Senator Tom Coburn creates a chilling "end of the world as we know it" scenario in his recent book The Debt Bomb (Thomas Nelson 2012, 349 pages, indexed). The CIA should take note. Maybe it already has.
I’ll synopsize Senator Coburn’s fictional crisis that begins on August 4, 2014 in Tokyo where a large mutual fund is holding a meeting there along with dozens of private funds and representatives from foreign governments. The mutual fund is a large buyer of U.S. Treasury Bills that fund U.S. debt spending.
The Japanese mutual fund, frustrated that the U.S. has failed to cut spending, fears the Federal Reserve will print more money to inflate itself out of repaying its debts in full to holders of its IOUs (U.S. T-bills). The head of the Japanese mutual fund openly espouses a sell-off of U.S Treasury Bills "before the Americans have a chance to devalue their currency any further."
Recognizing some of the smartest investors in America had also declined to buy U.S. Treasury bills, the Japanese mutual fund officially votes to sell off its T-bills, which makes the newswires that morning in Asia.
The initial response is calm. But then another large fund in Asia also sells its holding in U.S. T-bills and by that afternoon Singapore releases its holdings as well. By then the European markets open and every major private firm is in a frenzy to unload their T-bills. Japan itself, the second largest holder of U.S debt, unloads its T-bills while China elects to wait it out.
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