When our foreign creditors finally get wise to the fact US currency isn't solvent, and unilaterally decide to pull the plug on our debt, our nation will implode almost immediately. We're talking government shutdowns, starting in Washington, then dominoing to the local levels. This is not a matter of "if", but "when".
Yes, it will hurt our creditor nations, but their survival will take precedent over any concerns for the US. The stage continues to be set; full production to begin soon.
Seems not everyone is wholly enamored with our new president...
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Iranian protesters burn Obama pictures
(STR/Reuters) Barack Obama was the subject of an anti-US rally in Tehran
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Iranian demonstrators burned photographs of Barack Obama today as they protested against America’s inaction over Gaza.
Dozens of people gathered in Tehran waving Palestinian flags and defacing and setting fire to images of the President-elect.
Iranian demonstrators have often burned effigies or pictures of US presidents in the past but this appeared to be the first time Mr Obama’s picture had been defaced, a week before his inauguration as president.
The Iranian government has condemned the West, and the United States in particular, for not doing more to stop Israel’s attacks on Gaza. The 17-day-old offensive, which Israel says is to stop rockets being fired at it, has killed more than 900 Palestinians.
“Where are the freedom seekers?” read one poster held up by a demonstrator today protest. It had the word “Gaza” emblazoned on it and an image of a weeping Palestinian.
The demonstrators, waving Palestinian flags, some chanting “Death to Obama”, had gathered outside the Swiss embassy which handles US interests because Tehran and Washington have not had diplomatic ties for nearly three decades.
Pictures showed the president-elect’s image laid on the road for cars to drive over it and other images showed demonstrators burning an Obama poster.
In other recent protests against Israel’s Gaza offensive, demonstrators have climbed into a British diplomatic compound and gathered outside the missions of Jordan and Egypt, which have peace treaties with Israel, to condemn what they see as the inadequate international response.
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Saudi's Kingdom Holding posts $8.3 bln Q4 loss
RIYADH, Jan 20 (Reuters) - Saudi billionaire Prince Alwaleed bin Talal's Kingdom Holding posted a 30.98 billion riyal ($8.26 billion) net loss in the fourth quarter after its investments were hit by the global downturn. "The loss is mainly due to losses realised on our investments in capital markets," the company said in a statement posted on the Saudi stock exchange website. Kingdom made a net profit of 255.7 million riyals in the three months to Dec. 31, 2007. Kingdom Holding, an investment company that has minority stakes in some of the world's top companies, is a main shareholder in Citigroup Inc. (Reporting by Souhail Karam; Editing by Lin Noueihed) ($1=3.750 Saudi riyals)
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‘Time to Sell’ US Treasuries, Biggest Korean Fund Says
By Wes Goodman, Bloomberg
Jan. 19 (Bloomberg) -- A rally that sent U.S. Treasuries to their best year since 1995 is coming to an end, South Korea’s National Pension Service, the country’s biggest investor, said.
U.S. government efforts to combat the recession will prompt the Federal Reserve to raise interest rates this year, said Kim Heeseok, who oversees $160 billion as head of global investments for the service in Seoul. The decline would snap a surge that sent the securities up 14 percent last year, according to Merrill Lynch & Co.’s U.S. Treasury Master index, as investors sought the relative safety of debt.
“It’s time to sell U.S. Treasuries,” said Kim, who took over as head of investments at the start of the year. “The stimulus plan may cause inflation. The U.S. will raise the benchmark interest rate.”
U.S. government securities headed for their first monthly loss since October after President-elect Barack Obama, who takes office tomorrow, said he will do “whatever it takes” to battle what he called the biggest economic crisis since the Great Depression. Obama is planning an $850 billion stimulus plan, on top of $700 billion approved by President George W. Bush.
Ten-year Treasury yields, used as benchmarks for corporate and government borrowing costs, will rise to 3.08 percent by year-end from 2.32 percent now, a Bloomberg survey of banks and securities companies shows. An investor who bought today would lose 3.3 percent including reinvested interest if the forecast proves accurate, according to data compiled by Bloomberg.
Two-year rates will climb to 1.43 percent from 0.73 percent, according to the survey, which gives heavier weightings to the most recent forecasts.
Higher Rates
The Fed will increase its target rate for overnight loans between banks to 0.75 percent by March 31, 2010, the poll shows. The U.S. central bank last month cut the target to a range of zero percent to 0.25 percent.
U.S. yields indicate traders are becoming more concerned about inflation.
The difference between rates on 10-year Treasury Inflation Protected Securities, or TIPS, and conventional notes, which reflects the outlook among traders for consumer prices, widened to 53 basis points from minus 8 basis points two months ago.
The spread has averaged 1.19 percentage points during the past six months.
Cutting Holdings
Investors in South Korea cut their holdings of U.S. debt to $28.6 billion in November, less than half of what they owned in 2006, based on Treasury Department data.
China, the largest foreign owner of Treasuries, increased its stake to a record $681.9 billion in November.
It may take a few months for the U.S. economy to start growing and Treasuries to fall, Kim said. Government debt has handed investors a 0.4 percent loss so far in January, according to the Merrill index.
The economy will shrink in the first half of 2009 and expand in the second, a Bloomberg survey of banks and securities companies shows.
“At the end of this year, Treasury prices will depreciate,” he said. “We are considering” selling.
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Keys to the US Treasury
China's increased purchase of US Treasury securities should not be interpreted as an endorsement of the assumption that the US can borrow its way out of the current financial crisis.
Any negligence over the severity of the issue will cause big trouble for both the debtor and the creditor, especially when the world economy is facing its worst slump in decades.
After replacing Japan as the top foreign holder of US Treasury debt in September, US data shows that China further expanded its lead by buying $65.9 billion worth of US securities in October.
With an overall holding of US Treasury securities standing at $652.9 billion, China now has ostensibly deemed such lending as an acceptable way to deploy its $1.9 trillion foreign exchange reserves.
However, the country's seemingly expanded appetite for US Treasury bonds at the moment does not indicate that the latter will be a good investment in the long run or the US government will stick to its dependence on foreign capital.
China's swelling trade surplus created not by accelerated exports, but by rapidly declining imports, and its slowing but still huge inflow of foreign direct investment have added tens of billions US dollars to its foreign exchange reserves for the past several months.
With few options to invest its increasing reserves safely and profitably, China may thus have to buy more US Treasury securities in spite of growing domestic skepticism that such purchases may incur huge losses later.
Besides the undesirable consequences that reducing purchases of US Treasury bills will have on global markets, it is also a bad idea to sell them before the world economy can restore stability.
If creditors stop recycling the dollars they accumulated back into US, interest rates in the US would rise to undermine that government's efforts to bailout distressed financial institutions and companies.
In a time of crisis, expanded government spending financed by foreign capital may be necessary to prevent the worst from happening.
Yet, as more and more creditor countries introduce their own stimulus packages to boost domestic demand, the US government should not expect continuous inflow of more cheap foreign capital to fund its one-after-another massive bailouts.
The current strong foreign appetite should not be taken by the US government as solid proof of the long-term value of its Treasury bonds.
Instead, it should race against time to undertake painful but critical reforms to revive its economy before such demand peaks any time soon.
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Rogers 'worried' about dollar, says invest in China
China Daily, Updated: 2009-01-20
Jim Rogers, chairman of Singapore-based Rogers Holdings, said investors should be "worried" about the US dollar, and recommended selling government bonds and buying raw materials, China stocks and the yen.
"If I were you, I would be worried about the US dollar," said Rogers, 66, in a speech at the Asia Financial Forum in Hong Kong yesterday. "The Americans are printing US dollars. The Americans are going to do whatever they can to revive their economy, even if it means destroying the US dollar."
The Dollar Index on ICE Futures, which tracks the greenback versus six major US trading partners, fell 11 percent since Nov 21, when it reached 88.46, the highest in 19 months. The Japanese yen climbed 12 percent against the dollar over the past three months as investors reduced holdings of higher-yielding assets.
Holding government bonds is a "big mistake" and is going to "end badly", he said. Investors should favor agriculture, power generation and China shares if they want to make money, said Rogers, who correctly predicted the start of the commodities rally in 1999 and has written books including A Bull in China: Investing Profitably in the World's Greatest Market.
The Reuters/Jefferies CRB Index, which tracks 19 commodities, has declined 3.7 percent this month after dropping 36 percent in 2008, its worst annual performance on record.
Rogers said in a Dec 17 Bloomberg Television interview that he planned to sell the dollar. In a Dec 31 interview, Rogers said he had been buying Chinese agricultural stocks to benefit from government efforts to bolster economic growth.
Stephen Roach, chairman of Morgan Stanley Asia Ltd, recommended investors buy "anything to do with the Asian consumer, infrastructure, alternative energy and technology". He made the comments at the same forum.
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