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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Tuesday, November 4, 2008

US Debt Machine

The US is starting to "peddle" US Treasuries to other countries. Why? Without immediate panic to drive people to buy bonds, the Treasury market can't finance the massive debt machine put into motion.

If the US government can't sell debt at the interest rate published, the US will be forced to raise rates to attract buyers. See previous post on Bonds here, here, and here.

An interesting quote from this article:
"The U.S. Treasury Secretary is trying to convince other countries, including China and Japan, to buy its government bonds,'' said Shen Jianguang, a Hong Kong-based economist at China International Capital Corp., the nation's biggest stock underwriter. "This is the first time a developed country needs help from developing countries to ride out its crisis.''

This article rings of two themes, one the US debt machine will come to a screeching halt when US debt has not enough buyers, and interest rates will rise. The second is yet once again China is kicking dirt in the USA's eyes as it makes the inevitable play to take over as world leader.

As an indicator where interest rates may be headed, IBM had to pay 4 percent higher than the US government to sell it's debt in the public market. A blogger stated a total of 9 percent for Verizon debt interest rate.
With "solid" corporations paying such high interest rates, what will happen to those of us with credit quality lower than IBM? You guessed it, likely soon higher interest rates.
Hence the resource play (direct or stocks) previously discussed.

More news:
GM's auto sales plunged 45% for October
Newsweek reports what I stated (8/14/07 email, pre-blog) over a year ago, this isn't a credit crisis, its a solvency crisis.
This article lays out likely Obama vs McCain will do after elected. Either way it supports my Thesis Change.

Update 11/9/08

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