China’s “Short against the Box”; Unfortunately –WE- are the Box

http://www.TableOfWisdom.com ^ | March 15, 2010 | By MrArbitrage

[publius321]

Our elected swindlers have reached a major milestone this year or I should say millstone (around our necks). As noted in an AP column today, for more than two decades, Social Security collected billions more in payroll taxes than it paid out in benefits but not anymore. This year the program is projected to pay out near $29 billion more in benefits than it collects in taxes.

AP writer STEPHEN OHLEMACHER pointed out that although US Treasury Bonds are normally issued only in electronic from, THESE congressional IOU’s came with actual paper certificates! I found that amusing, as though they now have more intrinsic value because our prodigal government took the trouble to have the $2.5 TRILLION in bonds printed! Hey, Confederate dollars were printed. How did that help? When you have $2.5 trillion of something, there won’t be much antique value. This is the legacy that people like Ted Kennedy and John Murtha left behind for us. They were here to live through the plaudits of the leftist media. Now they are..." (continued)

[ProudFossil]

So I wonder when the “holiday without pay” which many state and local workers are getting begins for us old timers on Social Security. I would not be surprised to hear the Dims in Washington decide to not pay us say one month in the year.

[publius321]

You may be right but I think they are just going to print, print, print... because they will decide it’s better to use the usual chicanery, giving you the same quantity of dollars but worth 50% less than last year, than to default.

[ProudFossil]

The only problem (and it is a big one) with the print, print scenario is if they do that, then China and Japan will call their notes immediately. Before the dollar plummets. This will cause a downward spiral which will be a disaster, not only for the feds but also every state and local government. Their revenues will be at the level prior to the devaluations but their expenditures will be inflated by the devaluations. This leads to rampant defaults.

Anyway you look at it, we are in for quite some ride over the next three to four years. Thank you Pigosi, Dingy Harry, Osama, and all the idiots that voted for him.

[publius321]

China and Japan cannot call their notes. These are US Treasuries that have defined maturities stated within the bond Indenture.

I don’t know of any “callable” Treasuries and most bonds that -are- callable, are callable by the -issuer- not the investor. I think this notion of China “calling our debt” is a common mistake. The only thing they can do is wait it our or -sell- the bonds on the secondary market but they cannot force the US Government to come up with some kind of theorhetical “ballon payment”. If China dumps their US debt on the open market, of course that enormous supply would cause prices to fall sharply and interest rates to increase rapidly.

The cruxt of my last two columns on this subject is that people are naive to think China wouldn’t do this because of the ensuing losses they would cause themselves on our debt but they are ignoring the fact that China is positioning itself to -profit- despite the concomitant losses on the Treasuries by hedging in commodities.

[houeto]

Ping.