Here It Comes… (Sovereign Treasury Sales)
Courtesy of Karl Denninger, The Market Ticker
I have repeatedly warned that there’s an "end game" coming if we do not cut out the monetization games.
I have repeatedly warned that the "end of the world" scenario comes about if The Government cannot finance its operating requirements (e.g. interest cost exceeds income), as that event will result in an instantaneous "death spiral" of credit downgrades and ramping CDS spreads, which in turn drive up interest rates further, etc.
I have repeatedly warned that if we do not get our own house in order others will force it upon us, as we have given them the weapons to do so by selling trillions of dollars worth of Treasuries to overseas sovereigns and institutions over which we can exert no control (except by threatening to use our 6,000 nuclear weapons.)
This morning there’s a nasty rumor on the wire – that Japan may be intending to sell US Treasuries.
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Their purported reason for this, of course, would be to weaken the Yen. Selling Treasuries would have this effect since it would strengthen the dollar, and in a fiat monetary system all values are relative.
Here’s the problem: The first seller wins in these circumstances, since price is essentially "coupon x duration."
If Japan starts selling in size rates on the long end will go materially higher. This will whack the daylights out of the cash price for these bonds. Who else has a lot of these things? China.
Stampede risk here? Yep.
Danger to our government’s ability to finance its profligate spending?
Uh huh.
