Serious investors happen to be very concerned right now about the value of their investments. The concerns are magnified for institutional and governmental investors.
The crisis in Greece, which could spread across the the EU's Mediterranean nations of Italy, Spain and Portugal, is not helping. Neither do the stagnant economic conditions in the US. The housing market continues to fall, the stock markets are unable to rise anywhere close to the level of the peak Dow of October 2007, and the continuing employment difficulties are worrisome. To sum that concern up, Ian Gordon of the Longwave Group declares that "the real number on U.S. unemployment is somewhere around 17%...That to me is a depression."
He's not alone in his vexation. The much more accessible columnists at The Motley Fool are also, including one who advises investors to take their capital offshore and invest in profitable companies which do business in currencies other than the dollar. It's attitudes like that which have made it harder for U.S. corporate debt to find funding. It isn't much different for businesses from the situation faced by individual homeowners seeking modification of their mortgages.
But for the Federal Reserve, there is some good news. Longer-term T-Bills have attracted additional investment as the troubling issues for foreign currencies frighten investors into seeking safer harbors for their value. These increased funds, and the repayment of TARP funds by Citigroup, Bank of America, and Wells Fargo, have made it possible for the Fed to pay down existing T-Bill exposure and temporarily stay under the debt limit. Said limit has since been raised — again, and the longer term prospects don't encourage investment.
China appears to be taking advantage of The Motley Fool advice. China has complained both about the security of its dollar-denominated assets over the past year as well as about U.S. policies regarding planned arms sales to Taiwan which go against Chinese government wishes. It isn't much different than when the US objected to Russia basing nuclear-armed IRBMs in Cuba in 1962.
For every action there is a reaction. In this case it is senior Chinese military officers recommending that Beijing "dump" some U.S. Treasury bonds to punish Washington. China's officials in charge of foreign exchange holdings have given no sign of any intention to do so.
But this doesn't mean that China's government has done nothing to express their displeasure in a way that affects the US. China has been selling short-term Treasury bills (maybe it was these that the Fed was able to pay down?) and reducing its T-Bill holdings by $34.2 billion to $755.4 billion. China has also not made any moves to buy longer-term notes as other international institutional investors have done. Alan Ruskin, chief international strategist with RBS Securities Inc., calls this "bad news for the U.S. dollar and the Treasury market."
Article comments
1 - Ruvy
Interesting article. Were Israel to use its $60 billion foreign currency reserve to buy up gold, that would come to about 5 million troy ounces. That could be the beginning of gold shekel - each gold ounce would be 4,000 shekels - or 2 billion shekels in circulation....
2 - Joanne Huspek
A good article, depressing but likely very true, despite the happy faces put on everything.
The US is so in debt, if our bonds would ever be called in, we couldn't pay it, leaving all of us effectively bankrupted. If you didn't think your house was devalued enough as it is, just think of the future.
3 - jeannie danna
Realist,
[The motif for both Iraq and Afghanistan is not just militant terror, but also oil. Kabul signified the seat of a crucial Central Asian pipeline so vital to the US, Russia and China.
The Obama presidency changed nearly all that by switching the focus from Iraq to Afghanistan. Oil remains as background motif, but giving the Taliban more stick than carrot also means getting stuck into Afghanistan even more.]-BUNN NAGARA
I'm so glad that you placed this hidden truth in your article; when I attempted to prove this point to someone here, I was challenged and then promptly ignored.
The truth hurts me, as much as it does everyone else. We aren't in any of these wars for any noble causes.
One other point, that I would like to make:
When I was stationed at Ramstein Germany, it was the bases primary mission to watch the wall and to pipeline supplies to all points necessary. Now, the wall is gone and we really should leave Germany, who is just as sick of our presence there, as we are.
I took some of my grandmother's and mother's rings to a jeweler, and afterwards, I felt used and taken advantage of as I left that store with eighty-seven dollars and ninety two cents in my pocket. Now, I wish I had all of those rings back.
This is a great article, and I hope that you are feeling well today.
4 - Ruvy
Indeed all that glitters is not gold. But the world appears to be returning to the gold standard, if even if it is by the back door. That is going to be the only route to stable currencies; if the Americans refuse to go to gold, they will suffer terribly.
We all live under swords suspended above us that can fall at any time; some are personal swords of disease, some are national swords of disaster. Another such sword has fallen - a terrible earthquake has struck Chile, and a tsunami is headed over the Pacific that will strike New Zealand, Australia, Hawaii, and all the small islands along the way.
5 - Vijai
Interesting. I think gold will go further up in value and will increase in proportion in the larger central banks' convertible reserves. However, the total value of the world's known gold is about $4 trillion. Given that under the best circumstances, the US dollar cannot be replaced by gold for the foreseeable future, this will serve to stabilize the reserves of countries in value.