By John Galt
April 26, 2011
It was destined to be another quiet night on the international markets with Japan and Europe desperate to create a temporary dollar rally and the Fed more than happy to help where they could. Then from the other side of the globe an explosive headline from China Daily’s Tuesday edition:
That sounds like a direct shot at one Ben Bernanke and the Federal Ponzi Reserve’s QE strategy but as one digs through the story, it is a realization that this is more than a refutation of our Treasury promissory notes we print as fast as the ink and paper can be created. The sentence which can be called the sum of all U.S. fears stated the following:
The proposed funds will invest some of the foreign reserves in energy and precious metal markets, the New Century Weekly said on Monday, citing unnamed sources close to the People’s Bank of China.
Last I checked the U.S. Treasury printed neither energy nor mined precious metals and the Federal Reserve only stores the latter in its vaults in New York City. Thus there is a wee bit of consternation which must be felt by the agents of change working within our government and the Fed. The Treasury knows that if China starts to seriously pare back it’s rolling over of short term T-Bills and intermediate notes expiring in 2011 and 2012, the U.S. will have to double down in its issuance and pray the domestic financial system can purchase the bulk of the new debt and hold it until the situation improves. The primary dealers are in no position to absorb several hundred billion dollars in unexpected issuance unless the Federal Reserve elects to create a new monetization program.
The announcement via the various government news organs in China is a direct shot at the Federal Open Market Committee meeting starting later today and concluding with the FOMC statement and Bernanke press conference on Wednesday. If Ben fails to acquiesce to their demands and those of investors like PIMCO and others around the world, look for new investment vehicles which capitalize on the resulting Bernanke generated inflation to be created post haste to get the debased dollars off their balance sheets and into real assets.