November 05, 2007

A wild surmise

From Hale Stewart's column in the HuffingtonPost, Oct. 22, 2007:
"However, the big foreign buyers of US debt aren't buying this debt like they used to. According to information from the Treasury Department, the five largest holders of US debt (Japan, China, UK, Oil Exporters and Brazil) owned a combined total of $1.224 trillion in August 2006 and $1.459 trillion in August 2007. That's an increase of $235 billion. And over that same time, the really big purchases came from the UK ($189.4 billion) and Brazil ($63.6 billion.) China only increased their holdings by $13 billion and Japan decreased their holdings by $37.9 billion. In other words, Asian Central Banks -- who used to be reliable purchasers of US debt just aren't that interested in buying anymore right now."

And then this subtle datum: "M3 includes all of M2 (which includes M1) plus large-denomination ($100,000 or more) time deposits, balances in institutional money funds, repurchase liabilities issued by depository institutions, and Eurodollars held by U.S. residents at foreign branches of U.S. banks and at all banks in the United Kingdom and Canada."

As of March, 2006, the United States government stopped publishing data on the M3 money supply. The reasons given were unconvincing; to "save money," was one excuse. Saving money on a government program? The mind reels. Or: because you can calculate the M3 supply by reference to other data, such as the M1 and M2 numbers. Huh? Someone needs to do a Venn diagram. M1 and M2 are supposed to be included in the M3 supply.

Admittedly, all of this is a bit arcane, shadowy and abstruse, and I may choose to make this third adjective My Word for the Day, and if I use it three times -- it's mine! So I'm told. It means "recondite" or perhaps "hidden," from the Latin abstrusus, meaning, well, "hidden." But I come around to what I think is a logical question. Why did the British suddenly become our #1 purchaser of Treasury debt among foreign investors? I see plenty of Land Rovers around my neighborhood, I admit that, and "Benny Hill" in syndication must bring in a fortune (okay, not really). Still -- what's going on? Between August 2006 and August 2007 the British suddenly became the chief financiers of America's ongoing slow-motion bankruptcy.

Persistent rumor has it the U.S. printing presses are working overtime making lots and lots of money. Some have speculated this is the true reason for the relative stability of the U.S. stock market despite the deflating housing bubble -- all that money has to go somewhere. But suppose (and this is where the wild surmise takes shape) that the United States, which must finance about 1/2 trillion dollars per year to "balance" its crazy books, has hit on a scheme which eluded the Weimar Republic in its disastrous hyperinflation days of 1922 and following. One way you might do it would be to concoct a system for buying your own debt. And to conceal what you're doing, you stop publishing data on Eurodollars (U.S. dollars held in banks in the UK and Canada, chiefly), because you (yo! Treasury -- I'm talking to you) are using an elaborate system of straw men to "buy" Treasuries from yo'self. You're cash-strapped, you're running wars you can't afford while cutting taxes, and the Asians signal that they're tired of watching their dollar holdings depreciate in value while receiving a measly return on Treasury notes, especially now that the tapped-out American consumer is making fewer trips to Wal-Mart to buy lead-based toys and dog food with Ikea dust in it.

Meanwhile, back at Prairie Chapel Ranch, Bush is frantic to keep the pipeline open between the American treasury and American mercenaries and defense contractors in Iraq. If it were to leak out that America is now printing money, sending it to UK banks which in turn buy our own debt, it could put a real damper on war funding, and also turn Bush's last year into the waking nightmare he has so far somewhat eluded. Such a disclosure would probably spell the end of the U.S. dollar's reign as the world's "fiat currency." Not to be too abstruse (2), but it didn't work for the Confederate States of America and it probably won't work for the Union either. As I say, a wild and abstruse (3) surmise, but if we've learned anything about the Bushians, it's that they're capable of any kind of deceit, large or small.

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