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What happened: In News of the Weird: June 10, 2009 we were the first U.S. website to cover the case of the $134.5 billion in fake U.S. government bonds after one of our readers located the story on a German site. We posted the first video about it the same day, June 10. Other sites picked it up the next day and put various conspiracy spins to it. Since then the story has been picked up by hundreds of sites around the world.
One of our members read our report here and asked, Wait a minute. Can this many physical bearer bonds even exist?
Another member quickly turned up evidence that revealed the paper securities cannot be real.
Fraudulent T-Bills / Bonds / CD & GIC Investments
The Forms in which Marketable Treasury Securities Exist
Marketable U.S. Treasury securities only exist in three forms: (1) book-entry, (2) bearer, and (3) registered. An overwhelming amount (99.84% of outstanding marketable securities) are in book-entry form which exist not as printed certificates but rather as computer records.
Only .14% exist in bearer form of printed certificate with interest coupons attached but no name on it. Finally, an even smaller percentage (.02% of outstanding marketable securities) exist in registered form with the name of the owner on it. They discontinued the issuance of printed registered securities in 1986.
Using that data and Treasury Department data that $3.3 trillion in bonds are held outside the U.S. it was trivial to calculate that $143.5 billion in physical U.S. Treasury bearer bonds cannot exist:The Forms in which Marketable Treasury Securities Exist
Marketable U.S. Treasury securities only exist in three forms: (1) book-entry, (2) bearer, and (3) registered. An overwhelming amount (99.84% of outstanding marketable securities) are in book-entry form which exist not as printed certificates but rather as computer records.
Only .14% exist in bearer form of printed certificate with interest coupons attached but no name on it. Finally, an even smaller percentage (.02% of outstanding marketable securities) exist in registered form with the name of the owner on it. They discontinued the issuance of printed registered securities in 1986.
0.14% x $3.3 trillion total foreign holdings = $4.6 billion.
Since the bonds cannot be real and thus must be fake, and a long history of fake U.S. government securities scams is well documented, our theory on the act of “smuggling” was:It's a scam
Here's our best guess at the scam.
Step 1: Take a large short position in US Treasury bonds.
Step 2: Get your Japanese friends to "smuggle" forged Treasury bonds into a country where you are likely to get "caught."
Step 3: When the rumors fly and the bonds tank, close out your shorts.
Beats working.
Yet conspiracy theories based on the possibility that the bonds were real took off over the following week while obvious explanations based on the fact that they cannot be real got buried. Here's our best guess at the scam.
Step 1: Take a large short position in US Treasury bonds.
Step 2: Get your Japanese friends to "smuggle" forged Treasury bonds into a country where you are likely to get "caught."
Step 3: When the rumors fly and the bonds tank, close out your shorts.
Beats working.
The day after we broke the story in the U.S., on June 11 Karl Denninger reported:
Notice, by the way, that the US Media has totally ignored this story - even though the securities in question are allegedly US instruments.
Gee, I wonder why? Might the authorities know they're real and be just a wee bit nervous that disclosure of a sovereign attempting to covertly dump nearly $140 billion in debt could cause a wee bit of panic, given that we're running nearly $200 billion a month in deficits?
Or maybe the US Media, rather than speculating, were working on getting the facts?Gee, I wonder why? Might the authorities know they're real and be just a wee bit nervous that disclosure of a sovereign attempting to covertly dump nearly $140 billion in debt could cause a wee bit of panic, given that we're running nearly $200 billion a month in deficits?
On the 13th Denninger updated his report:
Let's apply a little "Occam's Razor" to this entire story.
Are we willing to assume that all the "issue" of Treasury bonds has been done "above board" as required by law. If Treasury has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn't want reported over the last, oh, say 10 or 20 years, then the following is about to occur:
Who could have possibly been complicit in such a scheme? I can come up with only two nations (and only nations could be involved due to size): The Japanese and Chinese. Since the two individuals who were arrested were reported to be Japanese nationals......
And so on, spinning a number of theories without any new information to base them on and ignoring the obvious problem that $134.5 billion in physical U.S. securities cannot exist. To further incite his audience, he threw in anti-Japanese rhetoric, with references to Pearl Harbor, for good measure.Are we willing to assume that all the "issue" of Treasury bonds has been done "above board" as required by law. If Treasury has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn't want reported over the last, oh, say 10 or 20 years, then the following is about to occur:
Who could have possibly been complicit in such a scheme? I can come up with only two nations (and only nations could be involved due to size): The Japanese and Chinese. Since the two individuals who were arrested were reported to be Japanese nationals......
Which theory did Slate.com go with? Andrew Leonard reports:
Karl Denninger, who has been opining on matters online since before the Web was a mere mote in Tim Berners-Lee's eye, wonders at The Market Ticker whether the U.S. Treasury has "has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn't want reported over the last, oh, say 10 or 20 years."
I remain puzzled, and am not advancing the above theory as fact.
It is, however, one of the few explanations that actually fits the facts, and for that reason, I think we need some answers. If in fact previous administrations were issuing "off-book" Treasury debt in this fashion to sovereigns then implications are truly explosive as such issues are blatant and outrageous unlawful acts and would expose everyone involved to severe criminal penalties.
Even the usually journalistic Bloomberg entertained the conspiracy theories as recently as yesterday.I remain puzzled, and am not advancing the above theory as fact.
It is, however, one of the few explanations that actually fits the facts, and for that reason, I think we need some answers. If in fact previous administrations were issuing "off-book" Treasury debt in this fashion to sovereigns then implications are truly explosive as such issues are blatant and outrageous unlawful acts and would expose everyone involved to severe criminal penalties.
As it turns out, today the bonds were confirmed to be fake. Jeff Bater at Dow Jones today reported:
WASHINGTON (Dow Jones)--A cache of what appeared to be around $135 billion of U.S. bonds seized at the Italian-Swiss border is, in fact, worthless, a Treasury Department spokesman said.
Two alleged Japanese citizens were stopped by Italian authorities June 4 trying to cross into Switzerland with the supposed bonds, hidden in the false bottom of a suitcase, the authorities said.
Authorities said they found 249 certificates worth $500 million each and 10 bonds worth more than $1 billion each, as well as other alleged original banking statements.
Stephen Meyerhardt, a spokesman for Treasury's Bureau of Public Debt, said Thursday the paper is phony.
"Based on the photos we've seen on the Web, they're not even close to looking like a Treasury security," he said.
In the 1980s, the U.S. began converting its marketable debt from paper; these days, Treasury securities are issued electronically.
No doubt Bater's report will fuel speculation by the conspiracy theorists that the DOW Jones company is in on a grand conspiracy with the Japanese and Treasury Bureau to hide secret sales of U.S. Treasury bonds. Karl Denniger may try to discredit Bater's report. Two alleged Japanese citizens were stopped by Italian authorities June 4 trying to cross into Switzerland with the supposed bonds, hidden in the false bottom of a suitcase, the authorities said.
Authorities said they found 249 certificates worth $500 million each and 10 bonds worth more than $1 billion each, as well as other alleged original banking statements.
Stephen Meyerhardt, a spokesman for Treasury's Bureau of Public Debt, said Thursday the paper is phony.
"Based on the photos we've seen on the Web, they're not even close to looking like a Treasury security," he said.
In the 1980s, the U.S. began converting its marketable debt from paper; these days, Treasury securities are issued electronically.
What it means: The U.S. has entered a new dark age of unreason. Public trust in private and public institutions that once clearly differentiated the U.S. from third world countries has been eroded in the wake of the financial and economic crisis. At the same time, blogs and mainstream media are left to fight over shrinking ad and subscription revenue as the post FIRE Economy Depression deepens.
The media that failed to warn the public about the coming collapse is also no longer trusted. Claiming after the fact that no one knew, dspite repeated warnings from independent sources including this one, the media appear to the public to be as captured by FIRE Economy interests as the financial regulators that were supposed to be overseeing the banks and financial institutions. The media are seen by the public as part of the problem.
At a time when government leadership behaves unethically and even at times illegally, media consumers seek out news sources that do not filter news in ways that support the interests of advertisers. Theories, unsupported by fact and presented with strong emotional content flourish.
In this toxic environment of distrust and a shrinking economic pie, to win the battle for readership blogs and mainstream media alike appeal to the public's passions and superstitions, always an easier sell than sober reflection and analysis.
We are entering a troubled period when our world may soon be ruled by demagogues, voted in by an angry, distrustful, and confused public.
The demagogues are talking, the people are listening. Look no further than the case of the fake U.S. government bonds for evidence of this new and dangerous dynamic.
Kudos to Jeff Bater for waiting on the story until he got the facts.
iTulip Select: The Investment Thesis for the Next Cycle™
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