Karl Denninger has some verrry interesting thoughts on this in his latest column. If he’s right, there will be fireworks this Fall.
Why do I get the feeling that we are watching “The Godfather” play out on a global scale…?
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“Are we willing to assume that all the “issue” of Treasury bonds has been done “above board” as required by law? If Treasury has been surreptitiously issuing bonds to, say, Japan, as a means of financing deficits that someone didn’t want reported over the last, oh, say 10 or 20 years, then the following is about to occur:
Who could have possibly been complicit in such a scheme? I can come up with only two nations (and only nations could be involved due to size): The Japanese and Chinese. Since the two individuals who were arrested were reported to be Japanese nationals……
There are tremendous implications in an event like this, again, assuming the bonds are real.
The owner is going to want them back, of course. But Italy is going to keep a third as their statutory penalty for non-declaration on the border. Oops. That’s great for Italy, but it blows bananas for the actual owner.
Of course Italy (or the US!) could declare them “fake” and as a consequence simply burn them. If they are in fact real, that’s an even bigger problem. See, Bearer Bonds are issued without registration – they are as anonymous as a $100 bill in terms of who owns them. That’s one of their “features”, and why they were often used for various clandestine money operations. So if they are real and are destroyed, the owner is out of luck – their money is gone just as it is if you burn a $100 bill in an ashtray.
How much is $130 billion in this context? About 1/5th or so of what Japan legitimately owns of US Treasury debt. How would you like to take an instantaneous (and permanent!) 20% haircut on your securities? That’s what I thought.”
