[BITList] Suitcase With $134 Billion Puts Dollar on Edge: William Pesek

[John Feltham]

Suitcase With $134 Billion Puts Dollar on Edge: William Pesek

Commentary by William Pesek
June 17 (Bloomberg) -- It’s 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 U.S. bonds over the border into  
Switzerland. Details are maddeningly sketchy, so naturally the global  
rumor mill is kicking into high gear.

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 aren’t losing faith in the U.S.’s ability to  
control the dollar.

The dollar is, for better or worse, the core of our world economy and  
it’s best to keep it stable. News that’s more fitting for  
international spy novels than the financial pages won’t help that  
effort. It is incumbent upon the U.S. Treasury to get to the bottom of  
this tale and keep markets informed.

GDP Carriers

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 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. 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.

Clancy Bestseller

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.

‘Kennedy Bonds’

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 void.

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 his own.)

To contact the writer of this column: William Pesek in Tokyo at wpesek at bloomberg.net

Last Updated: June 16, 2009 15:00 EDT



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