Monday, March 16, 2015

The One Ring.

The article implies that U.S. financing is dependent on foreign purchases of U.S. debt, which we know is a misconception.  However, this is not all about yields.  The global utopia of ONE fungible currency is not feasible...the Dollar is the global unit of price.  And, despite all the silly alarmist notions to the contrary ("the dollar could lose 90% of its value overnight, inflation!  Doom! Eschatology!  Buy Gold!) remains the One Ring that guides the global economy.

One of the recurrent themes of this blog is reminding the reader that displays and demonstration of power supercede accumulations of accounting units.  The value of the dollar is derived from the United State's absolute monopoly on security services for the world.  No other nation comes close to providing these services.  No other nation that spends a significant portion of its GDP on weapons has as peaceful a domestic population.

It is remarkable that some Economists still fear weaker nations can "bankrupt" the U.S. by selling Treasuries in some catastrophe scenario that would remove the variable of global security from their analysis.

Japan has since built a stake of $1.23 trillion, making it America’s second-largest overseas creditor, just behind China’s $1.24 trillion.
For the U.S. government, maintaining Japanese demand in the $12.6 trillion market for Treasuries is more important than ever, particularly after China pared its own holdings last year by the most on record and as the Fed prepares to raise rates.
The good news is that Japanese purchases are poised to accelerate. Of the $500 billion that investors will pull from Japan’s debt market to put abroad through 2017, about 60 percent will flow into Treasuries, said Andre de Silva, HSBC’s Hong Kong-based head of global emerging-markets rates research.
Much of the allure has to do with the U.S. tightening monetary policy at a time when more than a dozen nations around the world are cutting rates or increasing stimulus to boost growth. The European Central Bank this month followed Japan in buying government bonds to pump money into its economy.

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