lawgator1
Senior Member
- Joined
- Aug 8, 2005
- Messages
- 76,001
- Likes
- 45,329
Everyone is talking about gas prices and inflation generally spiking due to the Iran war, but do not lose sight of what is happening to US Treasury yields. Today they hit the highest level in 19 years.
I do not claim to be an expert but be aware that the UAE has informally started floating to us the idea of getting a currency swap line from the U.S. Treasury, and Kuwait is expected to follow suit. Such a swap is intended to provide a credit line to those countries, whose income has suddenly come to a halt.
www.cnbc.com
Short run, we get a rate of return on the line. But its modest. And the real reason we do it is that if we don't, those countries' banks have to sell their US Treasury bonds. And if they do that, particularly in a short time frame, they will crush the US (and world economies) because any buyers will insist on buying the bonds at a discount. That, in turn, means we have to raise the yield dramatically on the bonds we auction off -- because otherwise buyers will just buy the discounted face value of the bonds on the open market.
This is a potential calamity which, if it occurs, could cause European markets and Asian markets do to the same thing -- sell our Treasury bonds. We won't be able to sell any at auction.
jaymartin.substack.com
I do not claim to be an expert but be aware that the UAE has informally started floating to us the idea of getting a currency swap line from the U.S. Treasury, and Kuwait is expected to follow suit. Such a swap is intended to provide a credit line to those countries, whose income has suddenly come to a halt.
Trump administration discussing currency swap line with United Arab Emirates
Such a move would provide liquidity in dollars to the oil-rich UAE, but could be politically tenuous for the administration amid higher prices at home.
Short run, we get a rate of return on the line. But its modest. And the real reason we do it is that if we don't, those countries' banks have to sell their US Treasury bonds. And if they do that, particularly in a short time frame, they will crush the US (and world economies) because any buyers will insist on buying the bonds at a discount. That, in turn, means we have to raise the yield dramatically on the bonds we auction off -- because otherwise buyers will just buy the discounted face value of the bonds on the open market.
This is a potential calamity which, if it occurs, could cause European markets and Asian markets do to the same thing -- sell our Treasury bonds. We won't be able to sell any at auction.
The First Domino Has Fallen
The cascade we predicted in Two Wars is starting.
jaymartin.substack.com
