Can anyone explain these statements from the Davos Econ Forum?

[leftstreet]

From the WEF at Davos:

Wen and Putin lecture western leaders

By Andrew Edgecliffe-Johnson and Gillian Tett in Davos and John Thornhill and Catherine Belton in Moscow

Published: January 28 2009 19:17 | Last updated: January 28 2009 19:17

Mr Putin mocked American delegates who had talked at last year's Davos gathering about the US economy’s “fundamental stability and its cloudless prospects”, saying that “investment banks, the pride of Wall Street, have virtually ceased to exist”.

Mr Wen made scathing comments about the “inappropriate macroeconomic policies” of some unnamed countries and the “unsustainable model of development characterised by prolonged low savings and high consumption”.

http://www.ft.com/cms/s/0/d0fac984-ed6e-11dd-bd60-0000779fd2ac.html

My bold...

Their speeches came as a senior adviser to Dmitry Medvedev, Russian president, criticised the scale of the new US administration’s economic rescue package and projected budget deficit, saying it would suck liquidity from other global markets.

"What is discouraging is Obama’s statement that he is going to run a $1 trillion deficit for years to come. For us, that means that all the free liquidity in the world will run into American Treasury bills,” said Igor Yurgens, who heads a think tank advising Mr Medvedev.

Mr Yurgens likened the policy to the “beggar thy neighbour” protectionist policies of the 1930s. "Of course, expects the Chinese or Russians to buy US Treasury bills. That is pretty selfish and philosophically it is protectionism.”

http://www.ft.com/cms/s/0/d0fac984-ed6e-11dd-bd60-0000779fd2ac.html

Why would a $1 trillion deficit encourage the Ruling Class to buy American t bills?

(I know it's probably a stupid question, but Teh Stupid appears to be strong on DU today, so I figured what the hell.}

:shrug:

[Astrad]

1. Soaking up the world's savings

Because the US is going to run such a massive deficit and will thus need to borrow unprecedented sums from the rest of the world, it will in effect soak up all of the 'excess' capital in the world. Countries, institutions and individuals will buy them because during this ongoing economic collapse Treasury Bills are still seen as a relatively safe bet. That might be crazy but it just shows how bad things are when US T-Bills trump all other investment havens.

[leftstreet]

2. But these rich predators won't make much profit off these, right?

So they're essentially willing to bury their money in the backyard until one of them figures out how to save capitalism?

Is that how bad things are?

[Warpy]

4. Right now the return is 0

Later on, it will probably be negative as the country struggles to avoid bankruptcy and extreme measures dictated by the IMF.

[HamdenRice]

12. That's a very simple but true way of putting it. The US dollar is still the reserve currency.

Everyone is terrified so they are rushing to buy the safest investment in the world even if it offers no yield -- the t-bill. Buying a t-bill with zero yield is in effect burying your money in the mattress.

The reason is that because most international debts are denominated in dollars, by buying dollars you eliminate all risk of currency fluctuations. It doesn't even matter if the dollar itself crashes, because you will have locked in a safe dollar denominated investment.

Because everyone wants t-bills, riskier investments can't get money. The Russian government, even the Chinese government with its surpluses, can't attract money as easily as the US treasury can, so we are kind of sucking money out of their countries.

On edit: The only disagreement I would have with what you wrote is that the investors are not all predators. Much of the global savings of the world comes from incredibly frugal Chinese peasants and workers (hence the Chinese's outrage at how wasteful we are) and the middle classes of Japan, Korea, Taiwan and other high saving countries.

[Warpy]

3. The wealthy are trying to hoard

although they call it "maintaining their assets." The safest place they see right now is the T-bill but only because it's been a safe place in the past.

Given the precarious nature of the nation's finances, they might just be outsmarting themselves and will be able to collect only a fraction of the face value after the collapse plays out and there's an equivalent rush out of T-bills.

It's why I decided to try to ride it out in a wide range of assets rather than rush to t-bills last year when I read the writing on the wall.

We won't know who's right for at least ten years, possibly twenty.

[On the Road]

5. When a Nation, Pension Fund, or Rich Person

wants a safe place to park their money, they often buy bonds from corporations or government agencies.

There is a limited amount of money to invest. If buyers pick up more US treasury bonds, there is less money available for other nation's bonds or other uses like oil exploration or capital investment.

[leftstreet]

6. That's part of my confusion

Why would the wealth owners stick their money in low profit US t bills, rather than invest in profitable ventures like Russian gas development, or say Chinese or South American infrastructure, etc. Those would seem more likely as emerging consumer markets.

[On the Road]

7. You Can Make the Argument

that long-term investments are better off in stocks than in bonds. There are probably rich investors now who were conservative during the boom times and are picking up cheap assets now. But the most profitable investments are also the riskiest.

The fact is, people who have more than enough money often put safety over returns -- they want to make it doesn't disappear. If you have a $100 million nest egg, you might have invested in AIG, Citibank, Chrysler, and Madoff's funds, and be almost broke now. The value of investments in wind farms, coal, oil exploration all plummeted since last summer. 0% suddenly looks not so bad.

Governments and pension funds may be under special requirements not to invest very conservatively.

Russia and China do have a point. It's not their world economy, but it's not ours either. Our plan is likely to hog resources. Of course, if it causes the US to pull out of the recession it will help Russia and China too.

[jakeXT]

9. I don't know either, maybe this book will help

http://www.michael-hudson.com/books/superimperialism.pdf

[Statistical]

10. As US spend more and more than we have we need to offer more and more debt.

The price of debt is interest.

More debt than demand you need to raise the price.
Right now because of the crisis there is lots of demand for a "relatively speaking" small amount of debt.
As US runs the printing press wide open then SUPPLY will begin to outstrip demand.

It has happened before. As US is unable to sell debt at say 3% it needs to raise it's "offering" to 4%, then 5%, then 7%, then 9%, then 11%.

As the rate rises there is LESS INCENTIVE to put your money anywhere else.

If I could get T-Bills at 11% I would sell everything else and dump it all into T-Bills riding an 11% wave.

Some lucky SOBs scooped up 30 year bonds at 18% in 1988. The fed will finally stop paying that interest in 2018.

So the real danger to anything capital intensive is is T-bill rates SPIKE all the money flows there.
If you need money for a factory or money for a pipeline or money for a new solar far or money for a satellite or money for roads well it REALLY SUCKS to be you.

Why would anyone take a huge risk on China, India, or even US companies like GM when they can take in an easy 11%+ from the Fed? They won't and that is the risk.

[jakeXT]

8. Speeches from the source

The existing financial system has failed. Substandard regulation has contributed to the crisis, failing to duly heed tremendous risks.

...

The entire economic growth system, where one regional centre prints money without respite and consumes material wealth, while another regional centre manufactures inexpensive goods and saves money printed by other governments, has suffered a major setback.

http://www.weforum.org/pdf/AM_2009/OpeningAddress_VladimirPutin.pdf





“We are all in some way responsible for not recognizing the risks of a world completely out of balance. We should have listened much more to those who saw the signs on the wall, and to those who also spoke out here.”
Klaus Schwab, Founder and Executive Chairman, World Economic Forum I Opening Speech

http://www.weforum.org/en/index.htm






http://www.weforum.org/pdf/AM_2009/Speech_WenJiabao.pdf

[Joanne98]

11. It's a BOND war!