Thursday, February 12, 2009

US Dollar, RIP-2

"When President Barak Obama called for 'sacrifice' in his inaugural address, he was really talking about the Chinese, Japanese and British who collectively continue to buy our Treasury bills. For some reason politicians think that these folks will continue to 'fund' our serial stimulus spending. ... Buyers of Treasurys must ask themselves: 'How long will it be before the U.S. government arbitrarily changes the terms of its outstanding debt?' ... The primary risk in our economy today is not economic performance, it is political risk. No one knows which shareholders the government might wipe out next", Richard Wottrich letter to the WSJ, 29 January 2009.

The US changed the terms of its debt before. In 1933 we took gold out of our money; in 1964 the silver. We repudiated the gold clause in the 1930s. Buy Treasurys at your peril.

6 comments:

Anonymous said...

Well... the Fed is adding primary dealers...

But that won't make a dent on the big flood of junk govies coming...

But where would everyone go? And would they try and go through the door at the same time?

Anonymous said...

Why do all the articles I see say that the US Treasury is to sell around 2T of debt this year?

There is almost 2.5T of existing US debt coming due in 2009 so in reality the Treasury needs to sell something closer to 5T this year.

So a schedule of about 100B/week might do it....

KJ Rodgers said...

This is a scary time. Sometimes I feel that We should base our monies on gold or silver other than the continuation of debt.

Independent Accountant said...

KJR:
Gold has been money for 5,000 years. It will be money long after the US republic ceases to exist.

Independent Accountant said...

KJR:
Read Article 1 Section 10 of the US Constitution.

Printfaster said...

The problem with the debt is that since the currency is limited to much less than the federal debt, the debt needs to be stolen from private and commercial debt. Crowding out. There is only so much room for debt consumption, or savings.

This kind of debt unless accompanied by money printing will grind down the economy, leaving only the government standing.

When the money printing starts, and it must, catastrophe.

What is interesting is that during WWII, private debt almost evaporated, everyone bought bonds, and corporations did little if any private expansion, and consumption went to nil. This period was cited as having the highest deficits ever in proportion to GDP. What is different here is that private debt is currently very high, there is no rationing to stifle consumption (though being broke may help with that)and we have a horrible dependence on imports to keep the economy running. Unless the foreigners accept federal debt in payment for goods like China has been doing, there will be catastrophe in the dollar.