Thursday, September 09, 2004

Demand for U.S. Treasury Notes by foreign banks at a historic low

Former President Clinton shocked the hell out of me a month ago when in a speach he refered to the U.S.'s inability to apply any pressure on China because they are our banker. I can not remember the last time I heard a politition from either party be so honest and forthright about an issue that no one wants to talk about: for the last few years foreign banks have been propping up the dollar by buying U.S. Treasury Notes to try to maintain the value of their existing investments. If not for foreign central banks in countries like Japan and China, our economy would have probably have been screwed several years ago.

While our current adminstration has been telling the lie that our economy is just fine, the reality is unfortunatey otherwise.

It is impossible to predict the economy: it is just too chaotic. Still, we can use common sense to figure out what "ought to happen" (*). Low demand for U.S. Treasury Notes is very troubling indeed.

(*) If you can handle reality and not political "feel good" bullshit, I recommend the book Financial Reckoning Day. Hopefully the authors will not mind my summarizing some of their excellent advice:
  1. Prepare for the future by reducing or eliminating your consumer debt
  2. Once you do the first step, try to relax and watch the "show" (e.g., enjoy some Java programming and don't worry about the economy because you have done what you can to protect the future of your family)

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