William Pesek
Its a plot better suited for a John Le Carre novel. Two Japanese men are detained in Italy after allegedly attempting to take $134 billion worth of US bonds over the border into Switzerland. Details are maddeningly sketchy, so naturally the global rumour mill is kicking into high gear. Are these would-be smugglers agents of Kim Jong II stashing North Koreas 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 US risks losing control over its monetary supply on a massive scale. The trillions of dollars of debt the US will issue in the next couple of years needs buyers. Attracting them will require making sure that existing ones arent losing faith in USs ability to control the dollar.
The dollar is, for better or worse, the core of our world economy and its best to keep it stable. News thats more fitting for international spy novels than the financial pages wont help that effort. It is incumbent upon the US 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 Khans 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 US 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 Italian-Swiss border. 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.
You can almost picture Tom Clancy sitting in his study thinking: Damn! Why didnt 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 travelling 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 didnt read April 1. Lets assume for a moment that these US bonds are real. That would make a mockery of Japanese Finance Minister Kaoru Yosanos absolutely unshakable confidence in the credibility of the US dollar. Yosano would have some explaining to do about Japans $686 billion of US 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% 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 LAquila , which was destroyed by an earthquake in April.
It would be terrible news for the White House. Other than the US, 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 void.
The last thing Geithner and Federal Reserve chairman Ben Bernanke need right now is tens of billions more of US bonds or even highquality fake ones suddenly popping up around the globe. BLOOMBERG
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