United States Dollar & Treasury Auctions

by Wes Bridel on July 7, 2010

in Stewardship

Mystery buyers at Treasury auctions is not a good sign for the US Dollar

A strange sign at Treasury auctions: Mystery buyers

Today we’ll look at the Dollar & Treasury auctions.  We’re continuing our series on difficulties facing the Dollar and how this could be catastrophic to your financial life.  The Dollar has been the world reserve currency for decades, but there are signs that that will change.  One early warning is seen at the Treasury auctions where difficulties have begun to show up.

World Reserve Currency Status Changing

Just about every up and coming world power (and many of the old guard) have made it very clear that they do not want the US Dollar to continue in its position as the World Reserve Currency.  China, India, Russia, and Brazil have been the strongest growing countries of this new millennium, and they are united in their desire to see a new world reserve currency.  President Sarkozy of France has stated that his number one goal as head of the G8 in 2011 will be to remove the US Dollar’s position as the world reserve currency.  Of course, this is easier said than done, but there are certainly winds blowing throughout the world that a change must come to the US Dollar’s hegemony as world reserve currency.   Countries are buying gold as fast as they can reasonably do so in order to diversify away from the US Dollar.

If the US Dollar were to lose its status as the world reserve currency, it would be devastating.  Trillions of US Dollars would come flooding home as people around the world decided they no longer wanted them.  This would very quickly and quite drastically reduce the value of the US Dollar simply because everyone would realize just how many of them there are.

Treasury Auction Failure

The US Government borrows a tremendous amount of money every month of the year.  If people decide they must receive much higher interest rates in order to lend money to the US Government, then the US will have to pay that rate or default on paying off the existing US debt.  These auctions are the lifeblood of our spending ways.  One bad auction could set the whole thing off.  Of course, the government is smart and have primary dealers who are required to buy all of the debt issued.  Still, every bank has its limits and this system could unravel.

As a matter of fact, there have been strange signs at Treasury auctions in 2010 that could be a preview of trouble to come.  There have been strange mystery buyers.  There have been much smaller than expected crowds at Treasury auctions.  Certain auctions have ended with the US Government paying higher interest rates than prime US corporations!  This makes no sense because the corporations have to earn the money and the government can simply print it.  And yet, this happened.  Watching future Treasury auctions could get interesting.

This is Part 6 of the series Hyperinflation and the Dollar. To continue with this series, click on Pt 7. To use this as a growth tool to better understand your own calling, please read Pt 1, Pt 2, Pt 3, Pt 4 and Pt 5.

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