The amount of US Treasuries outstanding has been rising at a rapid clip, and stands at $9.6 trillion, up from $4.5-trillion when President Bush took office in 2000. The cost of servicing the interest on the debt has risen to $400 billion annually. The US Treasury relies heavily on wealthy investors from overseas, who own $2.7 trillion of the Treasury’s debt, to help keep US bond yields artificially low.
In the first half of 2008, the OPEC cartel collected $645 billion from oil exports, and Saudi Arabia accounted for one-third of that total, raking in $192 billion. High oil prices keep petrodollars flowing into the coffers of the Arabian oil kingdoms, which peg their currencies to the US-dollar. Trading through their brokers in London and Dubai, the Arab oil kingdoms recycled $280 billion into US Treasuries over the past 12-months, to prevent their dollar-pegs from breaking apart.
Throughout the US-dollar’s tortuous 40% slide over the past six-years, the Arab oil kingdoms in the Persian Gulf stayed loyal to their US-dollar pegs, even while the Fed’s indifference to the sliding US-dollar sent inflation shock waves through their dollar-linked economies. In return, the US armed forces defend the Arab Oil kingdoms from Iran’s mullahs, who are close to acquiring nuclear weapons, and are closely aligned with the Kremlin, and Venezuela’s mercurial kingpin Hugo Chavez, - forming the “Axis of Oil. However, the cozy ties between the Gulf States and the US Treasury can change, if the Democrats capture the White House in November.
China is the second largest holder of US Treasuries, after Japan, and recycled two-thirds its trade surplus into the US Treasury and agency market. However, Beijing has suffered huge losses on its US debt investments, due to the US-dollar’s 18% devaluation against the Chinese yuan since mid-2005. Beijing accepts the pain of holding depreciating US Treasuries, in return for free and unfettered access to the US consumer market, under a gentleman’s agreement with the Bush clan. 
Big changes in US foreign policy in the Persian Gulf and towards China, could dry-up the flow of capital to the US Treasury markets from abroad, at a time when it’s needed the most.
Worse yet, the Arab oil kingdoms and China could become net sellers of US Treasuries in the year ahead, if the Democrats enact a hasty US-troop withdrawal from Iraq, or fashion protectionist legislation aimed at Beijing.
Kremlin Intervenes in Stock Market, Russian rouble
Government intervention in the stock market hasn’t been limited to the United States. The Chinese and Russian authorities also ordered their agents to buy local bank shares, in order to put a floor under their stock markets, which lost 60% and 70% respectively, from their peak levels. The Kremlin suspended trading for two days, after a plunge of over 10% last week left the Russian Trading System Index (RTS) down 60% from its all-time high reached in May.
The Russian stock market is enduring its worst slump since the catastrophic economic collapse of 1998, due to a toxic cocktail of global financial turmoil, falling oil and natural gas prices, and a local credit crunch. Russian markets are also paying a big price for the Kremlin’s decision to invade South Ossetia, which spurred $35 billion of foreign capital to flee Russia and weakened its currency, the rouble.
Even after a bargain hunting rally last Friday, the RTS Index is still more than 50% lower since May, erasing nearly $800 billion in paper value.
Buoyed by its vast oil wealth, Putin is shrugging off the worst stock market meltdown in a decade, arguing that Russia’s economy will emerge intact.
This time around, oil prices are closer to $110 a barrel, and ten-times higher than in 1998, when the Kremlin’s foreign exchange reserves were whittled down to $8-billion. The Russian rouble fell 10% against the deficit-ridden US-dollar since Russia invaded South Ossetia on August 8th, but simply matched the Euro’s 12% slide against the greenback to $1.400.
This time around, Russia was able to defend its own currency, by dumping $20 billion dollars from its FX reserves, to prop-up the rouble.
The Kremlin would profit from the intervention, if the US-dollar plummets.
If the US dollar’s reign as the world’s currency is in its twilight, highlighted by the toppling of Wall Street’s Titans and America’s endless flow of budgetary red-ink, the Russian rouble would be in a position to strengthen against the dollar, despite its troubles with Western financiers.
Putin is salivating at the prospect of an Obama-Biden administration, giving him the keys to create more tension in places like the Caspian Sea and the Middle East, to boost the price of Urals blend crude oil.
http://www.gold-eagle.com/editorials_08/dorsch092408.html
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