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Foreign investors veto Fed rescue
Key Excerpts from Article on Website of The Telegraph (One of the U.K.'s leading newspapers)
Posted: April 3rd, 2008
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/...
As feared, foreign bond holders have begun to exercise a collective vote of no confidence in the devaluation policies of the US government. The Federal Reserve faces a potential veto of its rescue measures. Asian, Mid East and European investors stood aside at last week's auction of 10-year US Treasury notes. "It was a disaster," said Ray Attrill from 4castweb. "We may be close to the point where the uglier consequences of benign neglect towards the currency are revealed." The share of foreign buyers ("indirect bidders") plummeted to 5.8pc, from an average 25pc over the last eight weeks. On the Richter Scale of unfolding dramas, this matches the death of Bear Stearns. Rightly or wrongly, a view has taken hold that Washington is cynically debasing the coinage, hoping to export its day of reckoning through beggar-thy-neighbour policies. But even if you think the Fed has no choice other than to take dramatic action, the critics are also right in warning that this comes at a serious cost and it may backfire. The imminent risk is that global flight from US Treasury and agency debt drives up long-term rates, the key funding instrument for mortgages and corporations. The effect could outweigh Fed easing. Overall credit conditions could tighten into a slump (like 1930). It's the stuff of bad dreams. As the Wall Street Journal wrote this weekend, the entire country is facing a "margin call". The US has come to depend on $800bn inflows of cheap foreign capital each year to cover shopping bills. As of June 2007, foreigners owned $6,007bn of long-term US debt. [Most] likely, the twin crash in the dollar and US agency debt reflects a broad exodus by global wealth managers, afraid that America is spinning out of control.
Note: Why is the U.S. media not reporting important information like this? And why was the fact that gold broke $1,000 for the first time ever in mid-March not reported widely in the media?
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