It is all over the news this morning. Amid positive data that China's stimulus package is working somewhat and creating infrastructure and durable goods an absolute shocker came in: export dropped 25%. That is good news, bad news and dreadful news
1/ Good news: global imbalances are being wiped out, this was the source of too much debt offering.
2/ Bad news: Demand in plunging from the US.
3/ Bad news: Protectionism is the new black, not as result of policy, but global trade is falling off a cliff as consumers are retrenching. This is never good whether due to bad policy in the 20's or by natural cause here.
4/ Horrible news: if the Chinese have no dollars to re-invest, they are not going to buy US treasuries. The debt-deflation continues in earnest.
Walk through this with me without vomiting if you would.
To counter the debt deflation, the FED is emitting its own debt in guarantees, stimulus and what not, and a glut of offering is coming down the pike. Supply up. But if the Chinese do not have the money from a trade surplus, meaning no savings then they are not going to buy the treasuries. Demand down. You see it coming? A big reset in the price of Treasuries (yield up, price down).
The are two things that prop up the dollar and treasuries.
1/ The fact that the US seems like the last safe haven because it has the reserve currency (which it is about to abuse) and nukes to enforce this position.
2/ Speaking of nukes, Rogers reminded us yesterday, that the FED is about to employ the nuclear option of buying its own treasuries, thereby depressing the yields and flooding the market with fake dollars. Quantitative Easing, or QE, is the ultimate appropriation (theft). It has started today in England, God help them. Faber argues there is no other way but for the FED to completely debase the currency, turn it to shit, and eat its own shit, hoping others won't mind the shit taste so much, because at least they are eating something (see China's "We hate you guys").
For the first time I see a probable end game for Treasuries, and its consequences are too many, it will mean no debt to finance rescues and other options that boggle the mind. QE with inflation (free money) is a nuclear option otherwise the spiral of debt-deflation will gain steam. Mee no likee.