Monday, August 15, 2011


Bad days for US Treasuries
$1.6 trillion US treasuries are being held by China alone making the world’s leader in holding the neck of UD dollar. But after the rating of US economy the treasuries have taken a set back in its value. Some of the recent facts findings make its well clear that in the coming days US treasuries will no longer be as precious investments avenue as it used to be earlier. Arab economy has healthy investments in US treasuries as it’s the prime exporter of US crude.

In a very recent note the Chairman of the Arab Banks Federation and Executive President of the Al-Baraka Banking Group (ABG) Adnan Yousif have commented that redistribution of risk will be accepted and followed in the coming days. Arab holdings of US Treasury bonds is at about $470 billion. They did not call for withdrawing the funds but that necessarily did not mean that the holdings are in safe heavens for US economy. US is the most powerful economy in the world and all countries depending on its currency (dollar) would meet the same fate.

China in a very recent note expressed their concerns that it will go for diversification of its foreign currency a holding which means that the US treasuries are no longer able to draw investors across the globe. Its true that if there is any doubt about the US treasuries then their will be a global collapse of the safe holdings.

Coming Data Outlook:
Regarding the outlook of US economic data it can be well predicated that manufacturing is will get slower as government will no longer be able to provide much stimulus to the system. Consumer numbers are going to drop to negative in the coming weeks as skeptical nature of the consumer mind is going to change consumption patterns. Consumers will be more reluctant to spend and more inclined to save for the bad days of US economy. In the other way round US savings rate have picked up from -12% to some comfortable zone. Hence savings are more and consupmtion will be less resulting slow growth of US GDP. So dont expect any growth mnumbers from the economy and if they come with a surprise they should be taken with a  surprise.
Unemployment numbers are going to remain on the higher side as US industry will be inclined to save more and spend less and making cuts at their end. In fact I will not be surprised to see unemployment numbers takes a higher toll since industries across the Atlantic will going for massive cuts as government’s cuts are going to affect their demand generation.
Deeper problems exist for Europe as there are more cuts on spending leading to less growth and expectation for growth numbers from the economy.


Economies grow via three interconnected phenomena, (1) the division of labor, specialization, and exchange; (2) saving and the accumulation of capital for investment; and, (3) efficient allocation of scarce resources via a system of prices and profit-and-loss.US economy and Europe both are lagging in the 3 segments mentioned above. Its biggest factor of manpower is getting ruined due to delay in Job creation.US economy is loosing its real capital the human capital. Growth consumption and all other factors depends on the utilization of human capital.US has only exploited borrowing capacity of consumers and lead to rule the world economy.US must understands that its no longer capable enough to control and rule the world economy.US needs to focus on its next generation where it will designs its economic growth bringing in world leaders in every sector from technology to even shoe making.

No monetary system can build US economy neither US will gets back its old good days. Exploitation of capital and human resources needs to rule out and US politicians and Wall Street Analyst needs to understand this simple fact.US needs to wait for its next generation to GROW UP AND LEAD THE ECONOMY. Printing money will only spook short term gains and not a stable growth for the US and Europe economy.

The question?
Can any of the Wall Street Analyst, Bankers, and Politicians can declare that what legacy they are keeping for the next generation of US and European economy. Just find the answer.


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