Friday, January 16, 2009

Foreign Investment in Long-term U.S. Treasury Bonds Falls in November - It's Only the Beginning

We've been talking a lot lately of the crisis with the U.S. dollar and how it's probably already starting to happen, even though there's been some temporary strength in the greenback.

A government report confirms it was the experience in November, as demand for long-term Treasury bonds from investors outside the U.S. fell, along with corporate and agency debt.

While many "experts" are saying it's the decline of risk aversion, I think that's totally wrong. That falsely assumed there was risk aversion involved in the first place for their to be a decline. There wasn't, as the Treasury report said.

What serious international investor, whether it's an individual, fund or country, doesn't know what's going to happen to the U.S. dollar going ahead? They know what all this misguided stimulus debt is going to do to the value of the dollar.

Here it is for you in simple terms:

The government wants to spend money it doesn't have

They can't get foreigners to pay for that money

The Federal reserve announces it'll buy up U.S. Treasury bonds

Speculators swarm like sharks around a bleeding body

Speculators buy Treasurys knowing Fed will buy them back

Fed is holding Treasurys with no one to sell them to

Fed prints more money to pay for further debt

The U.S. dollar plummets in value and inflation rears its ugly head

This is what's ahead for the U.S. dollar and Americans. Why do you think foreign investors are no longer buying the U.S. dollar? They know what's going to happen to it, and haven't been viewing it as a place of safety as some have wrongly asserted.

Speculators have been buying up the dollar and keeping it where it's been because they then resell it to the government, which said it was buying it. Some analysts assumed it was people buying to hold the bonds, when in reality they were only buying to resell to make a quick profit.

That gave the illusion of a market for the dollar, when in fact it was something entirely different.

If you aren't sure about that, just ask yourself the question of why foreigners are cutting their investment in Treasurys. This is just the beginning of fleeing from the dollar, it's going to get much worse.

U.S. dollars are not the place to be at this time, investors need to be moving out of them.


Anonymous said...

In addition, foreign investors, both individuals and governments, have also suffered a significant loss of wealth, giving them less money to invest in US treasuries even if they wanted to. And those foreign governments need to keep more of their money at home, in order to prop up their banks and provide for spending bills in their countries. I would not be surprised to see treasury rates jump significantly in the next year due to this alone, even with so many investors staying out of the market.

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