2008-11-12 — financialsense.com
The high USTBond principal value and high USDollar exchange rate will encourage foreign bond holders to begin to “spend†their artificially high valued USTreasury Bond securities before events occur to greatly undermine their value. See for instance the Chinese announcement to spend $568 billion in a stimulus package. Although great news for the commodity and reflation trade, this cannot be seen as good news for the USTreasurys. They will lose a strong Chinese bid, or see outright selling. The Chinese plan calls for strong support of public housing, infrastructure, railways, and indirectly demand for commodities. Contrast theirs to US plans to support failed financial firms and deeply rooted corruption of marquee named financial firms, at the exclusion of mainstream businesses. Other nations will soon be forced to defend their own domestic currencies against an unreasonable decline in exchange rate, the result of the Black Hole in USTBonds. Currencies from nations ranging from Europe to Brazil to Russia will react by selling their USTBond reserves, and to use them for purposes consistent with why those reserves were accumulated in the first place.
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