Who Is Going to Lend the U.S. $2 Trillion?

January 23rd, 2009

Guys, I dunno. There are far more questions than answers here.

On the one hand, you might think, “Who would be stupid enough to lend the U.S. any more money?” But, the answer might be, “The countries that have already strapped themselves to the mast of the United States.”

The U.S. appears to be running a Bernie Madoff type scheme at a couple higher orders of magnitude. As long as more suckers can be brought in (or the same suckers can be convinced to “invest” more) the band plays on. This is why the new regime has an extremely strong sense of urgency on the “recovery” package. If American’s can’t consume, the global economy crashes. And it is crashing. There’s no doubt about it.

It doesn’t really seem like any of the big players are going to dump their U.S. Treasuries because they’re holding WAY too much of it. If China or Japan were to begin paring down… The show is over and everyone knows it.

I’ve said it a bunch of times: This is a Mexican standoff. Put more into the Ponzi scheme, or your existing “investment” with the Ponzi scheme will disappear.

But looking at these numbers, can it continue, even assuming the Asians want it to, which I assume they do?

I mean, two trillion effing dollars…


Where has all the opium related money been going since the War on Terror went to Afghanistan? Is that money about to buy U.S. Treasuries in heretofore unthinkable quantities?

I’m just trying to brainstorm here. Where else is $2 trillion going to come from?

Via: Reuters:

The Obama administration will have to persuade the world that the U.S. strong dollar policy is for real this time as it prepares to borrow $2 trillion to revive the U.S. economy from its worst crisis in decades.

Less than 48 hours after Barack Obama became president, his choice for U.S. Treasury secretary, Timothy Geithner, said a strong dollar is in the United States’ interest.

That phrasing — first used by former Treasury Secretary Robert Rubin more than 14 years ago — lost its weight and credibility when it was over-used by the Bush administration.

The greenback lost about 40 percent of its value versus the euro and more than 15 percent versus the yen between 2000 and 2008. A weaker currency was an important step for the Bush White House in rebalancing a global economy plagued by a U.S. trade deficit and huge Chinese surplus.

“This time around the administration probably means it when it says it backs a strong dollar. They have to be dead serious about it,” said Samarjit Shankar, a director for global strategy at the Bank of New York Mellon, in Boston.

“Trillions worth of U.S. debt is coming soon to the markets. Which foreign central bank or institution will buy this debt if they are not fully convinced the dollar will remain strong?” he added.

The challenge for Obama’s team, analysts said, will be to support the dollar’s value without direct manipulation in the markets, with the economy in recession, interest rates near zero, and a ballooning current account deficit.

Moreover, Washington will have to achieve all that without antagonizing China, the biggest holder of U.S. Treasury debt, the analysts said.

“It will be a real test. One thing is to finance a $450 billion deficit and another is to finance $2 trillion,” said Chris Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi in New York.

“We are always worried foreigners could ditch the dollar. But they have no incentive to do that,” he added. “The amount they own is so large that they can’t get out of it without impacting their own currencies and economies in the process. And that includes China.”

Geithner, in written response to questions from the Senate Finance Committee on Thursday, said a strong dollar “is in America’s national interest.” For details, see [ID:nN22364222]

But while stressing the need for a stronger dollar Geithner also said the administration would be vigilant against currency manipulation, in particular that stemming from China.

President Obama “believes that China is manipulating its currency” and that he has pledged to use “all the diplomatic avenues open to him to see change in China’s currency practices,” he said in his response.


“In the case of China, the U.S. may actually favor a weaker dollar,” said Daniel Katzive, a director for global foreign exchange at Credit Suisse Securities in New York. “But despite all the talk, practical policy implications are likely to be minimal.”

The U.S. trade gap with China totaled $246.5 billion year-to-date through November and the country holds $681.9 billion of U.S. Treasury securities.

Katzive said the dollar will stay strong in coming months as the financial crisis deepens in other regions, notably in Britain and the euro zone.

“As long as the euro is weak, the dollar will remain strong,” he said. “Those are the only two reserve currencies in the world and no matter the fundamentals of the U.S. economy, dollar weakness will not be a problem for now.”

Risk aversion and the spread of the credit crisis boosted demand for the greenback and it gained about 20 percent versus the euro since the single currency touched a record above $1.60 last year. The euro was last trading at $1.2960 , rounding up a 7.1 percent drop since the start of the year.

“The dollar’s relative strength is here to stay and may last years, not months or weeks,” said Brian Belski, a U.S. strategist at Merrill Lynch in New York. “It’s not going to be a gangbuster move, but the U.S. will be the first to recover.”

According to Merrill, strong-dollar cycles tend to last an average of 10 years.

“We are going to have much more verbal back-up for the dollar during Obama,” said Shankar at Bank of New York. “And if they keep repeating the mantra, they will be heard.”

5 Responses to “Who Is Going to Lend the U.S. $2 Trillion?”

  1. pdugan Says:


    They´re shifting into shorter term bonds. That´s kind of like when the musical chairs music speeds up, economists call it “liquidity”.

    Also, gold is rallying with the dollar, which screwed up my trading this week. Should have just stayed long, kept the faith. Lesson learned.

    Basically, the dollar will be sacrificed on the totem, US trading partners shorting bonds will have the effect of decreasing the dollar 10% in like a week, followed by another 20 to 30% over the rest of the year. This will automagically make the spiraling debt manage-able without risking hyperinflation. The shift into shorter term notes has already begun this process.

  2. pdugan Says:

    That link appears to be broken, here´s where I got it: http://www.nakedcapitalism.com.....urity.html

  3. smarks Says:

    Hey Kevin: This is what I was referring to when I mentioned that everything hinges on Bonds right now. If the long end goes up they are Frakked! Troublesome at the moment, over the last week actually is the fact that even though the equity markets are very unsettled to down right now, guess what, the long end, 5 years or so and out is going up! Also that failed German Bond auction. Badabing Badaboom. If the yields start to go up up up, then guess what GAME OVER. Something BIG is going to happen, either a currency event, a war starts, etc. Maybe that’s what these Wackenhut buses are all about???

    Right now this is not good for the adverstised plan that Obama will TARP everythig! (treasury rates from http://www.treas.gov/offices/d.....yield.html)

    I am no expert but feel that the PTB will throw the equity, currency and banking markets under the bus to keep bonds alive, kepe investors and institutions buying. Bonds are the only way to get the money that the Fed prints out of circulation and where it can be spent by the guvmint! Jim Puplava has this thing nailed, deflation right now is a head fake and current yields will seriously change for the worse and bonds will lose value. The bond market has this wrong.

    GOLD TODAY is SNIFFING SOMETHING OUT, just like when Israel invaded Gaza, Gold launched the day before.

  4. dt Says:

    The Chinese aren’t suckers. The bond purchases are protection money payments. Had the Chinese government chosen to spend their money elsewhere they would have quickly found their third-world natural resources suppliers back away. Those third-world resource suppliers who failed to back away would have found their countries rocked by internal dissent. Should such covert means fail, the overt power of the United States navy would have ensured the goods never left port.

    He who controls the sea controls the trade.
    He who controls the trade controls the wealth.

  5. es Says:

    Durg money is probably only part of the war chest that is used to manipulate markets. Trillions of dollars have been reported missing / moved offshore for more than a decade.

    Catherine Austin Fitts has compiled a truckload of documentation on this subject (I especially recommend the story about Dillon Read by the way):

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