Here is an excellent article from the London Telegraph about the global economic crisis. The article points out that last week’s US Treasury auction was a bust, with foreign investors standing aside. Foreign investors took only 5.8% of the auction, compared to an average share of 25%. Also, I didn’t know this, but Italy also had a bust of a bond auction last week, a real bust, in which they were unable to place all the bonds they were seeking to sell.
Folks, this is getting very, very ugly.
As I have noted in these pages, I am unable to figure out why a foreign investor would lend money to the US government at a rate in the 1s or 2s, when monetary inflation is 20% annually and CLIMBING. Why would anyone lend any money to any foreign government at such a huge loss? I don’t get it. And I think, increasingly, foreign investors won’t get it, either.
Billary Clinton has been expounding all economical lately about the “risks” posed by the ownership of US treasury bonds by foreign governments, as is discussed in this WSJ article. She says that the large positions in treasury bonds makes the United States vulnerable. As is so often the question with the Clintons, is she stupid, or is she a liar? What, exactly, is the risk? Are the chicoms going to come repossess the Pentagon? Are they going to ruin our credit with one phone call? In her letter to Ben Bernanke and Hank Paulson, she cites the possibility that the Chinese or the Japanese would decide to decrease their holdings of dollars, presumably, if her position has any logic to it all, by massive selling of their US Treasury bonds. She says that this step could force us to raise interest rates, and could cause a currency crisis. I am not sure what she means by “currency crisis,” but, examining this scenario a little, does it really make sense that the chicoms or the Japanese would conclude it was a good idea to enter into concerted selling of their positions? Would it not be likely that this strategy would guarantee that they would receive the lowest possible prices for their holdings? Would this really be attractive to them?
Billary also seems to suggest that the chicoms’ holdings of US bonds makes us their hostage. Actually, the reverse is the case. We have their money. They are dependent on us to pay them their interest, and to redeem their bonds upon maturity. Their financial security is thus heavily dependent on a healthy US economy, with low inflation and high economic stability. As Donald Trump has been known to observe, if you owe the bank $200,000, and you go bankrupt, you have a problem. If you owe the bank $200 billion, and you go bankrupt, the BANK has a problem.
Now, I did not go to Yale, and I do not have advanced degrees in economics. I am not the smartest woman in the room. Doesn’t Hillary understand these highly uncontroversial, quite obvious, points I have made? Is she a liar? Or is she stupid?