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Treasuries Hit by Selling for 2nd Day

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Treasuries Hit by Selling for 2nd Day

Unread postby Euric » Fri 17 Dec 2004, 13:35:29

http://biz.yahoo.com/rb/041217/markets_bonds_2.html


Even though the dollar/euro rate is not going up or down dramtically, it seems that investors are selling off their US treasuries. The US needs people to buy these as a means of funding their deficits. This is the whole core concept of dollar hegemony.

First you get people to obtain dollars, then you get them to "spend" them by investing them in US assets that allow the US to run an economy of free spending of someone elses money with no intent of repayment.

Seems to me these little signs that keep popping up, that others might not notice, are a reminder that a big crash is more immenent then previously thought.

Even if the US were to force everyone to use dollars it doesn't guarantee they will use them to support the ever increasing deficits.
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Unread postby Kingcoal » Fri 17 Dec 2004, 13:58:59

It means interest rates will have to go up. Euric, you need to provide some data that says the US has no intention of paying off T-bills. If that were the case, no one would buy them.
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Unread postby Euric » Fri 17 Dec 2004, 17:55:24

$this->bbcode_second_pass_quote('Kingcoal', 'I')t means interest rates will have to go up. Euric, you need to provide some data that says the US has no intention of paying off T-bills. If that were the case, no one would buy them.

There is no data per se, just common sense. Think about how dollar hegemony works. The idea is to assure the "investors" keep funding the system. It isn't intended for the investors to remove their money. The money really has no value and the US has no way to back-up the money if for example, the investros all at once decided to pull their investments and then sell the dollars for other currencies.

None of this would be happening if the euro never came into existance. Wall Street was predicting its failure both in 1998 and in 2001. They were actually hoping the euro would crash. As long as there is only the dollar as a reserve currency the sale of treasuries is assured forever no matter how high the deficits go.

The existance of the euro is the catalyst that is driving funding from dollar assets. The American government has been able to lower taxes to most of its citizens because they were able to fund their operations by selling treasuries to willing international investors. Not only will the government have to raise interest rates but taxes too.

And when you think things can't get any worse, the Chinese decide to remove their dollar peg causing the yuan to rise in value and goods sold to the US to rise in price. Since the US has closed most of its high valued factories and moved them to China, the Americans will have no choice but to pay the price asked or go without.

It is a shame no one is seeing this and going on their merry way as if dollar hegemony were in no danger of collapsing.
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Unread postby savethehumans » Fri 17 Dec 2004, 18:10:14

Yeah, Euro!
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Unread postby lowem » Fri 17 Dec 2004, 18:40:32

It will start to get more interesting when the 10-year rate goes up beyond 4.6%.
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Unread postby trespam » Fri 17 Dec 2004, 18:52:28

Similar to my comments in other posts, I am adverse to the "collapse" and "chaos" and "crisis" language that is floated in these posts. I do not think the dollar will collapse. I'm not even sure that means. Do we think the fed will go the route of hyperinflation? I don't think so. When the asians decided to stop buying treasuries, interest rates will go up, the US economy will slow, the US will stop buying as much from abroad, the federl govt will be forced to raise taxes or cut spending, Japan and Europe may drop into recession, and China will slow significantly and could very encounter a financial crisis of its own (lots of bad debt).

From a PPI perspective, the Euro is already overvalued, so to think that the Euro will become the god-send for world finance is not true. If anything, we will see the world head towards a basket approach, perhaps initially using a basket three currencies--yen, dollar, and euro--for trade purposes. This will not be the end of the dollar. It is the beginning of the end of American's profligate borrow-and-spend fiscal policy.

A crisis could be encountered, there could be a run on the dollar, but I suspect the fed will focus on monetary stability over economic stability and therefore will jack up interest rates.
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Unread postby tdrive » Fri 17 Dec 2004, 22:18:53

$this->bbcode_second_pass_quote('', 't')here could be a run on the dollar, but I suspect the fed will focus on monetary stability


True, but with the continuing pressure on the twin deficit due to among other things rising energy costs from growing oil and gas imports,
the dollar will keep slipping lower and lower. How do you expect the fed to control that variable? You can devote only this much military power to the Middle East, then stretch thin, then run out of steam.

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Unread postby UncoveringTruths » Fri 17 Dec 2004, 22:27:39

Author Message
tdrive

$this->bbcode_second_pass_quote('', 't')win deficit


I was thinking about the Social Security reform 2-3 trillion? Is this what you speak of? :idea:
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Unread postby trespam » Fri 17 Dec 2004, 23:45:14

$this->bbcode_second_pass_quote('UncoveringTruths', 'A')uthor Message
tdrive

$this->bbcode_second_pass_quote('', 't')win deficit


I was thinking about the Social Security reform 2-3 trillion? Is this what you speak of? :idea:


I think he's referring to the current account (e.g. trade) deficit and the budget deficit. Social security is currently not running a deficit but does have a 2-3 trillion shortfall in the future. Contrary to what BushCo is telling us though, Social Security does not have a horrific problem. It's medicare. And unfortunately BushCo made the medicare problem worse. I'm sure they'll botch Social Security similarly.
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Unread postby Euric » Sat 18 Dec 2004, 00:26:34

$this->bbcode_second_pass_quote('trespam', 'S')imilar to my comments in other posts, I am adverse to the "collapse" and "chaos" and "crisis" language that is floated in these posts. I do not think the dollar will collapse. I'm not even sure that means. Do we think the fed will go the route of hyperinflation? I don't think so. When the asians decided to stop buying treasuries, interest rates will go up, the US economy will slow, the US will stop buying as much from abroad,


Where will they buy from then? The US closed most of its factories that produced much of the goods that Americans buy and sent them to China and elsewhere. To repatriate the factories and jobs will take years. If the former buildings have been sold, new ones will have to be built. If the machines were turned into scap, new ones will have to be built. If the old workers are retired or dead, new one will have to be trained. It won't happen with a snap of the fingers as some might imagine. The transition from a dollar hegemony based economy back to keynesian will be very long and painful.


$this->bbcode_second_pass_quote('', 't')he federl govt will be forced to raise taxes or cut spending, Japan and Europe may drop into recession, and China will slow significantly and could very encounter a financial crisis of its own (lots of bad debt).


I doubt it! Despite what you hear about Europe today, they still have an active industrial base. They don't have the growth the US has only because they don't have euro hegemony that would allow them to deficit spend to generate demand for goods and services. Plus their companies still must pay good salaries, with benefits. Something unheard of in China and the USA. Seeing that their industrial infrastructure is still intact would isolate them from a major collapse.

What could save them is a loss of the American market to the Chinese and China being forced to raise prices to make up for loss of business from the Americans. Everyone will experience some shock waves, but not like the US will.

$this->bbcode_second_pass_quote('', 'F')rom a PPI perspective, the Euro is already overvalued, so to think that the Euro will become the god-send for world finance is not true. If anything, we will see the world head towards a basket approach, perhaps initially using a basket three currencies--yen, dollar, and euro--for trade purposes. This will not be the end of the dollar. It is the beginning of the end of American's profligate borrow-and-spend fiscal policy.


The euro is not overvalued for the following reasons.

1.) Its value is relatively constant compared to other currencies. Even though it is the euro that gets all of the attention, all other world currencies have also been rising relative to the dollar. If the euro rises for example 14 % against the dollar and the Japanese yen rises 13.5 %, the the relative difference between the euro and yen is only 0.5 %. Not enough to make a difference in prices between European and Japanese goods.

2.) The dollar, being a fiat currency and saddled with deficits with nothing to back those deficits is the currency that is way overvalued. It is the dollar hegemony that is keeping th dollar value artificially higher then it should be. An end to this hegemony would result in the end of the subsidy the dollar economy receives and the true value of the dollar will be exposed.

$this->bbcode_second_pass_quote('', 'A') crisis could be encountered, there could be a run on the dollar, but I suspect the fed will focus on monetary stability over economic stability and therefore will jack up interest rates.


I wonder how they will acomplish such a feat! If they could they would have started some time ago, but they can't.

First of all, each of those dollar bills circulating in the world is like a promisary note. As long as the note isn't cashed or exchanged for something else the US treasory is safe from having to make due on the note. That is what dollar hegemony did, it kept the governemnt free from making good on its notes as none or very little were cashed in.

Changing them to euros or other currencies is like cashing them in and the US treasory has to pay the bearer in something acceptable of value for that dollar exchanged. Since the government has distributed more notes then it can support, the government is really powerless to find something to exchange.

What may have to happen is for the government to exchange resources and properties in exchange for dollar bills. Maybe the US can sell Florida to the EU, as many of its citizens own property there and Alaska to Japan. Will they do it? The US may have no choice. The fact is they dug themselves a deep hole and can't get out in an easy way.

Second, the debt burden may fall on the citizens, since the citizens have benefitted from the subsidy. Interest rates may have to rise, but since most, if not all, of the home and property mortgages have been sold via Fannie Mae and Freddy Mac, the investors could demand the properties as payment. Like a massive repossession.

Of course you may say the US army would fight to keep foreign investors from claiming American property. That could happen. But in a situation like this that can back fire as when you are at the bottom, you will need foreign aid to get you back on your feet. If you don't cooperate with you possible saviours you may find yourself in that deep hole a long, long time.

It really boils down to a damned if you do and damned if you don't situation.
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More sell off of treasuries

Unread postby Euric » Sat 18 Dec 2004, 12:15:29

http://biz.yahoo.com/rb/041217/markets_bonds_3.html

Even though the article is a bit white-washed it does report that there is a selloff of US treasures happening. I know the deficits for October went underfunded by about 12 G$ or 9 G€. It will be interesting to see how they fair for November and December.
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Unread postby gary_malcolm » Mon 20 Dec 2004, 19:10:13

$this->bbcode_second_pass_quote('trespam', '
')
I think he's referring to the current account (e.g. trade) deficit and the budget deficit. Social security is currently not running a deficit but does have a 2-3 trillion shortfall in the future. Contrary to what BushCo is telling us though, Social Security does not have a horrific problem.


Sorry, that's baloney... to put it nicely. SS money is Spent, Gone, Kaput. The money just hasn't been borrowed against with TBills, but there's about 50 Trillion (with a T) in IOU's from future tax revenue sitting in a cupboard over at the SS building in DC. That's money that can't be spent on roads, medicare, smart bombs or corporate welfare without decimating a quarter of the populations income. Wake up and smell the soup line.

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Treasury sales still hurting and dollar sinks some more

Unread postby Euric » Mon 27 Dec 2004, 15:10:56

http://biz.yahoo.com/rb/041227/markets_bonds_3.html

The euro is up big time today to well over 1.36. I'm laughing at the economists who said the euro won't hit 1.40 until the end of 2005. I'm thinking about mid January.

Any predictions?
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Unread postby Kingcoal » Mon 27 Dec 2004, 15:38:39

Euric, you keep saying that nothing is made in America, yet I keep hearing about European companies that want to move production here, Volvo being the latest. Also, from what I can see, US manufacturing is in about the same state as in Europe. Does Nokia make it's phones in Europe? Does Braun make it's coffee makers in Europe? How is European industry in better shape than America's? Europe's steel industry is subsidized, as is it's aerospace industry. All that comes out of the EU's collective treasuries.

Europe makes big, high margin stuff like cars, heavy machinery, etc. Guess what, so does America. Not much gets exported because the demand in America eats it all up. In Europe, same thing; why buy a Caterpillar earthmover when you can have one from Volvo. Oh yeah, I forgot, Volvo is talking about making them in America!

To sum up, Europe has exported its low margin manufacturing to Asia just as America has. The whole world has become accustomed to cheap imports from Asia. In America, we are hip deep in them. Asia, Inc., has found out that if it's products go over a price level, demand drops way off. We buy a lot of cheap stuff from Asia because, well, it's cheap!

Don't worry, be happy!
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Unread postby gary_malcolm » Tue 28 Dec 2004, 13:41:36

$this->bbcode_second_pass_quote('Kingcoal', ' ')Europe's steel industry is subsidized, as is it's aerospace industry. All that comes out of the EU's collective treasuries.
!


Adam Smith must be quite happy.

Not all industry can be allowed to desert a nation based on the whim of market profit. US national security has been gutted, not by terrorists but by capitalists stripping our manufacturing to offshore sites. It's fine to be the propped up market as long as the sellers keep holding their nose to the stink of our economy.

European nations have some of the best trade balances on earth. Development of alternative energies are rolling along quickly. Populations are dropping.

Wake up.
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Unread postby Euric » Tue 28 Dec 2004, 13:53:16

$this->bbcode_second_pass_quote('Kingcoal', 'E')uric, you keep saying that nothing is made in America, yet I keep hearing about European companies that want to move production here, Volvo being the latest. Also, from what I can see, US manufacturing is in about the same state as in Europe. Does Nokia make it's phones in Europe? Does Braun make it's coffee makers in Europe? How is European industry in better shape than America's? Europe's steel industry is subsidized, as is it's aerospace industry. All that comes out of the EU's collective treasuries.


Talk is cheap. When these companies actually move then we will cross that bridge and wonder what effect, if any, it will have. Keep in mind, if Volvo does come, they will follow the Pattern of BMW and open in the non-union south, with a minimum of workers as most of their processes will be automated. In Europe, it is still not legal in some countries to close down a factory and just move the work elsewhere. A business may close if it isn't doing well, which is not the same thing. Companies may expand and do so in a cheap labour market, and that is what you may be observing.

Subsidising works in the EU because the money comes from surpluses, not from the air. The US can't subsidise businesses unless it has real money to do it with. It can borrow, float bonds, but that just adds more to the deficit.

But in the US it is completely legal to close a factory and move it entirely to a new location with out any concern for the welfare of the former workers.

$this->bbcode_second_pass_quote('', 'E')urope makes big, high margin stuff like cars, heavy machinery, etc. Guess what, so does America. Not much gets exported because the demand in America eats it all up. In Europe, same thing; why buy a Caterpillar earthmover when you can have one from Volvo. Oh yeah, I forgot, Volvo is talking about making them in America!


If it is all the same thing, they why does the US run up such high deficits and the EU does not? The US doesn't really have an export attitude when it come to manufacturing. Thus when sales are down, they just lay off and wait for the bust cycle to end.

BTW, how many years has Volvo been talking?

$this->bbcode_second_pass_quote('', 'T')o sum up, Europe has exported its low margin manufacturing to Asia just as America has. The whole world has become accustomed to cheap imports from Asia. In America, we are hip deep in them. Asia, Inc., has found out that if it's products go over a price level, demand drops way off. We buy a lot of cheap stuff from Asia because, well, it's cheap!


All fine and dandy. If that is the case, then maybe the Americans should start working for Chinese wages and then they can recapture all the jobs back and flood the world with cheap goods. Otherwise, the US will end up bankrupt and Americans wondering how they became so poor so fast. But, then it will be too late.
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Unread postby JoeW » Tue 28 Dec 2004, 14:13:52

$this->bbcode_second_pass_quote('Euric', '')$this->bbcode_second_pass_quote('trespam', 'W')hen the asians decided to stop buying treasuries, interest rates will go up, the US economy will slow, the US will stop buying as much from abroad,


Where will they buy from then?

The answer is simple: they won't. they won't buy those goods in the amounts that they previously had.

$this->bbcode_second_pass_quote('Euric', 'P')lus their companies still must pay good salaries, with benefits. Something unheard of in China and the USA.

I don't think that makes sense with your statement that European economies are experiencing slower growth. Slower growth should mean that the salaries & benefits are not as good.

$this->bbcode_second_pass_quote('Euric', 'W')hat could save them is a loss of the American market to the Chinese and China being forced to raise prices to make up for loss of business from the Americans.

I don't see how this makes sense, either. If the Americans aren't buying, why would they raise the price in other countries? They actually need to sell more product to those countries, assuming that their production remains flat, so I would see the price going down to stimulate demand.

$this->bbcode_second_pass_quote('Euric', '
')$this->bbcode_second_pass_quote('trespam', 'A') crisis could be encountered, there could be a run on the dollar, but I suspect the fed will focus on monetary stability over economic stability and therefore will jack up interest rates.

I wonder how they will acomplish such a feat! If they could they would have started some time ago, but they can't.

They have started jacking up interest rates already. I believe they've gone from 1.0% to 2.25%, and it is expecting that they will raise rates by .25% every time they meet for the foreseeable future.

$this->bbcode_second_pass_quote('Euric', '
')Changing them to euros or other currencies is like cashing them in and the US treasory has to pay the bearer in something acceptable of value for that dollar exchanged. Since the government has distributed more notes then it can support, the government is really powerless to find something to exchange.
I thought US dollars were traded freely against other currencies, leading to the fluctuation in its value. For the right price, there will always be buyers of US dollars.

I understand your argument, but disagree with some of the details. Collapse is always possible, but I think I am in agreement with trespam that it is not very likely in the near future. The world is run by the wealthy, and the wealthiest nation is the US. I have read that the US dollar is the most widely held currency in the world. The value of the dollar may continue to fall, but its ramifications for the US economy are good in some aspects, and bad in others. It should help to shrink the US trade deficit, but it will also bring higher interest rates to borrowers, which could stifle GDP growth for the US.
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Unread postby Kingcoal » Wed 29 Dec 2004, 12:21:43

$this->bbcode_second_pass_quote('Euric', 'I')f it is all the same thing, they why does the US run up such high deficits and the EU does not? The US doesn't really have an export attitude when it come to manufacturing. Thus when sales are down, they just lay off and wait for the bust cycle to end.


With a persistent strong Euro, Europe will face the same temptations unless trade barriers persist. With Euros in your pockets and a drop in trade barriers, Europeans could find themselves with a cornucopia of cheap, high quality goods from around the world. In comparison, domestically produced goods would be a hard sell. The question is, will Europe do the same thing the US has done long ago. Probably not, which will mean that the global economy will suffer. With the US forced to reduce consumption for financial reasons and a comparatively lackluster, slow growth market in Europe, Asia, Inc. will suffer.
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