Rickards: Treasury shorting the Dollar

... Some legislation authorized a $100 billion line of credit from the United States to the IMF. It suddenly occurred to me how this actually works. The IMF puts in the borrowing notice for the $100 billion and the Treasury sends the $100 billion to the IMF. They (the IMF) then use it to bail out Europe.

But here’s what happens, the Treasury sends the money and the SDR gives the Treasury a note because it’s a borrowing. So that’s very significant because for the first time in history the IMF would be leveraging its balance sheet. But the note they give the Treasury is not denominated in dollars, it’s denominated in SDR’s.

The SDR includes dollars, but it also includes other things such as Swiss francs, pounds sterling, euros, Japanese Yen and eventually the Yuan. Now when the note matures, the IMF pays you back in the dollar equivalent of the SDR at that time. In other words, they don’t give you $100 billion back. They take the SDR equivalent back and convert it into dollars at whatever the exchange rate is at the time.

What that means is that the Treasury is going short dollars. ...

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