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ok, so i'm not a kurgman, Reich, Einstein, or even a dick chenney for that matter but this whole bond market thing has been rattling around in my head for months now...

I have the worst research skills of anyone i know. I remember in college trying to write a paper about "full employment." yes, literally the massive economic issue known as "full employment' and failing at finding articles about it (on the google). OK it might have been the night before the paper was due, and i had done no work on it up until that point, but still.... no  articles?... not one?... clearly im Google/nexus deficient... So I ended up defining Full employment and first person talking about for 15 pages.... I thought it was genius, but I got a C+ with a nice "tangental to the point" on that last page I breached to meet the requirement

But anyways, I'm just gonna throw some unsupported (cuz im bad with "the google") stuff out there and see if it sticks?

Austerity? This idea that we need to start paying down the national debt or those BOND buyers will fear it wont be paid back and begin wholesaling there assets sparking a run and destroying the american/global economy in the process...

Now I've heard many people point out that such a sudden and ubiquitous move, would not only be unlikely (due to the diversity of the bond holders) and counter intuitive (if the US DEBT goes down goes the universe) but  both of those points assumes that those who operate in the international financial market are rational actors. Frankly the one thing i've learned in the past 3 years (that which i had to UNTEACH myself) is that "the people" are NOT rational actors. Those in charge are selfish short sighted pricks who's only goal is something unbelievably divergent to the "job" they claim to have. (daddy got them a job 20 years ago, and they've been acting as if they were self made geniuses ever sense. "american physco" minus the killing cuz they just dont got the balls to kill anyone)

So, my basic question is... who are these people that will make a run on the US bond market? seriously? can someone point to an actual bond trader who is even remotely thinking about this?

First of all If these "bond buyers" were actually rational actors wouldnt they be incentivized to lend the US govenrment more money to put the financial house in order to get the money back?

Lets say you've loaned your son in law a million dollars to start a factory. It gets up and running, its working fine for a few months, (paying you back on time. (popular line of widgets... yada yada) and then a natural disaster hits/destroys a good chunk of the factory and shuts the place down (economic collapse).

A couple weeks later he comes back to you and says:

"so that earthquake screwed up all my plans, and really screwed us over, if i could get 200K to fix the place and get us back on track, i could pay you back (plus interest) around 5 years later then the original plan.

Now remember, the destroyed factory and the broken assets in it are probably only worth 1/2 of what you put in (god damn, GOD!!!!)

Would a wise investor start screaming:

"you need to pay me back now, cut your work force, sell off property, yada yada... AUsterity austerity austerity!!!!!!!! " Or work with the lender to figure out a way not only to get the investment back but the "profits too?"

so shouldn't a wise heavily leveraged US BOND holder want to lend the US more money to get the economic engine running again? (kinda like china did 2 years ago with the first 800 Billion stimulus?)

Secondly... Gold is at record Highs, commodities in general are high (arnt they?) Every stock on the exchange is more then double the worth of its assets (brand equity is pretty fracking valuable these days) yada yada...

US treasuries are the "safest and most secure" investment that have ever existed. WHY? cuz if America cant pay its debt, then "investments" aint what ANYONE is worrying about.  Seriously? why have US treasuries been the safest investment for the past 80 years?

Are any of the reasons for that question above still not true? what could possibly be a safer investment? If the dollar dies and America becomes insolvent I have this odd feeling none of her corporation's (transitively her securities) are gonna be that attractive either.

IN the worst global depression sense the great one, America's Debt is not LESS secure then other debt, isnt it MORE secure? (relatively that is?)

Thirdly (but still kinda secondly) Isn't the fact that SO MUCH MONEY is concentrated in the hands of so few at the top, (more then ever in the history of mankind... adjusted for inflation of course) just evidence that the money has to go somewhere? They gotta lend it to someone to do something with it? don't they? and what IS? ... GONNA BE? or even CLOSE TO, as safe as US treasuries? Glen Beck Gold Coins???? ... i fundamentally dont see where the money goes.


This isnt an "economics class" this is real life, there are billions of billions of dollars controlled by a few thousand people, it is simply not possible for them all to just leave the global financial system.  But maybe it is?... can someone game it out for me?... preferably using "the google" to support the idea with facts and figures?...

Originally posted to PatrickBatemanHBS on Mon Jul 19, 2010 at 11:36 AM PDT.

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