You've probably read the story of how Italian police seized $134 billion (with a 'b') of U.S. Treasury bonds from two Japanese travelers. These were so-called "bearer bonds", which I thought until now only existed in the movies. Here's a Bloomberg article that will get you up to speed.The situation is so bizarre and twisted that it makes no sense. Were the "Japanese" really North Koreans? Were the bonds real? Why would anyone be traveling with a suitcase full of bonds worth $134 billion?
Oh, guess what. The travelers are gone. Released. Nowhere to be found. The U.S. Treasury has apparently not seen the allegedly counterfeit bonds before pronouncing them fake.
This could spell big trouble. If banks have accepted these bonds in the past, counterfeit bonds in other words, they're in trouble. On the other hand, if the bonds are real, we're in trouble, because that means either that the U.S. government has off-balance sheet debt - in which case a number of government officials need to be in prison - or it means that the Japanese secretly want to dump most of their U.S. Treasury bond holdings. In that case. we're still screwed.
Karl Denninger says that his "BS detector is ringing off the hook".
It appears that identical bonds emitted in 1934 were seized some years ago in Manila. Maybe naive Asiatics thought the Swiss gnomes were going to honour them and trade them for real gold.
ReplyDeleteThe presence of the japanese gentlemen is interesting. If the japanese government wanted to start unloading U.S. treasuries, I can imagine them appealing to patriotic japanese gangsters, in order to hide the identity of the seller. One can imagine some vice-minister talking to a couple of Yakuza hoods: "For the good of Japan, we need to get rid of this crap, and we need to do it before the dollar collapses. But we can't be seen to be doing so, or it could cause the dollar to collapse. Try to make the buyers in Switzerland think that you're selling it on behalf of a Columbian drug kingpin, or Osama bin Laden, or the North Koreans. They'll believe that. Do us a solid on this, and we won't forget it."
ReplyDeleteAlternatively, if they are forgeries, then it would be necessary to have a good story to go along with the merchandise. Moving 100 billion in phony paper isn't the same as selling a stolen gold watch at a pawn shop. One must have a convincing explanation for the sale (presumably at a deep discount). Perhaps the two men would pose as representatives of Japan's finance ministry who were looking to discretely sell some U.S. Bonds. People might believe that - the japanese like to do things discretely, and anybody would appreciate the desire to sell U.S. treasuries given the likely future of this country and our currency.
This is all just speculation on my part, of course. Either way, it points to a fundamental weakness in the dollar.
Dennis, here is video of the marshmallow experiment from Columbia.
ReplyDeleteI haven't had the time to look for the follow up on these children.
The videos are great.
There is also a book.
http://www.ted.com/talks/joachim_de_posada_says_don_t_eat_the_marshmallow_yet.html
COMMENT
9 hours ago: Thank you Ragad. You are very right, it is important to teach this lesson to young children. My book, Don't Eat the Marshmallow yet" has been translated into 15 languages, and only the Koreans converted it into a children's book and now it is being taught to Korean children. They really got the importance of the concept. Thanks for commenting.
Mr Anon,
ReplyDeleteThe Japanese wanting to unload discretely American paper? That would explain the absolute media blackout on the event. There are no follow up stories, which is amazing.
On the other hand, forgery is more expectable. That would not reflect on America's economy. And the fact that everything goes on as if nothing happened may mean that the event is very minor. Nothing can be kept secret, the stock exchange would have reacted.
In this case I believe the Treasury (and it's not out of some general faith in government, believe me...). The denominations would have been implausibly large at the time of their supposed printing (1934), and for quite a number of years now the bonds they issue have been tracked/accounted for centrally (i.e. electronically). There are still some bearer bonds outstanding, but it's something like $5 billion total.
ReplyDeleteI would assume that the Japanese guys (if they were actually Japanese) were the victims of some elaborate scam, which is why they weren't charged.
forgery is impossible in this case. A USD 500 mn bond is tracked by the issuer continuously. if you present it to anyone who could discount it, this discounter would simply call the NY FED and ask who's the legal holder of the bond. Anyone discounting a USD 500 mn bond wouldn't simply "trust the seller"
ReplyDeleteNor can a bond like those be stolen, for all that matters. if you steal a USD 500 mn bond, the legal holder would call the FED and say "my bond was stolen" and you would end up with a worthless piece of paper in your hands.
it is just like stolen art. You can't go to Sotheby's and try to put to auction a stolen painting.
This is a perfect example of both the mind-numbing incompetency of the mainstream media and the change in the ranks of the journalism profession. Whether the bonds are real or fake, this is a great story, period. That mainstream journalists don't recognize it as such tells you all you need to know about why the profession is on the skids. Great stories scare rather than excite this bureaucractic, PC industry, dominated now by liberal feminine/minority groupthink. I'd bet all of the bloggers who have been attracted to this story are white males.
ReplyDeleteUnfortunately, as this story also reveals, we need a mainstream media to acknowledge and investigate these kinds of stories to give them legs and legitimacy.
In other words, we're screwed, which is another story they're never going to examine.