Who Is Going To Buy Our Debt If This War Causes China, Russia And The Rest Of The World To Turn On Us?

Can the U.S. really afford to greatly anger the rest of the world when they are the ones that are paying our bills?  What is going to happen if China, Russia and many other large nations stop buying our debt and start rapidly dumping U.S. debt that they already own?  If the United States is not very careful, it is going to pay a tremendous economic price for taking military action in Syria.  At this point, survey after survey has shown that the American people are overwhelmingly against an attack on Syria, people around the globe are overwhelmingly against an attack on Syria, and it looks like the U.S. Congress is even going to reject it.  But Barack Obama is not backing down.  In fact, ABC News is reporting that plans are now being made for a "significantly larger" strike on Syria than most experts had expected.

If Obama insists on going forward with this, it will be the greatest foreign policy disaster in modern American history.

Right now, both Russia and China are strongly warning Obama not to attack Syria.  And Russia is not just warning Obama with words.  According to Bloomberg, Russia has sent quite a collection of warships into the region...

Russia is sending three more ships to the eastern Mediterranean to bolster its fleet there as a U.S. Senate panel will consider President Barack Obama’s request for authority to conduct a military strike on Syria.

Russia is sending two destroyers, including the Nastoichivy, the flagship of the Baltic Fleet, and the Moskva missile cruiser to the region, Interfax reported today, citing an unidentified Navy official. That follows last week’s dispatch of a reconnaissance ship to the eastern Mediterranean, four days after the deployment of an anti-submarine ship and a missile cruiser to the area, which were reported by Interfax. Syria hosts Russia’s only military facility outside the former Soviet Union, at the port of Tartus.

China is also letting it be known that they absolutely do not want Obama to hit Syria.  On Friday, China issued a warning about what military conflict in the Middle East could do to "the global economy"...

"Military action would have a negative impact on the global economy, especially on the oil price – it will cause a hike in the oil price."

And according to Debka, China has also deployed "a number of warships" to the region...

Western naval sources reported Friday that a Chinese landing craft, the Jinggangshan, with a 1,000-strong marine battalion had reached the Red Sea en route for the Mediterranean off Syria.  According to DEBKAfile, Beijing has already deployed a number of warships opposite Syria in secret. If the latest report is confirmed, this will be the largest Chinese deployment in the Middle East in its naval history.

If the U.S. attacks Syria, Russia and China probably will not take immediate military action against us.

But they could choose to hit us where it really hurts.

According to the U.S. Treasury, foreigners now hold approximately 5.6 trillion dollars of our debt.  Over the past couple of decades, the proportion of our debt owned by foreigners has grown tremendously, and today we very heavily depend on nations such as China to buy our debt.

At this point, China owns approximately 1.275 trillion dollars of our debt, and Russia owns approximately 138 billion dollars of our debt.

So what would happen if China, Russia and other foreign buyers of our debt all of a sudden quit purchasing our debt and instead started dumping the debt that they already own back on to the market?

In a word, it would be disastrous.

As I have written about previously, the U.S. government will borrowabout 4 trillion dollars this year.

Close to a trillion of that is new borrowing, and about three trillion of that is rolling over existing debt.

If China and other big foreign lenders quit buying our debt and started dumping what they already hold, that would send yields on U.S. Treasuries absolutely soaring.

And we have already seen bond yields rise dramatically in recent weeks.  In fact, on Thursday the yield on 10 year U.S. Treasuries briefly broke the 3 percent barrier.

So what is going to happen if the yield on 10 year U.S. Treasuries continues to go up?  The following are a few consequences of rising bond yields that I have discussed in previous articles...

-It will cost the federal government more to borrow money.

-It will cost state and local governments more to borrow money.

-As bond yields go up, bond values go down.  In the end, rising bond yields could end up costing bond investors trillions of dollars.

-Rising bond yields will cause mortgage rates to skyrocket.  In fact, we are already starting to see this happen.  This week the average rate on a 30 year mortgage hit 4.57 percent.

-Higher interest rates will mean a slowdown in economic activity at a time when we definitely cannot afford it.

-As economic activity slows down, that will be very bad for stocks.  When the next great stock market crash happens (and it is coming), equity investors could end up losing trillions of dollars of wealth.

-Of course the biggest threat of all is the 441 trillion dollar interest rate derivatives time bomb that is sitting out there.  Rapidly rising interest rates could potentially bring down several of our "too big to fail" banks in rapid succession and throw us into the greatest financial crisis the nation has ever seen.

Are you starting to get the picture?

And the 3 percent mark is just the beginning.  Brent Schutte, a market strategist for BMO Private Bank, told CNBC that he expects the yield on 10 year U.S. Treasuries to eventually go up to 6 or 7 percent...

"4 percent (on 10-year Treasurys) somewhere around the end of the year to early next year would be a good intermediate-term level. And if you look over the longer term, I don't think that 6 or 7 percent is out of the question."

If that happens, we will experience a full blown financial meltdown.

Of course it would greatly help if Obama would back down and not attack Syria.  As Vladimir Putin noted at the G20 summit, large nations such as India, Brazil, South Africa and Indonesia are all strongly against the U.S. taking military action...

In reply to the question what other country in the world may theoretically be subjected to aggression similar to that Syria is facing, Putin said, “I do not want to think that any other country will be subjected to any external aggression.”

A military action against Syria will have a highly deplorable impact on international security at large, Putin emphasized.

He said he was surprised to see that ever more participants in the summit, including the leader of India, Brazil, the South African Republic, and Indonesia were speaking vehemently against a possible military operation in Syria.

Putin cited the words of the South African President, Jacob Zuma, who said many countries were feeling unprotected against such actions undertaken by stronger countries.

“Given the conditions as they, how would you convince the North Koreans, for example, to give up their nuclear program,” he said. “Just tell them to put everything into storage today and they’ll be pulled to bits tomorrow.”

He underlined the presence of only one method for maintaining stability - “an unconditional observance of international law norms.”

Can we really afford to have most of the international community turn on us and quit buying our debt?

Of course not.

Sadly, as I noted the other day, Obama appears to be locked into doing the bidding of Arab countries such as Saudi Arabia and Qatar.

In fact, as the Washington Post reported the other day, Secretary of State John Kerry has even admitted that they are even willing to pay all of the costs of a U.S. military campaign that would overthrow Assad...

Secretary of State John Kerry said at Wednesday’s hearing that Arab counties have offered to pay for the entirety of unseating President Bashar al-Assad if the United States took the lead militarily.

"With respect to Arab countries offering to bear costs and to assess, the answer is profoundly yes," Kerry said. "They have. That offer is on the table."

Asked by Rep. Ileana Ros-Lehtinen (R-Fla.) about how much those countries would contribute, Kerry said they have offered to pay for all of a full invasion.

"In fact, some of them have said that if the United States is prepared to go do the whole thing the way we’ve done it previously in other places, they’ll carry that cost," Kerry said. "That’s how dedicated they are at this. That’s not in the cards, and nobody’s talking about it, but they’re talking in serious ways about getting this done."

Why aren't we hearing more about this in the news?

Fortunately, despite the relentless propaganda coming from the mainstream media, a lot of members of Congress are choosing to take a stand against this war.  For example, U.S. Representative Tom Marino recently shared the following about why he is voting against military action in Syria...

Secretary Hagel could not tell lawmakers who the U.S. could trust among the Syrian opposition, stating "that’s not my business to trust."  Like many Americans, I believe it is our duty as decision makers to be informed and confident when making choices – especially in those choices that could result in sending U.S. troops or money abroad.  It is no wonder Secretary Hagel isn’t in the business to trust when more players are added daily to the growing list of ‘Syrian opposition’—many of them jihadist, terrorists, known Al Qaeda affiliates, members of the Muslim Brotherhood and enemies of the U.S. and our allies.  To simplify, the Secretary of Defense was unable to tell us, after nearly three years of the Syrian Civil War, who the good guys are or if there are any at all.

And Marino is very right.  There are no "good guys" in Syria.  The "rebels" are murderous jihadist psychotics that would be even worse than Assad if they took power.

For much more on what the mainstream media is not telling you about the war in Syria, check out a stunning video report from investigative reporter Ben Swann that you can find right here.

The picture above comes from the official Facebook page of one of the "rebel groups" in Syria.

I am sure that you do not need me to point out that the White House is burning in the background of the picture.

These are the people that Obama wants to help?

According to NBC News, the rebels are also displaying images of the black flag of al-Qaeda on Facebook too...

The image is one of eight photos posted on the official Facebook page of the “Al-Aqsa Islamic Brigades,”  a small armed Sunni rebel faction fighting with the Free Syrian Army, the main umbrella military organization of the opposition forces. Two other photos posted on the group’s page feature the widely recognized black flag of the al Qaeda in Iraq terrorist group, which operates freely in Syria.

Let's assume for a moment that Obama is successful in Syria and that Assad is overthrown.

That would hand Syria over to al-Qaeda.

Once in power, the "rebels" would slaughter or force the conversion of millions of Christians, Jews and non-Sunni Muslims that have been living peacefully in Syria for centuries.

To those that would support this war, I would ask you this question...

Is that what you want?

Do you want the blood of millions of Christians, Jews and non-Sunni Muslims on your hands?

If you are a Christian that is supporting Obama on this, I would ask you to consider an excerpt from a letter from Christian nuns in Azeir, Syria that I have posted below...

We look at the people around us, our day workers who are all here as if suspended, stunned: “They’ve decided to attack us.” Today we went to Tartous…we felt the anger, the helplessness, the inability to formulate a sense to all this: the people trying their best to work and to live normally. You see the farmers watering their land, parents buying notebooks for the schools that are about to begin, unknowing children asking for a toy or an ice cream…you see the poor, so many of them, trying to scrape together a few coins. The streets are full of the “inner” refugees of Syria, who have come from all over to the only area left that is still relatively liveable…. You see the beauty of these hills, the smile on people’s faces, the good-natured gaze of a boy who is about to join the army and gives us the two or three peanuts he has in his pocket as a token of “togetherness”…. And then you remember that they have decided to bomb us tomorrow. … Just like that. Because “it’s time to do something,” as it is worded in the statements of the important men, who will be sipping their tea tomorrow as they watch TV to see how effective their humanitarian intervention will be….

You can read the rest of that letter right here.

Also consider the following shocking video of Senator John McCain being confronted by a very emotional woman that says that her 18-year-old cousin in Syria was just killed by rebels loyal to al-Qaeda...

Any American that supports this war is aiding al-Qaeda.

Any American that supports this war is choosing to ally themselves withradical jihadist Christian killers that want to conquer the entire Middle East in the name of Sunni Islam.

If Congress votes to approve this war, then we should do what one site has suggested and send those that vote yes to Syria.

They don't even have to fight.  We'll just drop them off in the middle of the "rebel forces" and entrust them into the gentle hands of the al-Nusra Front.

But of course they would never go.  The ones that will be endangered will be the precious sons and daughters of other Americans.

This is not a war that has a good outcome for America.  Conservative voices and liberal voices all over the country are joining together to speak out against this war.

Hopefully Barack Obama will listen and cooler heads will prevail.  If not, things could spin wildly out of control very rapidly.

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Upward Gold Price Momentum

Gold prices climbed back above the $1,400 an ounce on Tuesday after Interfax reported that Russia detected a missile launch. A Russian Defence Ministry spokesman quoted by the Interfax news agency said the launch was picked up by an early warning radar station at Armavir, near the Black Sea, which is designed to detect missiles from Europe and Iran.
RIA, another Russian news agency, later quoted a source in Syria’s “state structures” as saying the objects had fallen harmlessly into the sea.
The Russian Defence Ministry declined comment to Reuters.
However, later in the day Israel’s Defence Ministry said that it, along with a Pentagon team, had carried out a test-launch of a Sparrow missile. The Sparrow, which simulates the long-range missiles of Syria and Iran, is used for target practice by Israel’s U.S.-backed ballistic shield Arrow.
“Israel routinely fires missiles or drones off its shores to test its own ballistic defence capabilities,” a U.S. official said in Washington.
Western naval forces have been gathering in the Mediterranean and the Red Sea since President Bashar al-Assad was accused of carrying out an August 21 gas attack in his more than two-year-old conflict with rebels trying to topple him.
Moscow is Assad’s big-power ally and has mobilised its own navy in the face of U.S. military preparations to punish the Syrian government for its alleged killing of more than 1,400 people in the chemical strike in an embattled Damascus suburb.
Russia opposes any outside military intervention in Syria’s civil war and says it suspects the gassings were staged by rebels seeking foreign involvement in the conflict.
The news caused a spike in gold prices which later dropped back below $1400 an ounce only to rise again during the second London gold fix.
In South Africa, more than 120,000 unionized gold miners In South Africa, represented by the National Union of Mineworkers (NUM), are set to go on strike as of today. Yesterday, Reuters reported that South African union leaders warned that mine owners’ handling of pay talks could provoke violence, and bosses said wage hikes would force mine closures and cost thousands of jobs.
Mining companies have already explained that they cannot afford to agree to the demands made by the unions due to soaring costs and depressed prices. The president of South Africa’s Chamber of Mines warned unions against stoking workers’ hopes.
Mark Cutifani, who is also chief executive of mining giant Anglo American said, “Promoting expectations above the capacity of the industry to pay is a dangerous road that may have tragic consequences for employees who do not understand how close we are to economic devastation in certain sectors.”
“If we lose each other in the present discussions, we will count the costs in mines closed and tens of thousands of jobs lost,” he wrote in a commentary in the Business Day newspaper.
According to the Chamber of Mines, the strike could cost South Africa more than $35 million a day in lost output as the sector would stop producing about 760 kg a day.
South Africa’s gold industry, which once accounted for almost 80% of global bullion output, now produces just 6% of the world total.
Companies which will be hit by Tuesday’s strike include main gold producers AngloGold Ashanti, Gold Fields, Harmony Gold and Sibanye Gold.
Last week the price of gold pushed above the $1400 an ounce level for the first time in three and a half months due to increasing geopolitical tensions involving the recent chemical attack that took place in certain suburbs of Damascus, Syria.
Last week UK prime minister, David Cameron, was forced to back down and agreed to delay a military attack on Syria when British politicians rejected a motion urging an international response to the recent chemical weapons strike in Syria.
The Prime Minister has now said he will wait for a report by United Nations weapons inspectors before seeking the approval of MPs for “direct British involvement” in the Syrian intervention.
Downing Street said the decision to wait for the UN was based on the “deep concerns” the country still harbours over the Iraq War.
In a statement the UK government said that it only wanted to proceed on a “consensual basis” and was now wary about becoming embroiled in another divisive conflict in the Middle East in the wake of Iraq.
The parliamentary defeat for David Cameron is a blow to US President Obama. Like nearly all presidents since the Vietnam War, Britain has been the closest ally to the US. And, Obama’s efforts to marshal a unified international front for a short, punitive strike raised concerns about the evidence, reawakening British resentment over false assurances from the American and British governments that Saddam Hussein had weapons of mass destruction.
In a televised speech the U.S. Secretary of State, John Kerry, claimed that there was clear and compelling evidence that proves the Syrian government was behind the recent chemical-weapons strike in Damascus. After citing the protracted military presence of the US in Iraq and Afghanistan Kerry presented his case for intervention. “Fatigue does not absolve us of our responsibility,” Kerry said referring to Iraq and Afghanistan. “Just longing for peace does not necessarily bring it about. And history would judge us all extraordinarily harshly if we turned a blind eye to a dictator’s wanton use of weapons of mass destruction against all warnings [and] against all common understanding of decency.”
President Obama spoke to the nation on Saturday from the White House on the worsening situation in Syria. In a rather defiant note, he insisted the U.S. was prepared to take action against the Syrian government.
“Ten days ago, the world watched in horror as men, women and children were massacred in Syria in the worst chemical weapons attack of the 21st century,” the President said. “In a world with many dangers, this menace must be confronted.’
“Now after careful deliberation, I have decided that the United States should take military action against Syrian regime targets,” Mr. Obama added.
“Our military has positioned assets in the region. The chairman of the Joint Chiefs has informed me that we are prepared to strike whenever we choose,” the President said.
Mr. Obama also said he would seek authorization from Congress before launching a military strike.
“Over the last several days, we have heard from members of Congress who want their voices to be heard. I absolutely agree.
“This morning, I spoke with all four congressional leaders, and they’ve agreed to schedule a debate and then a vote as soon as Congress comes back into session,” the President said.
If one considers all the previous disasters that have followed any US lead military intervention, it is more than likely that such action will have a similar fate and will only escalate tensions in the Middle East. As this will prompt investors to seek safe haven assets such as gold and as we enter the period where prices have tended to increase on a historical basis, I expect to see higher prices in the coming months.
Meanwhile as much of the focus of the global financial markets will be Syria, another unfolding scenario will also continue to have an enormous impact on gold prices. This is the on-going currency war caused in part by the major central banks policy of quantitative easing as well as the expansion of global debt.
The easy money policies of the major central banks in particular the US Federal Reserve, the European Central bank, and the Bank of Japan has caused a devaluation of not only the major global currencies but those of the emerging world including China, India, Brazil, Argentina, Indonesia, South Africa, Russia and Mexico – just to name a few.
During the last few months the Indian Rupee has lost more than 25% of its value versus the US dollar causing demand for gold to soar.  And as individuals in India have been buying gold as a way to protect their wealth, the Reserve Bank of India  have reacted to the situation by imposing import controls on the metal in an attempt to keep the populace from fleeing the rupee for gold.
It is very conceivable that the recent strength in global gold markets might be attributable more to events such as these than events in Syria — where the mainstream financial media has focused its attention of late.
In its latest move to try and take gold from its citizens, the Indian government is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some pressure off the plunging currency.
A pilot project will be launched soon, a source familiar with the Reserve Bank of India (RBI) told Reuters. India has the world’s third-largest current account deficit, which is approaching nearly $90 billion, driven in a large part by appetite for gold imports in the world’s biggest consumer of the metal.
With 31,000 tons of commercially available gold in the country – worth $1.4 trillion at current prices – diverting even a fraction of that to refiners would satisfy domestic demand for the metal.
“We will start a pilot project among some banks where we will allow them to buy back gold from individual households,” the source, an official familiar with the central bank’s gold policymaking, said. “This will start soon, we have discussed (it) with banks.”
The RBI will ask the banks to buy back jewellery, bars and coins for rupees. Lenders will have to offer better rates than pawn shops and jewellers to lure sellers.
Only last Thursday, India’s Trade Minister Anand Sharma said the central bank should look into the possibility of monetizing gold holdings. However, it was not clear whether Sharma was referring to the 557.7 tons of gold the RBI holds in its own reserves, or gold in private hands. He did not give more details of how the proposal would work.
Earlier this week in comments reported in the national media, Sharma said “even if 500 tons is monetized at today’s value it takes care of your CAD”, or current account deficit.

Technical picture

The momentum in gold prices continues to trade with an upward bias and look set to soon re-test $1450 an ounce.

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