$USD Bullish - $2 Trill bonds must be sold

[icm63]

Why you say ??

In 2009 there will be $2 Trillion of bonds issued on the market, the USA Fed is committed to a minimum of $300Bn, that leaves $1.7 trillion to other central banks.

China holds $600BN Total, so how can they buy more when they need there own tax dollars for the own economy ??? How can Japan buy any more, when they have same issue as China. I suppose the USA fed could buy another $300 bn...

All I see is interest rates rising on the long bond.

The mess the higher rates wall cause there will be a flight to safety to $USD.. how can this not be... I cant see gold going much past $1000.

Do you concur ??

[The Outback Oracle]

Re: $USD Bullish - $2 Trill bonds must be sold

I ponder this sort of question a lot. I am responding to (and maybe arguling with) your case in order to try to get a bit of help with my own thinking. Whatever applies to the US applies to Aus in spades.

It's a chicken and egg thing and sometimes I think we (itulip members) and the likes of Bernanke et al get the cAuse and effect wrong. In thinking about this I agree with your summary to a large extent and it brings up something about modern economic theory that bothers me. The effect of interest rates on the external account seems to work in the opposite direction to what we are trying to cure!

So....just thinking...itulip (I mean we members) gets a bit US centric in its thinking (and mostly in the past that has been correct)
I'm not too sure that just because your Government is being profligate, the rest of the world MUST buy whatever debt you issue. Again, in the past, it has been a bit like that but I am inclined to think that someone has pulled out the hammer to start banging away at the pins that stopped the great decoupling In addition, you rightly point out there is not enough money in the world to cover this!
So the upshot is that the bonds must largely be sold within the US!!! Interest rates will skyrocket as the Govt competes with the Private sector (and poor old Joe Public) for money. The stimulus by which everyone thinks the Govt hands out money for nothing will be paid for in very high interest rates. The Green shoots will not only wither but the tree will be cut down and burned in the fire!!! If dollars are not flowing in....because, as you point out, other nations are also tight for money, your dollar may in fact fall while interest rates are rising, particuilarly if, in the meantime, confidence in the dollar has diminished. EJ's inflation starts.:eek:
The result is whole industries dying, massive unemployment, vastly reduced Govt revenue, schools closing etc etc etc
SO, WHAT DO YOU THINK THEY ARE GOING TO DO????? (remember their time frame is always only as far as the next election)
THEY ARE GOING TO PRINT!!!! AND PRINT...AND PRINT.....GOLD AT $1000...YOU HAVE TO BE KIDDING!!!
Just the opinion of someone who is floundering around trying to think what the hell to do next!!!:confused:

[rjwjr]

Re: $USD Bullish - $2 Trill bonds must be sold

Isn't there a timing issue involved that you may not be considering? Won't the dollar devaluation occur first (the Fed/gov't is likely to print money out of thin air/"monetize" the debt rather than cause rates to spike during this recession/depression), which will eventually ignite (hyper)inflation and a flight to hedges like gold, spiking the price. Won't it be after that event that interest rates spike, only as a last result to ward-off final collapse, a la Iceland and their recent 18% rate?

On a different, but related note...anyone know what happens to currencies in an all-out protectionist/tariff war? I'm thinking that Countries will be forced to focus inward on their own problems (and constituents) as conditions worsen. If that occurs, I could see where the US dollar loses some of it's relevancy as the global reserve currency, thus performing relatively worse vs countries with stronger economies, positive balance of trade, large currency reserves, or some such. And, let's not forget the simmering activities surrounding an alternative reserve currency (global via IMF, regional a la China's recent actions). That would certainly weaken the US dollar.

Either way, I think you are worrying about an event...spiking interest rates...that occurs after the inflation and gold price spike. But, I sure ain't no "ecspert".

[The Outback Oracle]

Re: $USD Bullish - $2 Trill bonds must be sold

rjwjr
I think we are saying the same thing. I think they will PRINT thinking that they will avoid the scenario previously outlined. YEP they will PRINT PRINT PRINT first...Bernanke has said that he would and he is a man of his word!:eek:

As to the Reserve Currency bit, it seems to me that the pundits who sit in overpaid ivory towers benefiting from the USD Govt largesse are mostly the ones who think that the dollar's role will not diminish in the next 20 years.
20 days seems to me to be a long time in the markets at the moment. There is just too much pressure, both financial and geopolitical, for the Dollar to maintain its present magic status...long term......20 weeks???? Maybe longer and it will be a creeping erosion not a landslide event I think. Then again, as to timing i am no EJ.

I am certain that within 12 months my own company will be paying for Chinese manufactured goods in RMB. I'm not sure just what is required by the Chinese Central bank to allow that to happen but as a first step in getting away from the USD I am sure that it will happen. Certainly my suppliers will be very pleased to see it so.

[ThePythonicCow]

Re: $USD Bullish - $2 Trill bonds must be sold

THEY ARE GOING TO PRINT!!!! AND PRINT...AND PRINT.....GOLD AT $1000...YOU HAVE TO BE KIDDING!!!

THEY WILL CONTINUE LYING, LYING, AND LYING!!!

Our economic theories of such things as supply, demand and monetary debasement are fragile at best. Gold might go up as they print more .. or it might go down ... or it might jump around spastically. Even if it does as you think it must and if you invested correctly ahead of time, that fact might be of no practical use to you. They can change the rules of the game too drastically.

It is time to become an economic cockroach or small mammal. Stay low, stay diversified, stay alert to what resources might be useful, seek out those things in your local economy which cannot be changed easily by some faraway big corrupt entity, and be leary of dependencies on supplies of food or energy or other vitals from distant opaque sources. Stash diverse resources, both usable and tradable, about in various ways. Like a good squirrel, remember where you stashed your nuts and be quite prepared to survive well even if half your stash is lost or stolen or inaccessible.

Politics, news media, our fine cars, Mcmansions and big screen TV's, our schools, ... these have all become mechanisms of distraction or propaganda. They are to us as the free bread and circuses were to the citizens of declining Rome.

The economics and civics lessons taught us might serve us well in a just society. Those lessons are of little help in the middle of battle. The fog of war grows thicker.

[ThePythonicCow]

Re: $USD Bullish - $2 Trill bonds must be sold

I am certain that within 12 months my own company will be paying for Chinese manufactured goods in RMB.

That sounds spot on to me. Another speck of reality glimpsed through the fog.

Thank-you.

[rjwjr]

Re: $USD Bullish - $2 Trill bonds must be sold

rjwjr
I think we are saying the same thing. I think they will PRINT thinking that they will avoid the scenario previously outlined. YEP they will PRINT PRINT PRINT first...Bernanke has said that he would and he is a man of his word!:eek:

Thanks for assuming I read your post.;) Sorry for the redundancy.

I am certain that within 12 months my own company will be paying for Chinese manufactured goods in RMB. I'm not sure just what is required by the Chinese Central bank to allow that to happen but as a first step in getting away from the USD I am sure that it will happen.

You are keeping the language though, right? ...Right? ...Oracle, don't tell me you guys are trading in English for Mandarin, too?! :eek: Whose side are you on, mate, the economically powerful leader of the free world's or some 3rd world backwards ex-dynasty (Uh, I've confused myself with this last statement. Which country is which again?! )

[The Outback Oracle]

Re: $USD Bullish - $2 Trill bonds must be sold

Thanks for assuming I read your post.;) Sorry for the redundancy.



You are keeping the language though, right? ...Right? ...Oracle, don't tell me you guys are trading in English for Mandarin, too?! :eek: Whose side are you on, mate, the economically powerful leader of the free world's or some 3rd world backwards ex-dynasty (Uh, I've confused myself with this last statement. Which country is which again?! )

Not sure if it's a trend...the PM speaks fluent Mandarin! Anyhow, no worries mate...all those stupid little Chinese speak fluent English!!!!

[nero3]

Re: $USD Bullish - $2 Trill bonds must be sold

Why you say ??

In 2009 there will be $2 Trillion of bonds issued on the market, the USA Fed is committed to a minimum of $300Bn, that leaves $1.7 trillion to other central banks.

China holds $600BN Total, so how can they buy more when they need there own tax dollars for the own economy ??? How can Japan buy any more, when they have same issue as China. I suppose the USA fed could buy another $300 bn...

All I see is interest rates rising on the long bond.

The mess the higher rates wall cause there will be a flight to safety to $USD.. how can this not be... I cant see gold going much past $1000.

Do you concur ??

In my opinion other central banks, especially countries like Japan can simply print the money to buy the bonds. But if that happens is another question. It's very likely that the yield curve will get even steeper.

[The Outback Oracle]

Re: $USD Bullish - $2 Trill bonds must be sold

Nero I'm thinking Mr & Mrs Okohara are starting to get pretty pissed! For example, Australia managed to have most of its borrowings from japan in $A. In a peiod of a month or so, Mr & Mrs Okohara lost about 35% of their savings. I don't know about them exactly...but I'd be starting to get pretty pissed about the whole thing and not wanting to send any profligate b.....d overseas anything at all!

[*T*]

Re: $USD Bullish - $2 Trill bonds must be sold

Do you concur ??

Nope. High yields alone do not a strong currency make. Look at Iceland, or any other capital flight country -- high and rising rates and a weak currency. Rates rise in response to selling of the currency. High yields in themselves are not attractive, it's the yield over the expected depreciation.

edit: I.e. I am agreeing with outback, rjw etc here.

[WildspitzE]

Re: $USD Bullish - $2 Trill bonds must be sold

Why you say ??

My best guess, and we'll see how it plays, out is:

The Fed will continue to purchase Treasuries, directly or via a proxy (e.g. Caribbean Money Centers, as c1ue and I were chatting about the other day in the TIC thread). The re-nascent credit/lending markets can't take a huge reversal at this point, the risk that you further trigger the de-leveraging loops again is high.

Other CBs will support selective purchases, rejiggering the maturities and at much lower notional levels.

Corporate bond market will get absolutely killed if inflationary expectations really kick in (especially given the current propaganda efforts on behalf of the Fed/MSM/etc), and if the Fed continues to subsidize the treasuries market.

[JKD]

Re: $USD Bullish - $2 Trill bonds must be sold

Why you say ??

In 2009 there will be $2 Trillion of bonds issued on the market, the USA Fed is committed to a minimum of $300Bn, that leaves $1.7 trillion to other central banks.

China holds $600BN Total, so how can they buy more when they need there own tax dollars for the own economy ??? How can Japan buy any more, when they have same issue as China. I suppose the USA fed could buy another $300 bn...

All I see is interest rates rising on the long bond.

The mess the higher rates wall cause there will be a flight to safety to $USD.. how can this not be... I cant see gold going much past $1000.

Do you concur ??

The Fed will be the buyer of last resort. There is no telling how long they can get away with this but it is inconceivable to me that the Fed stops at $300 billion in Treasury purchases.

In fact I do not believe the primary purpose for the purchases announced and executed thus far is well understood. I think they (Administration/Treasury/Fed) are primarily worried about failed auctions down the road (and thus violent spikes in long term rates) and wanted to set the precedent for Fed involvement now. If they waited until later, when it becomes obvious that the issuances are overwhelming the capacity of investors to absorb, Fed purchases would be seen more as an act of desperation.

Now when the Fed steps up its purchases it will (they hope) be seen as a continuation of the (presumed) voluntary policy of quantitative easing that was started while the auctions were still oversubscribed. But the QE isn't voluntary at all.

The Fed hasn't embarked on a campaign of QE as a tactical means to manage the macro-economy (not primarily anyhow), but as a preemptive response to a situation where eventually the Treasury will not have enough 'customers' to soak up all of its debt without a drastic increase in rates.

With the deficits we have coming, I do not think it will make a difference. But like everything else, they are trying to buy time. So far they have been successful in keeping confidence up and rates down. We'll see how long it lasts. A signal I am looking for is when they throttle back on MBS purchases and step up on Treasury purchases. This will be a sign of panic, that they're so worried about a spike in nominal rates that managing the 'spreads' can be put on the back burner. That is still a little ways off.

John

[icm63]

Re: $USD Bullish - $2 Trill bonds must be sold

So to sum up..

1) Other countries can print money to buy the USA debt
2) Fed can buy more than $300 BN
3) A higher long bond interest rate does not mean a higher dollar

Anyways, all sounds bad to me.

[*T*]

Re: $USD Bullish - $2 Trill bonds must be sold

The Fed will be the buyer of last resort. There is no telling how long they can get away with this but it is inconceivable to me that the Fed stops at $300 billion in Treasury purchases.

In fact I do not believe the primary purpose for the purchases announced and executed thus far is well understood. I think they (Administration/Treasury/Fed) are primarily worried about failed auctions down the road (and thus violent spikes in long term rates) and wanted to set the precedent for Fed involvement now. If they waited until later, when it becomes obvious that the issuances are overwhelming the capacity of investors to absorb, Fed purchases would be seen more as an act of desperation.

Now when the Fed steps up its purchases it will (they hope) be seen as a continuation of the (presumed) voluntary policy of quantitative easing that was started while the auctions were still oversubscribed. But the QE isn't voluntary at all.

The Fed hasn't embarked on a campaign of QE as a tactical means to manage the macro-economy (not primarily anyhow), but as a preemptive response to a situation where eventually the Treasury will not have enough 'customers' to soak up all of its debt without a drastic increase in rates.

With the deficits we have coming, I do not think it will make a difference. But like everything else, they are trying to buy time. So far they have been successful in keeping confidence up and rates down. We'll see how long it lasts. A signal I am looking for is when they throttle back on MBS purchases and step up on Treasury purchases. This will be a sign of panic, that they're so worried about a spike in nominal rates that managing the 'spreads' can be put on the back burner. That is still a little ways off.

John

This is plausible. The Fed has shown the ability to look ahead and coordinate. They started buying agencies before China started dumping them. Perhaps the same arrangement has been made this time, with China and the additional issuance.

Let's test the idea - are the biggest QE countries the biggest deficit countries?