Suitcase With $134 Billion Puts Dollar on Edge
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.

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