This is HUGE!
If the international Bond market stops buying U.S. government debt then the U.S. is in serious trouble!
Even now the U.S. Federal Reserve Bank a quasi-private institution is purchasing more U.S. Debt than anyone else, even the Chinese, because there are no longer enough buyers in the international bond market. And this is because the world has decided that the U.S. is no longer a good credit risk. But the Fed can only purchase so much debt.
What happens is this: The U.S. Treasury holds weekly and monthly bond auctions to sell U.S. Government debt to Bond funds and foreign countries in order to get more money to fund the federal budget. In the past all of the bonds that the U.S. Treasury wanted to sell were bought by the bond funds and foreign countries, meaning the auction was fully subscribed. However now that the U.S. government has decided to increase its debt so much it has had to drastically increase the value of the bond sales, to the point that Bond funds and Foreign countries will not buy all of the bonds, meaning the auctions are undersubscribed. A VERY BAD THING! It means the International Bond market has decided the U.S. is now a bad financial risk. And if you lose the trust of the international Bond market, your country is in deep deep trouble financially. This is actually the last step before financial collapse!
So the U.S. Treasury has turned to the U.S. Federal Reserve and made an agreement with them, The U.S. Federal Reserve will purchase all the bonds that no one else will buy. There is a huge problem with this though: In order for the Federal Reserve to buy the bonds, it has to have the money to do it. And how does it get the money?
And this is the BIG DANGEROUS part: The U.S. Treasury issues I.O.U.’s to the Federal Reserve, and the Federal Reserve then CREATES the money with which to buy the Bonds, because the U.S. Dollar today is an I.O.U., a debt instrument obligating the government to pay the Federal Reserve a tangible asset equal to the value of the money that the Fed issues! So what you have in actual fact is for each bond the Fed buys, what is owed for the Bond automatically DOUBLES!
So not only do you have an automatic doubling of the debt you have massive growth in the amount of U.S. dollars in circulation which depreciates the value of the dollar drastically, and if you have added to that the fact The international Bond market will not buy U.S. Debt, it then turns into a vicious free fall of the value of the U.S. Dollar and hyperinflation. And the World would immediately stop using the dollar as the international currency of exchange, which would accelerate the dollars fall!
The immediate impact of all of this would be similar to, but much worse than what happened to the Soviet Union after Communism fell, Their economy collapsed their government could no longer afford the massive military that they had and within 10 years they had to scrap ¾ of their military. We would within a very short time fall from being the only superpower to not having any power at all on the world stage.
If you want to get a good understanding of the International Bind market and the power it wields you need to get this book: “The Ascent of Money” by Niall Ferguson, he is a well known history professor at Harvard.
The world’s largest bond fund has gone ultra bearish on the United States, dumping all of its U.S. government-related debt holdings.
The move by Bill Gross’s $236.9 billion PIMCO Total Return fund completed last month comes in the wake of a vicious Treasury market sell-off and just days after he questioned who will buy Treasuries once the Federal Reserve halts its latest round of bond purchases in June.
Gross, who also helps oversee a $1.1 trillion investment portfolio as PIMCO’s co-chief investment officer, has repeatedly warned against U.S. deficit spending and its inflationary impact, which undermine the value of government debt and push up yields as investors demand more compensation for risk.
Over the last five months, worries over the ballooning U.S. budget gap estimated at $1.645 trillion for 2011, political stalemate in Washington over how to narrow it and inflationary fears have all contributed to a steep sell-off in Treasuries. The benchmark 10-year note has seen its yield, which moves inversely to price, rise more than one percentage point since early October to 3.46 percent by Wednesday’s close.
Gross expects further carnage. Just last week, he told Reuters Insider that a 4.0 percent yield for 10-year notes is a “rational expectation” if the Fed “disappears as the buyer of last resort.”
Gross, as with many other investors, has raised red flags over demand for Treasuries when the U.S. central bank ends its controversial quantitative easing program. This week, he posed the following in his widely read monthly report: “Who will buy Treasuries when the Fed doesn’t? The question really is at what yield, and what are the price repercussions if the adjustments are significant.”
Already, bond prices have taken a massive beating on that possibility and as the U.S. economy recovery strengthens. The 10-year Treasury yield hit a 9-1/2 month high of 3.77 percent on February 9, rising 40 basis points in the short period from the end of January.
Gross sold all of its U.S. government-related securities, including U.S. Treasuries and agency debt, from its flagship Total Return fund, as of the end of February 28, according to the firm’s website on Wednesday.
That’s down from when the portfolio held 12 percent government-related debt at the end of January. The last time PIMCO was this negative on U.S. government-related debt was in January 2009.
A PIMCO spokesman declined to comment. . . . .
read the full article here.
True Discernment 
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