From 30,000 feet, everything the Treasury and the Federal Reserve have done over the last several months has been far less sophisticated than they perhaps want to be given credit for:It's worth reading the whole thing.
It's the ultimate game of chicken, where we bet that foreigners won't have the courage to step back and let the US economy collapse. To complicate matters, how the parties will navigate this game will be driven not only by economics and finance, but by diplomacy and foreign affairs.
- The government is absorbing as much private domestic debt as it can get its hands on.
- To sustain its ability to absorb the debt, the government is effectively destroying large swaths of it by debasing the currency with which it will presumably repay it.
- If points 1 and 2 were not enough for our foreign creditors to swallow, the US government has the hubris to expect that they will continue to finance our sacrosanct standard of living with fresh credit at laughably low rates.
Some gut-feel 2009 calls in no particular order:
- If the Fed continues to manipulate 10- and 30-year Treasury rates down at these levels, the US will experience a failed auction of its debt, which will effectively shift control of our long-term rates over to our creditors.
Cash is king at all levels right now, from the personal all the way up to the national. I still like Australia.