Tags: US | dollar | govt | banking

Are You Ready to Be Forced to Buy US Debt?

By    |   Wednesday, 07 May 2014 08:02 AM

I was confident that better senses would prevail, but they did not. I was hoping for common sense, but I was fooling myself. What happened two days ago sickens me.

No dear reader, I am not talking about the Cinco de Mayo celebrations. I am talking about the IRS' deadline for banks around the world to sign up for information-sharing agreements with it.

The act of the IRS was likened to something similar to the Prime Minister of India passing an ordinance that NO grocery store chain in the United States was allowed to sell beef products to citizens of India.

As you know, cows are considered holy in the Hindu religion and eating beef is not allowed.

So while it may be draconian for him to do that even in India, imagine if he is ordering all countries in the world to not sell beef to an Indian anywhere or face financial penalties.

But that's essentially what the U.S. government has done.

Passed in 2010, the Foreign Account Tax Compliance Act (FATCA) makes it mandatory for banks around the world to share information about their depositors with the U.S. government.

In other words, Congress expects banks that aren't even in the United States to comply with U.S. laws.

The penalty of not falling within guidelines is to withhold 33 percent of the value of a foreign transaction. Such a significant penalty will ensure one of two things: either financial institutions will comply or they will decide not to deal with any American citizens or residents or American banks.

Seems like they are choosing the latter.

What the United States does not understand, or in its arrogance ignores, is that currently the U.S. banking system is at the center of the global banking system.

Many of the international trade transactions are denominated in U.S. dollars. So when a trader in Vietnam sells products to a buyer in Malaysia, they trade in U.S. dollars.

Both the bank in Vietnam and the bank in Malaysia would have an account in New York. Having this common hierarchy makes it easier for banks to transact with each other because they both have a common intermediary. And for now, that common intermediary is the U.S. banking system.

But the U.S. government seems to be hell-bent on destroying the advantages of this global trade pattern.

We already have one of the weakest banking systems in the world. Granted, our banks are larger, but therein lies the problem. Large does not mean strong. We have inadequately capitalized banks (as proven by the recent Federal Reserve's stress test), we have the weakest government balance sheet (higher liabilities than assets as accepted by the Congressional Budget Office), a central bank that has lost its senses (as witnessed by the incredible quantity of newly printed money with no backing), the self-destruction of the foundation of capitalism (as witnessed by bailing out of the banks during 2008) and finally the passing of such illogical and fear-driven policies such as FATCA.

It seems like the U.S. government is begging the rest of the world to create an alternative banking system that doesn't depend on Wall Street or the U.S. government.

China has been for years forming alliances and signing bilateral trade arrangements with several dozen countries (including Japan and Australia) where they agree to do business with each other without involving U.S. dollars. This is a major issue that is unfolding before our very eyes.

If the U.S. banking system loses its prominence, suddenly the dollar becomes less relevant.

As you can see, we are seeing the U.S. dollar lose its relevance and it is only a matter of time before we see U.S. debt lose its functionality as debt held by the rest of the world because they will have no need for U.S. dollars.

So then how do we fund the ever-ballooning U.S. deficit?

The government has already started planning on forcing you, dear citizen, to buy U.S. debt. That is the next shoe to fall in this puzzle.

Have you had enough yet? Have you started diversifying out of the U.S. dollar?

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I was confident that better senses would prevail, but they did not. I was hoping for common sense, but I was fooling myself. What happened two days ago sickens me.
US, dollar, govt, banking
683
2014-02-07
Wednesday, 07 May 2014 08:02 AM
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