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Tarpley on Russia Today:

Date: 
Wednesday, August 25, 2010

China Buys Euros as Fear of World Depression Grows

http://tarpley.net/2010/08/25/china-buys-euros/

The US Treasury has just announced that China’s official holdings of U.S. Treasury securities declined by about $30 billion between April and May of this year, from about $900 billion to some $868 billion. According to the US authorities, this means that Chinese holdings of US government paper are now at the lowest level in the past year. A 2% to 3% decline in a month does not qualify as massive dumping, but simply means that China is in the process of diversification. It is also very likely that China has more U.S. Treasury bonds than this official count would indicate, quite possibly through proxy purchases via Hong Kong and other places.

With the sales of existing homes in the United States falling by 27% this morning, together with disastrous statistics regarding unemployment and foreclosures, it ought to be obvious that the US economy is in depression. Even experts interviewed on CNBC are beginning to wake up to this obvious fact.

World Bond Bubble

On August 24, the Treasury’s two-year note reached its highest price in recorded history, meaning that the yield was at a record low. The entire world is piling into short-term U.S. Treasury paper, and many buyers cannot get enough. This makes a mockery out of the right wing reactionary refrain that the US equals Greece and soon will be unable to borrow. If, according to the crackpot Austrian theory, markets know things that individual humans cannot know, then surely the market is signaling a great desire for T
Treasury bills and Treasury notes at the short end. The main reason for this demand is of course fear and panic – coming from the growing awareness that the world is indeed experiencing the second wave of a world economic depression of colossal proportions.

There is now a large-scale international bond bubble involving, among others, US treasuries and German Bunds. Since the flash crash of May 6, many investors have fled the stock markets entirely. It is still too soon to sound the alarm on deflation ahead, but deflation has now appeared over the horizon as a concrete possibility – partly because so many major financial players are now convinced that deflation is the wave of the future. If this were to come about, it would mean a depression looking much more like 1929-1933 than the relatively more mild situation we have experienced over the last two years. The depression may be taking a turn toward something far more excruciating for the masses of the population. One by-product of that would be vastly decreased popular gullibility for the anti-government recipes of the libertarian Austrian school, which are tailored for those who have money, and which have very little appeal to people who are unemployed, homeless, and starving.

Also on August 24, the Japanese yen hit a 15-year high compared to the dollar, and a nine-year high compared to the euro. This kind of currency championship is a Pyrrhic victory which nobody wants, since it means the Japanese exports are in the process of being strangled. This is true currency chaos and world depression at the same time, pointing once again towards the urgent need to restore the fixed rate system of Bretton Woods, which was destroyed 39 years ago this month by Nixon and Kissinger, urged on by Milton Friedman and other snake oil Continue reading China Buys Euros as Fear of World Depression Grows

 

See also on Tarpley on Russia Today Aug. 25:

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