Central banks and treasuries can no longer create false prosperity.

During those months of political dithering, US treasuries became a riskier asset.

Not surprisingly, the major investors in US Treasuries, China and Japan, have expressed alarm.

These are interlinked, and stakeholders include central banks, FSAs, national treasuries, and deposit guarantee funds.

Spanish ten year bonds, for example, are still trading at interest rates below US Treasuries.

What role should central banks and national treasuries play in a cross border European banking collapse?

Central banks and treasuries have learned that stable prices and sound budgets make extraordinary contributions to prosperity.

The dollar s strength reflects the knee jerk reaction of investors rushing into US treasuries as a safe haven.

But once investors realized the extent of US financial problems, the rush into treasuries subsided, and the dollar resumed its decline.

That includes, in particular, the control of the central bank, finance ministry, treasury, customs department and provincial finance departments and treasuries.

The experience was a lesson for banks, regulators, central banks, and treasuries, which, not surprisingly, were unprepared to handle a comprehensive crisis.

Nowadays, the banking system is much larger than the set of institutions formally called banks that are intensively regulated by central banks and treasuries.

The US can finance these deficits in the short term in fact, interest rates on US Treasuries have recently fallen to record low levels.

But the rule ultimately had the terrifying result of obliging countries to borrow from private banks at market prices to guarantee their treasuries integrity.

Investing in US Treasuries, after all, was a sure loss maker, given the gap between their modest yield and the steady appreciation of the yuan.

In recent years, Chinese Premier Wen Jiabao and President Hu Jintao have repeatedly expressed concerns about US fiscal policy and the safe haven status of Treasuries.

Chinese demand for Treasuries has enabled the US to increase its government debt almost threefold over the last decade, from roughly 6 trillion to 16.7 trillion.

The situation is complicated by the multitude of mechanisms whereby treasuries and central banks can drive down their exchange rates to gain a competitive trade advantage.

In the US, yields on ten year Treasuries have averaged 4.14 above the rate of inflation throughout the period of declining inflation that began in April 1980.

Fully two thirds of that total around 2 trillion is invested in dollar based assets, largely US Treasuries and agency securities (i.e., Fannie Mae and Freddie Mac).

Their enemy is a global corporatocracy that has purchased governments and legislatures, created its own armed enforcers, engaged in systemic economic fraud, and plundered treasuries and ecosystems.

In the US side, the integrity of sovereign debt was kept in question for too long. During those months of political dithering, US treasuries became a riskier asset.

First, China has an understandable interest in diversifying its substantial holdings of foreign exchange reserves away from low yielding US Treasuries to real productive assets with higher returns.

The trick was to offer banks the opportunity to swap their claims on (insolvent) Latin American countries into long maturity, low coupon bonds that were collateralized with US Treasuries.

Instead, Yi Gang, China s director of state administration of foreign exchange, explained that Chinese investments in US Treasuries are market investment behavior, and we don t wish to politicize them.

With China saving nearly 50 of its GNP, all that money had to go somewhere. Much of it went into US treasuries and the obligations of Fannie Mae and Freddie Mac.

The final, technical reason why interest rates are not likely to rise excessively is that years of central bank purchases and a shrinking US budget deficit have made US Treasuries scarce.

Add to that America s safe haven status, and the fact that any re pricing of US rates surely would reflect an economic resurgence, and the bid for US Treasuries should be exceptionally strong.

BERKELEY At this stage in the worldwide fight against depression, it is useful to stop and consider just how conservative the policies implemented by the world s central banks, treasuries, and government budget offices have been.

Not surprisingly, the major investors in US Treasuries, China and Japan, have expressed alarm. Simply put, the global economy has at its center a dysfunctional political regime that generates recurrent threats of default on the world s major reserve asset.

But the rule ultimately had the terrifying result of obliging countries to borrow from private banks at market prices to guarantee their treasuries integrity. This created powerful barriers to public investment, as government spending was siphoned into massive profits for banks and their shareholders.

First, China has an understandable interest in diversifying its substantial holdings of foreign exchange reserves away from low yielding US Treasuries to real productive assets with higher returns. That is why China established its sovereign wealth fund, China Investment Corporation, and why CIC decision makers are seeking more FDI opportunities.