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.

U.S. Dollar Up As Investor Safety Options Narrow

The U.S. dollar was up against the majority of major currencies today, as options for places of safety for investors narrow.

At this time the market is ignoring the weak underlying fundamentals of the U.S. dollar, and are focused on other things like the emerging euro-zone sovereign credit issues, along with the interest rate cuts of other nations' currencies, which influence those looking for safety.

Only the Japanese yen, Swiss franc, South Korean won and British pound gained against the greenback today.

Even though interest rate cuts of other currencies have helped shore up the dollar, it's not certain that those will continue, as some officials of the ECB rate-setting Governing Council want to slow rate cuts down.

As far as sovereign credit ratings go, credit ratings from a number of countries are under pressure, and their debt could be downgraded. That's already happened to Greece, as Standard & Poor's dropped them a level, saying the finances of the country are weak.

Other countries that could follow soon are Spain, Portugal and Ireland, according to the S&P. Ratings for the U.S. remain AAA for now.

Increased Investor Risk Appetite Pummels U.S. Dollar

Although the bailout for the auto industry seems to have given some investors an increasing risk appetite, and thus has weakened the U.S. dollar, it is far from a done deal, and Republicans are rightly threatening to vote the corporate welfare bill down.

The fickleness of investors and the market makes this the type of story that can change from day to day, and has.

Both the euro and British pound were up against the U.S. dollar today, with the euro rising 0.7 percent against the dollar to $1.3016, and the pound gaining 0.2 percent to $1.4788.

In the afternoon, the dollar index (DXY) fell by 0.5 percent to 85.48.

With the yen also being considered valuable to wary traders, it also suffered today, even falling against the U.S. dollar to 92.59, a drop of 0.3 percent. The dollar isn't far off a 13-year low against the yen; if it goes below 90.90 yen it'll reach that level.

There is considerable risk the dollar will plunge further if the Federal Reserve cuts its benchmark fed funds rate next week from the current 1 percent. Many think it'll cut the rate to 0.5 percent at that time, putting downward pressure on the greenback.