When China Loses Confidence in US Treasuries...

Spending the day in transit from Laos to Cambodia, we were forced to spend our time with more alternative pursuits.

This video, courtesy of our Technology Profits Confidential editor Ray Blanco, makes more sense of the debt debate in Washington in two minutes and 33 seconds than an entire week of Hardball.

Funny, this morning, we learned, too, China’s been a net seller of US Treasuries for five straight months.

China's Holdings of US Treasuries

The drop in March was the biggest since last November.

Last month Yu Yongding, a former adviser to the Chinese central bank, said China should stop buying Treasuries because the United States could one day default.

Perhaps readers should begin forwarding the above video to their Congressman or woman to find out why.

Not that this news has stirred the bond vigilantes this week. A ten-year Treasury note yields 3.14% this morning – a five-month low.

Here’s another reason for the Chinese to lose confidence. Remember the “hard won” budget deal last month that averted a government shutdown? You know, the one we were told included “the biggest domestic spending cut in US history?”

Yeah, not so much. According to new figures from the Congressional Budget Office, the deal will actually cost Uncle Sam $3.2 billion more over the next several months.

That’s because the deal includes both $4.4 billion in cuts to domestic programs…and a $7.5 billion increase for the military.

The CBO says the deal does ultimately save $122 billion over a ten-year span…provided that future presidents and Congresses abide by the terms of the deal.


After we pooh-poohed the idea yesterday of the Treasury selling its gold stash to pay the bills…we see our friend Rep. Ron Paul thinks it’s not such a bad idea after all.

It would be “a good and moral decision,” he tells The New York Sun. “An individual would have to do the same.”

“The gold at Ft. Knox and the NY Fed is the most liquid asset the government has,” says Dr. Paul’s one-time aide Lew Rockwell, “It would take longer to sell what else needs to be privatized, from federal lands to foreign military bases to the US Capitol building.”

“Gold in the hands of the people rather than the bureaucrats! How great is that?”

We might agree. But it seems more likely the Treasury would hand it over to a foreign government or bank as part of a complex swap arrangement to paper over someone’s (their) insolvency.

Assuming that hasn’t happened already.

“Under no circumstances should the United States consider selling a single ounce of gold,” says Lew Lehrman, who along with Dr. Paul were the only dissenters on President Reagan’s Gold Commission in the early ’80s. “We have all the grounding and the basis for the United States taking the lead in establishing the convertibility of the dollar today.”

The “minority report” of the gold commission, written by Paul and endorsed by Lehrman, acquired an underground – even cult – following during the following three decades. We recently republished it – a joint project of Laissez Faire Books and the Ludwig von Mises Institute. You can get your own copy here.

Addison Wiggin
for The Daily Reckoning

The Daily Reckoning