WHAT ABOUT THE FOREIGN FAITH IN U.S. TREASURIES ?

Short or extended period of U.S. Government shutdown, the fact is Asians and the Chinese in particular have been preparing for a calamity in the U.S. Treasury market for years. Most foreign investors in U.S. Treasuries have converted their long term bond holdings to short term bond holdings; meaning, they could liquidate their bonds at a moment's notice. It is a fact that overall purchase levels of U.S. treasury bonds are either static, or falling depending on the nation involved. China has been internationalizing its currency, the Yuan, since 2005. China has opened Yuan “clearing houses in multiple countries to allow faster convertibility of the Yuan, quietly supplanting the dollar as the world reserve currency. These clearing houses now exist in London, Hong Kong, Singapore, Taiwan, and Kenya. The Federal Reserve and international banks like JP Morgan are heavily involved in the internationalization of the Yuan.

In truth, the U.S. economy is actually hostage to Asian holdings of U.S. debt. A call for a dump of U.S. treasury bonds by China, for example, in the face of a U.S. default, would immediately result in a global chain reaction ending in the destruction of the dollar as the world reserve currency. China is not going to sit back and do nothing while their investment in U.S. debt quickly disintegrates. Why would they take the chance when they could  just sell, sell, sell!

A long term U.S. government shutdown would be a catastrophe no matter how you slice it. Foreign creditors would react harshly. The bond market would see a haircut not unlike that given to investors in Greek treasuries. Austerity would become an American way of life. The only mitigating factor would be the U.S. Federal Reserve, which may institute “extraordinary measures” without congressional consent in order to continue feeding stimulus into government regardless of whether the debt ceiling is raised or not.

In this situation, the U.S. would face a currency collapse ,rather than a debt default. But in either scenario, the dollar is the final target. Many economic analysts presume that the only threat to the dollar's value is hyperinflation. But the dollar is just as vulnerable to a debt default and loss of reserve status. Devaluation might be inevitable regardless of the outcome of the funding debate.

The greatest concern, though, should be whether or not the establishment is ready to pull the plug on the dollar altogether, using the debt ceiling crisis as cover in order to distract away from the involvement of international banks in the overall problem. There is no doubt given the facts at hand that America is on the edge of a terrible pyre.