Norway denies paying for the US free lunch

The Norway Sovereign fund that is investing the money from oil export surpluses is running away from bonds of risky countries like… USA and France. If writing this 10 year ago the author could be considered crazy. But now it happens…

This policy that had become public, illustrates the real interest in US government debt that is much different from the apparent interest, concluded from the extremely low interest income on bonds. Seemingly the Obama debt is one of the most attractive for the investors asset. Even Warren Buffet highly appreciates it. With about 2% yearly return the US debt looks an extremely secure investment, desired by an enormous number of investors.

The reality is much different. The biggest fund in the world is running from these assets, and this means it is not only this fund fleeing. I.e. the reality is that the real money is refusing to go to US government. In real market situation this would increase the interest rates and US government would go bankrupt.

But we live not in real market situation, but in a fairy tale of the world of the financial magic. In this tale you don’t need real money to buy the debt. You can just create it from nothing – in a sorcery action. Then this money goes and buys the debt.

The fact that FED is the main investor in US debt is not a secret, ant this fact makes the need of QEs eternal. Obviously other investors will not replace FED. Instead – FED will have to replace more and more fleeing investors.

This is a clear strategy of moving the burden of debt from the debtors to the currency. Obama will  not pay, instead it becomes a problem of the central bank and of the dollar. But who will be the next to take the burden? How to move the problem from the currency to somewhere else?

This question is answerless. Theoretically some of the burden can be taken by other currencies. This happens as much stupid governments are going in currency wars that de facto means they are absorbing the money print of FED. But generally the entire burden can not be moved out of USA, and additionally other countries’ money print is creating additional burden some of which can be injected also in USA, so the price of excessive dollar devaluation will inevitably be paid by USA and Americans.

There is no free lunch. Obviously Norway denies paying the US lunch…

March 11th 2013

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