Submitted by Bernard Gourdeau, Aug 20, 2007 13:32

1: The US dollar has dropped too much in the last 2-3 years to think that those holding US Treasuries will indefinitly think that it's a quality investment.

2: Remember that the Chinese hold over 1 trillion worth of these papers and, while they need to sell their products to keep their workers happy, if the US consumer stops buying because he can no longer borrow against the value of his house, the Chinese will have to "ditch" these US treasuries to avoid an uproar and feed its workers. These sales of treasuries will not be controlled by the Fed and the quality will very quickly be questionned.

3: The ECB is printing galore, the Central Banks of Canada, Australia and Japan are also printing.The Fed is not only printing, it confirmed that it will accept doubtfull CDOs as collateral from commercial Banks, and lower interest, if these banks need money to support US consumers and, sorry to say, also to support businesses as "solid" as money market funds. The value of any paper is starting to be doubted.

4: For US treasuries to be quality, faith is required. Ask the markets these days, the top quality in a paper is when you get its face value without delay. Will Americans soon begin to pay their debts to the world i.e. start redeeming Treasuries? Not very soon, they can't. They need to borrow $2,000,000,000 per day (including Saturdays and Sundays) just to stay afloat. Right now, I doubt that US Treasuries will still be quality when I'll retire (based on you picture, I beleive I am as young as you).

5.The Fed seems to think that the US consumer is not bothered by food and energy prices, and that house prices are also irrelevant, only rental rates are. It's based on these bizarre assumptions that it gives a very small return on US Treasuries. (It began with Greespan saying that there was irrational exuberence in December 1996 and then lowering interest rates instaed of raising them.) The world doesn't buy it as the US dollar continues to drop. Even against the yen which pays an even more ridiculously low yield. If the yen picks up, who know if the chinese will not prefer it?

6: If the Fed doesn't price risk properly, how can it asks the markets to do so? You get what you pay for! If you want your paper to be recognized as quality, it will cost you. Marketing only goes so far. At one point, the Treasuries will have to deliver. When? Hopefully not soon...

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