|William Pesek: Suitcase with $134 billion puts dollar on edge|
Submitted by cpowell on 06:59AM ET Saturday, June 20, 2009.
Section: Daily Dispatches
By William Pesek
Wednesday, June 17, 2009http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a62_boqkurbI
Two Japanese men are detained in Italy after allegedly attempting to take
$134 billion worth of U.S. bonds over the border into Switzerland. Details are
maddeningly sketchy, so naturally the global rumor mill is kicking into high
Are these would-be smugglers agents of Kim Jong Il stashing North Korea's
cash in a Swiss vault? Bagmen for Nigerian Internet scammers? Was the money
meant for terrorists looking to buy nuclear warheads? Is Japan dumping its
dollars secretly? Are the bonds real or counterfeit?
The implications of the securities being legitimate would be bigger than
investors may realize. At a minimum, it would suggest that the U.S. risks losing
control over its monetary supply on a massive scale.
The trillions of dollars of debt the U.S. will issue in the next couple of
years needs buyers. Attracting them will require making sure that existing ones
arenâ€™t losing faith in U.S. ability to control the dollar.
The dollar is, for better or worse, the core of our world economy and i'â€™s
best to keep it stable. News that's more fitting for international spy novels
than the financial pages wonâ€™t help that effort. It is incumbent upon the U.S.
Treasury to get to the bottom of this tale and keep markets informed.
Think about it: These two guys were carrying the gross domestic product of
New Zealand or enough for three Beijing Olympics. If economies were for sale,
the men could buy Slovakia and Croatia and have plenty left over for Mongolia or
Cambodia. Yes, they could have built vacation homes amidst Genghis Khan's Gobi
Desert or the famed Temples of Angkor. Bernard Madoff who?
These men carrying bonds concealed in the bottom of their luggage also would
be the fourth-largest U.S. creditors. It makes you wonder if some of the time
Treasury Secretary Timothy Geithner spends keeping the Chinese and Japanese
invested in dollars should be devoted to well-financed men crossing the
This tale has gotten little attention in markets, perhaps because of the
absurdity of our times. The last year has been a decidedly disorienting one for
capitalists who once knew up from down, red from black and risk from reward. It
almost fits with the surreal nature of today that a couple of travelers have
more U.S. debt than Brazil in a suitcase and, well, that's life.
You can almost picture Tom Clancy sitting in his study thinking: "Damn! Why
didn't I think of this yarn and novelize it years ago?" He could have sprinkled
in a Chinese angle, a pinch of Russian intrigue, a dose of Pyongyang, and a bit
of Taiwan-Strait tension into the mix. Presto, a sure bestseller.
Daniel Craig may be thinking this is a great story on which to base the next
James Bond flick. Perhaps Don Johnson could buy the rights to this tale. In
2002, the "Miami Vice" star was stopped by German customs officers as he was
traveling in a car carrying credit notes and other securities worth as much as
$8 billion. Now he could claim it was all, uh, research.
When I first heard of the $134 billion story, I was tempted to glance at my
calendar to make sure it didn't read April 1.
Let's assume for a moment that these U.S. bonds are real. That would make a
mockery of Japanese Finance Minister Kaoru Yosano's "absolutely unshakable"
confidence in the credibility of the U.S. dollar. Yosano would have some
explaining to do about Japan's $686 billion of U.S. debt if more of these
suitcase capers come to light.
Counterfeit $100 bills are one thing; two guys with undeclared bonds
including 249 certificates worth $500 million and 10 "Kennedy bonds" of $1
billion each is quite another.
The bust could be a boon for Italy. If the securities are found to be
genuine, the smugglers could be fined 40 percent of the total value for
attempting to take them out of the country. Not a bad payday for a government
grappling with a widening budget deficit and rebuilding the town of L'Aquila,
which was destroyed by an earthquake in April.
It would be terrible news for the White House. Other than the U.S., China, or
Japan, no other nation could theoretically move those amounts. In the absence of
clear explanations coming from the Treasury, conspiracy theories are filling the
On his blog, the Market Ticker, Karl Denninger wonders if the Treasury "has
been surreptitiously issuing bonds to, say, Japan, as a means of financing
deficits that someone didn't want reported over the last, oh, say 10 or 20
years." Adds Denninger: "Let's hope we get those answers, and this isn't one of
those 'funny things' that just disappears into the night."
This is still a story with far more questions than answers. It's odd, though,
that it's not garnering more media attention. Interest is likely to grow. The
last thing Geithner and Federal Reserve Chairman Ben Bernanke need right now is
tens of billions more of U.S. bonds -- or even high-quality fake ones --
suddenly popping up around the globe.
----William Pesek is a Bloomberg News columnist. The opinions expressed are
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