. The printing press is the last option.
Ominous is a strong word. Abandonment is better, but disaster is better still. “I find this simple chart so ominous I had to send it. Decelerating year-over-year inflows and outflows across the board. Stick your head in the sand if you like, but string this trend out a little longer and you’re going to have flight from the dollar.” So wrote CIGA Eric. See the article that displays this graph and his few words on the JSMineset weblog (CLICK HERE).
The foreign creditors are moving away from the United States, plain and simple. The big bold red series shows the Grand Net US$-based bond reduction in net flow change from a high around $950 billion in early 2007 to a figure now approaching only $200 billion, thus a severe cut in net inflow. The greater alarm comes from the USCorporate Bonds in the yellow series, whose net flow change is down from a plus $600 billion high at the same time to a slight net outflow negative figure now. The USAgency Mortgage Bonds in chartreuse/mauve/pink have net flow change with peak of plus $300 billion at the same time to a net outflowof a frightening $150 billion now. Since the important peak for mortgage and corporate bonds, the USTreasurys in blue series have recovered from a $200 billion net positive inflow to a $400 billion net inflow. However, one should suspect that the USFed is purchasing the USTreasurys from convenient accounts bearing foreign names, using American funds, and laced with sinister motives founded in deception. Foreigners in all likelihood are not the primary purchasers.
The foreign purchase declines from peak levels two years ago have fallen off a cliff…. The United States credit markets are losing their legitimate liquidity and increasingly are turning to the desperate reckless alternative, namely the dreaded MONETIZATION. Mortgages in the United States must maintain funding from the USFed and USGovt by direct purchase, no longer a market action. There are mainly sellers. The corporations in the US must maintain funding from a more desperate means. See the Samurai Bonds offered in Japanese Yen denomination, the ones growing in popularity. My view is that a good slice of USGovt Treasury Bonds will be denominated in foreign currency routinely within one year, if the US$ system survives in its current form that long. The conclusion is clear from the messages, both graphic and statistical, that THE US$-BASED BONDS OF ALL TYPES WILL RELY ON DIRECT MONETIZATION VERY SOON OR IMMEDIATELY.
US TREASURY MONETIZATION
Monetization of USTreasurys is occurring in a profound blatant fashion. Such action infuriates the Chinese creditors, while at the same time creates a huge rift between the US Federal Reserve and the USDept Treasury. The rift is political and will come to a head when Chairman Bernanke is due for renewal of his post in a few months. China exerts its constant pressure on the USFed to end the Quantitative Easing efforts. Like doctors, they wish to apply a tourniquet to a gaping leg wound that bleeds a red river onto the pavement. The term is a funny euphemism, a sophisticated economist term for Heavy Duty Money Printing that results in destruction of a currency if not kept under control. The USDollar stewards are NOT demonstrating control, discipline, or even anything remotely resembling honesty or integrity.The USDept Treasury wants to continue funding the federal deficit, and for yucks, add any and every conceivable new program onto the books while the federal insolvent bankruptcy makes marginal additions not so noticeable.
The USFed engages in almost immediately permanent operations to snag the primary dealer USTreasurys gatherings bid at auction, for a simple shell game shuffle. The USFed engages in a sneakier but still obvious hidden bidder game with foreign central banks. They use USDollar Swap Facilities (with gargantuan funds) and bid heavily on the USTreasurys, evidence being the ‘Indirect Bid’ component. If not for the USFed buying most of the USTreasurys issued, the long-term interest rates would be rising quickly and with alarm. If not for the USFed heavy buying, the USDollar would be doing a swan dive off a cliff into rough waters. As has been claimed in past work, the USGovt stewards of the wrecked buck can save the USTreasury or save the USDollar, but not both. Their monetization efforts here and abroad indicate a clear intention to save the USTreasury Bond. They put the USDollar at grave risk. The Weimar Territory lies directly ahead!
USDOLLAR DELAYS INEVITABLE CRASH
The USDollar remains firmly stuck at the cliff’s edge….Something big is coming and soon. All billboards scream it!! ….A deep USDollar devaluation comes!!!
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