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Greenspan Speaks

Wednesday, June 13, 2007

Alan Greenspan, when asked at a commercial real estate conference whether he feared a "wholesale pullout" by China out of U.S. government bonds, remarked, "I wouldn't be, no." He continued by explaining that China would not have anyone to sell their securities to. In other words, U.S. bonds have become so discounted that no one wants to get stuck holding them.
Great! I feel much better. Look, this is actually much worse than what Greenspan is admitting to. If you're in the business of buying blue widgets and suddenly the demand for blue widgets dries up, why on earth would you continue to buy more blue widgets? The real problem with China and our U.S. government bond sales is not that China wishes to sell off it's holdings of U.S. bonds, its that China will most likely discontinue purchasing future bonds.
Bonds are what we keep our government running on. Without the cash flow coming from the sale of bonds, our government--and our dollar--will be in serious trouble. And if all your investments and your retirement are tied to the dollar you're in big trouble!


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