ON 9 SEPTEMBER 2004, FOREIGN PURCHASERS OF U.S. TREASURY BONDS failed to show for a routine auction. And as reporte by Los Angeles Times‘ David Streitfeld: “Thoughts of panic flickered out there,” said Sadakichi Robbins, head of global fixed-income trading at Bank Julius Baer.
Perhaps the Japanese and Chinese were showing some kind of deference to American observation of the anniversary of 9-11. Maybe they couldn’t get past America’s security barriers to get into the auction. Just kidding — please tell me that these things are electronic now.)
Alternatively, the Japanese economy is being squeezed by the dropping dollar and the dropping Chinese yuan, which is linked to the dollar — so while American exports may be more competitive vs. European exports, and even Japanese, we make no headway vs. China. The undervalued yuan is driving Japanese central bankers bonkers and both China and Japan are waiting for the U.S. to tilt one way or another. Their mutual absence at the auction may have been a signal to the Treasury Department and George Bush that there will be huge costs to the U.S. econonmy whether it sides with Japan or, alternatively, with China.
I believe that a missed auction, during these times, is not minor and is probably a signal to the White House that America needs to recognize the subtle leverage that Japanese and Chinese capital holds over the great American empire.
Japan and China wouldn’t take this too far because they want Americans to keep buying their myriad products, and to do that, these countries need to keep us addicted to the narcotic of current account deficit financing.
America has more than 750 U.S. military installations external to its borders today and with just 5% of the entire world’s population, America manages to spend just about the same amount on defense as the entire rest of the world combined.
With a cheap dollar, and one that most analysts see heading lower and lower, the empire is going to become ever more expensive in relative terms.
I once heard a wise person tell me that “Happiness is a function of relative deprivation.” And if American pretensions regarding wealth are not only not realized, but people fall clearly backward, we are looking at very complicated and stressful times ahead.
While John Kerry never closed the deal with Americans that the middle class is indeed in trouble — it remains one of the ripest political fruit to be had in the next election, but still — America may be on the way to becoming a much more poor nation.
— Steve Clemons