USD 134 billion anyone?

This article makes for a fascinating read whatever the truth of the matter is!

Bumbling would be Japanese billionare fraudsters, North Korean agents, or officials of the Japanese Treasury flogging US bonds off market. Enjoy!

Page Nineteen

Firstly, I have to apologise as the article I am quoting for today's blog is not online but from a print copy. So I will refer you to P.19 of the Australian Financial Review 12-6-09. Some quotes in context:

"America's fiscal obligations exceed any realistic prospect of it restoring its financial well being"

"(America) is for all intents and purposes, heading into a ditch financially"

On its deficits.. "This is not sustainable without consequences, including the risk of default on America's debt obligations and the collapse of the US dollar".

What articles like this often fail to do is appreciate the reverse of the implied argument. The implied argument is that the US must rapidly curtail its spending. In fact the reality is the opposite, it cannot. The consequences are precisely as the article states...debt default and currency collapse. Both of which are imminent in the medium term.

The consequences for the world of the collapse of the US dollar and a default from an economy that represents over 20% of global gross product is unparalleled. It marks a turning point in the future of the world, and the beginning of the decline of the English speaking cultures.

Bond Bubble Bursting?

The yield on 10-year bonds surged to its highest level since October at almost 4 per cent, sparking concern high interest rates could temper recovery.

It appears that bond investors are continuing to reprice sovereign risk on US Treasuries. I suspect it only has one direction....up. Like General Motors, the US is well on the road to insolvency, perhaps inevitably. Years of over spending on wasteful folly like meaningless wars such as Iraq combined with chronic under taxation have left the U.S. in financial ruin. The state of California (amongst many) is bankrupt financially and politically.

This US's condition been achieved by the Bush administration's prolificacy and Greenspan's ruinous monetary policy, not as some partisan U.S. conservative commentators have suggested, by the current administration. However, it is being exascerbated by the Obama administrations reponse to the crisis. Some of the crucial social policy initiatives needed to reform and modernise the U.S. as a contemporary state, such as a national public health care system, are necessary but no longer fundable. As more and more people in the US fall into unemployment so too will the intolerable sutuation of massive numbers of US citizens without public health care continue to rise. National public health care systems deliver necessary social equity and preserve human dignity whilst delivering a needed service at a lower percentage cost of gross domestic product. It is one of the few areas where empircial evidence strongly supports the notion of lowest cost government delivery. I appreciate that may be anathema to some of my readers. Of course, I have digressed.

If the current trend continues US bond prices, US interest rates, and inevitably global interest rates will continue on an upward trajectory despite the recessionary environment.