November 19, 2004
What If They Held A Sale...
...and nobody came? That was the nightmare scenario faced by Treasury officials recently. Billions and billions (™ Carl Sagan) of dollars of US Treasury debt, and nobody showed up for the auction. Specifically, the nobodies running the Asian national banks, who have been buying dollar-denominated debt like mad for years to keep their own currencies from rising vs. the dollar by making up for the ever-growing US-Asian trade deficit. Not to mention the US government's own proclivities for deficit spending.
"Sometime soon, the falling dollar is going to show up in rising inflation, rising interest rates and a falling standard of living," said Harry Chernoff, an economist with Pathfinder Capital Advisors. "The housing and mortgage markets, which benefited the most from declining interest rates over the past few years, are likely to feel the most pain."
Let's see:
Check, check, and check. Not to mention the crashing dollar against the Euro is making that European vacation a pain in the wallet.Thankfully, the MIA Asian bankers was only a one-time glitch rather than a real exodus. If everyone really started running for the exits by dumping their Treasuries, god knows what calamities might ensue. At least The Administration is calm. Boy, that sure makes me feel better.
Posted by mikewang on 06:45 AMIndeed, if a weak currency was the prescription for long-run economic health, countries like Argentina and Mexico — which have suffered massive currency devaluations in the last decade — would be financial titans.