Get Ready for the Meltdown of the US Treasury Bond Market

: GEAB , 07 2011 06:06

(GEAB N53 - March 28, 2011)

Global Systemic Crisis: Get Ready for the Meltdown of the US Treasury Bond Market

Beyond its tragic human consequences, [1] the terrible disaster that has just hit Japan weakens the shaky US Treasury Bond market a little more. In the GEAB No. 52, our team had already explained how the sequence of Arab revolutions, this fall of the petro-dollar wall, [2] would translate during 2011 into the cessation of the massive purchases of US Treasury Bonds by the Gulf States. In this issue, we anticipate that the sudden shock experienced by the Japanese economy will lead not only to the halt in US T-Bond purchases by Japan, but it will force the authorities in Tokyo to make substantial sales of a significant portion of their US Treasury Bond reserves to finance the enormous cost of stabilization, reconstruction and revival of the Japanese economy. [3]

With Japan and the Gulf States alone accounting for 25% of the total 4.4 trillion USD of US federal debt (December 2010), LEAP/E2020 believes that this new situation which is asserting itself during the first quarter of 2011, against a background of Chinas increasing reluctance (holding 20% of US Treasury Bonds) to continue to invest in US government debt, [4] carries the seeds for the collapse of the US Treasury Bond market in the second half of 2011, a market that now has only a single buyer: the US Federal Reserve. [5]

It is certain that the context of the crisis of US local authority securities (Munis) and European government debt (the entire periphery of the EU, including the United Kingdom) that our team anticipated for this timeframe (see GEAB N50 ), will only exacerbate the event. Moreover, it is highly significant that PIMCO the worlds largest bond fund manager decided, at the end of February 2011, to liquidate its US Treasury Bond holdings. And that was before the disaster in Japan! [6]

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Get Ready for the Meltdown of the US Treasury Bond Market

: GEAB , 07 2011 06:06

Major holders of US Federal Debt (10/2010) - is Sources: US Treasury / that Dave's Manuel But beyond the Japanese and Arab shocks (see GEAB N52 events: debt market implosion in the second half of 2011 accelerating ), under the process the effect of US of four Federal other condemns introduction US local of budget authorities austerity to a major in the crisis US (as in the anticipated market for in GEAB their debt No. ("Munis") 47) which impossible for the Fed to introduce QE3 inevitable rise in interest rates against a backdrop of global inflation the end safe-haven status for the US currency. Of period second paralysis Republicans administration course, that quarter of these will the (hardened that see of US events 2011. has a powers. mutual betrayed by are Incidentally, the The related strengthening "Tea daily the and, Parties") substance we confrontation could characteristic of and their add of Democrats its effects, a on campaign fifth virtually of event: a leading major (demoralized all promises the crisis, subjects, to complete this we sudden by are between decisional an entering shock Obama in a the [7] little more each day, that Washington has become a sort of " ), tends to show, a Ship of Fools ", tossed about by events, without any strategy, without willpower, incapable of action [8] ; cannot in other crisis. expect words, anything according from to Washington LEAP/E2020, other when than the a US colossal Treasury squawking Bond collapse will begins, only worsen one In Japanese detail. half the this clear of issues The 2011 worsening shock other are public analyzed on events a of announcement, global the that in global this scale, lead issue, geopolitical to in the particular where collapse have dislocation we chosen in of also terms the to set US of process. present out inflation Treasury our our recommendations and Bond anticipation geopolitics, market of in the in to the more address second crucial process The triple event of global disaster that geopolitical will that accelerate has just dislocation. and hit Japan intensify (earthquake, the global tsunami systemic and crisis, and in accident) particular is the a The largest scale economy of destruction, in the world, the direct impact on the energy infrastructure of the third (or fourth) [9] the severity of the accidents at the nuclear power plants, [10] ... withstand is one of as the we major anticipated shocks in which the GEAB the current N 51 international (" system is no longer able to 2011: Ruthless Year "). years indefinite commercial the York) global of the Japan, need three and two governance economy. to management period already the "floats" whose both and Japanese industrial characterized finance Finally, government seriously of recent hubs economy as a supply large-scale weakened we decades. of debt by have the chains. a supplies foreign is limitation analyzed one Tokyo reconstruction by Yet a of exchange a chronic the is Japan of quantity in one available largest past economic of is markets and of issues, a the in fundamental electronic energy secure the worlds it (along world, crisis is, and major major with components that now with part the the change financial has disruption finds London of United the lasted itself over vital system centers, and Kingdom, for of faced to an New twenty the of one with one of [11] that years. has allowed the US to manage global economic, monetary and financial affairs for over fifty For influence, States. this aid to several trend Japan, The particularly keeping years crisis triggered now pace because this with "float" by Chinas today, has earthquake increasing only been China increasingly will, strength has according the attracted capacity and to the LEAP/E2020, weakening to to the provide Chinese massive of greatly the sphere United financial accelerate of [12] Japanese business while even directly more. helping its economy by opening the huge Chinese market to [13]

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