Foreign Powers Pull Out Of USD$, Agree That Barnaby Was Right

30 May

From the Huffington Post Business:

As lawmakers in Washington delay authorizing additional public debt, investors are treating the prospect of a U.S. government default — while still highly unlikely — as growing in probability.

With Congress showing little progress on a deal to raise the debt ceiling, some economists say the possibility of a default by the Treasury, once unimaginable, has now become a factor in investment decisions.

“It’s still extremely unlikely, but it is now something that can be talked about. That moves us into a different world,” said Mark Vitner, a senior economist at Wells Fargo. “It was unthinkable not too long ago.”

In the last couple months, investors have piled into bets that the Treasury will default. The cost of holding one-year credit default swaps on U.S. debt — insurance that pays out if the government misses a debt payment — has skyrocketed, more than tripling since the beginning of April, the Wall Street Journal reported this week.

Nervousness apparently isn’t limited to derivatives investors. Treasury securities held in custody at the Federal Reserve for foreign accounts this week experienced their biggest drop in four years, Zero Hedge noted Thursday. While the precise meaning of the drop isn’t clear, it could suggest foreign powers are scaling back investment in the U.S. government.

So that’s “foreign powers” and Wells Fargo Bank’s senior economist now adding their voices to that of CDS traders and investors, Ronald Reagan’s budget director David Stockman, the Wall Street Journal, the U.S. Treasury, Southern Cross Equities’ Charlie Aitken, ANZ chief Mike Smith, global currency expert Savvas Savouri, ABC’s Inside Business and Business Spectator Alan Kohler, credit rating agency Standard & Poors, CNBC, Deutsche Bank, and Barack Obama.

All these agree that when he forewarned of the risk of US debt default back in 2009 (“Barnaby Warns of Bigger GFC“) …

Barnaby Was Right.

It’s time for a BIG apology from Wayne Swan, former Treasury Secretary Ken Henry, RBA Governor Glen Stevens, and the Australian media, to the only political figure in this country with the foresight, wisdom, and courage to speak out and warn of this very real mega-threat to the global economy, and thus to Australia.

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3 Responses to “Foreign Powers Pull Out Of USD$, Agree That Barnaby Was Right”

  1. JMD May 30, 2011 at 9:52 am #

    Caution is warranted wherever you read “investors have piled into bets that the Treasury will default.”

    When the US government raises the debt ‘ceiling’, these bets will likely go up in smoke. The US government defaulted on its debts in 1971 yet US debt still ‘money good’, even if it is slowly but surely losing that status.

  2. Abe May 31, 2011 at 10:54 am #

    Guess where they’re piling in? Another country that Barnaby said was getting close to defaulting…

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