As I warned, when money rushes back out of the U.S. Dollar (the dollar lost about 3% today), the entities that were stuffing their money into 30 year US Treasuries thinking they were “safe” were going to lose a LOT of money very fast.
Today, the 30 year Treasury lost 24 basis points (a basis point is 1/100th of 1 percent in yield)… So the the price of that bond dropped about 5% today in one day – not even being mentioned by the Fox News people who are having a party over the Dow going up 300 points.
If you’re a non-American investor, the drop in the value of the dollar means you lost about 8% of your money in one day (as seen from the foreign investor persepctive). When that reality hits the people who made this bad decision, the money will flee the US dollar even faster and interest rates to fund US debt will zoom up, probably consuming all of that $3 trillion in “savings” the Congress is fighting about.
I feel helpless, like I’m on that Air France Plane flying over the Atlantic Ocean at night flying into a huge thunderstorm – the plane is in a deep stall and plummeting to the earth at 10,000 feet a minute…. and the people flying the plane are staring at the computer screen – the stall is so bad, the computer stops warning of the stall and unplugs itself. In response, the pilots say “See, we weren’t really in a stall – throttle back the power and pull the nose up some more”
Today’s stock market going up is a sign that the end is very near, not a reason to think things are back to normal.
And in consideration of the “debt deal” which did nothing to approach, much less repair, the underlying problems, there is no reason for the rally other than “Yay – the debt holders are taking a 50% loss!” to cheer about.
We Americans had best pay close attention. It is the future of America we watch – just dressed in European clothing.
The details are vague – a description I heard yesterday was their options were limited on what to do because a German Court had said the European Central Bank could not do what Ben Bernanke did to the U.S. Dollar – just start making more Euros and then use that to buy worthless assets and hide them under the floorboards. As a result, they had to create this convulated “Stability Fund” outside the ECB and the EU’s governing body.
The IMF itself doesn’t have the ability to create money – what it has is commitments from the major central banks of the world to guarantee its loans. So we wind up with the United States guaranteeing 17% of a loan made by the IMF to the European Stability Fund that then uses its guarantee to back up the value of the 50% of the Greek debt that hasn’t yet been written off. Nobody pays anything until someone presents the guarantee for payment, in which case the Federal Reserve will just print up more dollars and ship them to Europe – all without any Congressional oversight, and not in any way related to its actual mandate from Congress.
It’s one big chain reaction just waiting for the first neutron to hit the first fissionable atom.