Thursday, December 3, 2009

RuhRoh, Elroy

This afternoon, there was a mad rush by bloggers to relay the message that Japan is planning to sell their holdings of US Treasuries, in an attempt to shore up the falling yen. It does not appear to be true, Chief Cabinet Secretary Hirofumi Hirano stated today "There is no such plan at all, at this point in the government."


It will start a cascade of selling by several countries, because the best price will go to the earlier sellers, as more Treasuries are put on the auction block each new bunch will have to have a lower price to compete and win bids against what is the price right now, in turn the interest rate on US issued Treasuries will need to go up in yield, effectively killing economic expansion.

Today the national Debt is over $12 Trillion, by 2010 it will be over $14Trillion. The biggest problem for the US Gov't is we need to sell around $100 Billion each month just to fund the budget for 2010. That does not include the interest payments on what we have already sold. Each month, another $50 Billion must be raised to keep the US from defaulting. We will be competing against our own Treasuries, and the winner will be whoever can offer the best return to what little money is out there ready to be reinvested. Expect interest rates to go up soon. It won't be too long before a large holder of Treasuries begins selling their holdings, "because they have to" and the event described above will happen. After that , who knows? It ain't a very rosy picture, I know that much.
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