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The U.S. government needs to start using more of its money to support markets to stem a burgeoning ``financial tsunami,'' according to Bill Gross, manager of the world's biggest bond fund.

Banks, securities firms and hedge funds are dumping assets, driving down prices of bonds, real estate, stocks and commodities, Gross, co-chief investment officer of Newport Beach, California-based Pacific Investment Management Co., said in commentary posted on the firm's Web site today.

``Unchecked, it can turn a campfire into a forest fire, a mild asset bear market into a destructive financial tsunami,'' Gross said. ``If we are to prevent a continuing asset and debt liquidation of near historic proportions, we will require policies that open up the balance sheet of the U.S. Treasury.''

The government needs to replace private investors who either don't have the money to buy new assets or have been burned by losses, Gross said.

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At the same time, they are demarketing Mom and Pop on Main Street USA out of any access to capital unless they can provide 100% liquid collateral.

The Canadian banksters tried the same thing but Finance Minister Flaherty rebuffed them.

Like I've continuously stated: watch the bond markets for clues of impending doom. The federal balance sheet is not capable of absorbing the imending losses and soon, Chopper Ben and Helo Hank will have to decide who gets bailed and who does not.

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Originally posted by Cueball:
Another evocative analysis from Jester. Feels like chatting at a bar, over quite a few drinks. Sometimes that is when the best analysis comes out, anyway.

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The U.S. government needs to start using more of its money to support markets

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Its money? That would be the money the US Treasury borrows from China. With the bill ultimately to be paid by you know who.

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Originally posted by KenS:

Its money? That would be the money the US Treasury borrows from China. With the bill ultimately to be paid by you know who.

Rich. So to speak.

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And China does it as a major pillar in subsidizing manufacturing export [depressing their own currency, propping the dollar, a political buttress against more overt anti-China steps in the US govt, etc].

So China also hedges its bets on where it parks its surpluses. But the others do so for much more straightforward financial prudence reasons.

China could at any time slow its buying of T-bills for a myriad of financial, industrial policy, or even political leverage reasons [latter far less likley]. But if and when they do, it won't be sudden. So the effect on the US would be just another in many pressures.

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Originally posted by KenS:
My comment was about the ludicrous and self serving nature of the bond honcho talking as if the US has some kind of cash hoard. What they have is no one to stop them from borrowing however much they want to risk doing.

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Originally posted by 500_Apples:

I wonder at what stage Russia, China and Saudi Arabia stop buying T-bills.

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The trend is to diversify out of Agency debt - Fannie/Freddie bonds and the like into Treasuries. Much foreign (especially Chinese) exchange is recycled into Agency debt because the return is higher but now its too risky.

Fannie/Freddie do the same thing the banksters do. Package mortgage debt into bonds and sell them in the market to get the mortgage debt off their books thus restoring their capital ratios to keep on lending.

What the asshat in the opening post article isn't saying is that his claims to retore lending to Mom'n'Pop is bullshit. The banksters won't lend Mom'n'Pop a dime to call 911. That is the problem with the current fiasco.No access to credit for the folks that actually need it. No strings on perpetually revolving 28 day loans at the fed window to force the banksters to perform for the .economy, not for themselves.

They want to dump their toxic crap onto the public balance sheet so that they can keep on doing the same thing that got them into trouble in the first place.

The Chinese reaction and to a lesser extent,the others you mention, is very interesting. China is pulling back on Agency debt but is also sneakily devaluing their currency.

China is not devaluing their currency per se rather they are surreptitiously raising their banks' foreign capital ratios in small increments on a regular basis.

The reason is to reinforce their export market by increasing their banks' USD holdings thus underpinning the USD, sending the USD Index (a basket of currencies including the Cando) higher.

Presto, the Yuan is devalued. Soon, the cost of this unnatural levitation will become too much even for the deep-pocketed Chinese. They can only accomplish this act of gravity defying because there is no accountability in the Politbureau but consequences (like gravity) cannot be avoided and the Chinese are way too smart to get caught on the wrong side of a deal with a chump, so guess who will pick up the tab?

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Originally posted by KenS:
There is no general answer to that, in part because nobody buys them like China does.

And China does it as a major pillar in subsidizing manufacturing export [depressing their own currency, propping the dollar, a political buttress against more overt anti-China steps in the US govt, etc].

So China also hedges its bets on where it parks its surpluses. But the others do so for much more straightforward financial prudence reasons.

China could at any time slow its buying of T-bills for a myriad of financial, industrial policy, or even political leverage reasons [latter far less likley]. But if and when they do, it won't be sudden. So the effect on the US would be just another in many pressures.

My comment was about the ludicrous and self serving nature of the bond honcho talking as if the US has some kind of cash hoard. What they have is no one to stop them from borrowing however much they want to risk doing.

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I agree, Ken. FDIC has 37 billion in the kitty and 199 banks going under. The speculation is that the number of banks going under may be as much as 1000. There is talk that the Treasury may force insured depositors to take 10 year non-negotiable bonds as repayment. In this climate, those bonds will be worth exactly 0 until such time as the Treasury redeems them.

These are mostly smaller banks that do not have any appeal to Sovereign funds. Corporate America is being hollowed out by SWFs and wealthy foreign entities picking off value targets in the US. Vis: Korean banks taking out Lehman Bros.

The problem for the US Treasury is not just printing money to bail out banksters but also the interest due and roll-over of all the off-balance sheet borrowings of the US government.

China will not do anything to precipitate any devaluing of the USD and neither will any other entity but eventually, the weight of monetary burdens on the USD will overcome the artificial levitation and consequences must be paid.