2 Japanese Men Caught Smuggling $135 Billion of US Bonds

Umm… I’m not sure what to make of this. These two Japanese men were caught carrying US government bonds worth $135 billion. It’s weird in so many ways. Firstly, my understanding of government bonds is that they do not print anything physical. It’s all in the computers. Nowhere else. Is that wrong?

Secondly, even if it’s true that they print physical certificates, it’s not possible for someone to have $135 billion. Even Bill Gates is worth only $40 billion. If they are real, these Japanese men must be government agents or something. Even then, it’s not possible to move that kind of money without the government officials knowing about it. So, they can’t be real, but they are apparently indistinguishable from the real thing.

This is really a strange story. I will be following this news closely.

Update (6/12/09)

According to this financial blog, the US government used to print certificates but no longer. There is also a theory circulating that these are North Korean agents carrying fake Japanese passports. If the certificates are real, they could belong to the North Korean government. Given that the US is printing money like crazy, it’s possible that North Korea decided to dump their US government bond holdings. If this is true, this might be good news for the US. 40% of it would have to go to the Italian government because of their smuggling law. Anything to make North Korea poorer is a good thing for the US.

It’s also possible that these were Chinese agents too (given the amount of control the Chinese government has on the flow of information). If so, this is bad news for both China and US. If the Chinese government is secretly trying to dump the US government bonds, this could trigger a panic in the bond market. It’s also strange that the US media is not picking up this news. Is it because this was a secret operation sanctioned by the US government? This is a complete speculation, but I wouldn’t be surprised, given that China has been complaining about the massive printing of money by the US government. Maybe Geithner is letting them dump some bonds in the black market? Who knows?

Another Update

According to this Bloomberg article, it is more likely that they are fake. Certificates of that high denomination could not have existed at the time it was presumably issued, it says. If this is true, could that legally be considered counterfeit or forgery? It’s like designing your own 7 dollar bill; since no such dollar bill exists, it wouldn’t be a “forgery”, would it?

Update: (6/14/09)

According to Daily Kos, the bonds are real:

According to the official press release by the Italian police these bonds were issued by the US Federal Reserve Bank.

I can’t read Italian, so I can’t confirm anything. The discussion on Daily Kos is pretty interesting too.

Update (6/15/09)

Here is a blogger with an interesting theory on this “Italian incident“. Some new facts that I was not aware of:

These denominations are strictly for government-to-government transactions and are not found in the private sector. The 16 primary dealers who make a market for US government debt are the only private sector organizations even remotely likely to have access to bonds of that size in paper or bearer form. However, the auction process is entirely electronic and has been so for decades ever since the Depository Trust and Clearing Corporation was established. This would suggest that these bonds, if real, belonged to a Central Bank.

…it would be extremely difficult for a forger to make a successful market in denominations typically exclusive to central bank transactions because of the eyebrows it would raise.

I’m beginning to think that they were really Japanese. If so, they would have to be government agents. If true, this is scary stuff. Just imagine the panic it could cause.

Update (6/16/09)

I found this article by J. S. Kim. He believes it’s counterfeit for the following reason:

One of the quickest ways to sabotage and usher in the death of a currency is to raise legitimate questions about its ability to withstand counterfeiting efforts. Prove that counterfeiting is not only possible but highly likely, and the world’s confidence in the sabotaged currency will undoubtedly plummet.

In fact, this very tactic was applied during World War II when the Nazis launched Operation Bernhard in an attempt to crash the British economy by producing, by 1945, 132 million expertly counterfeited British pounds, a figure that represented roughly 15% of all real British pounds in circulation at the time.

An interesting theory and history, but as one of the comments says, Japan or China would not want to sabotage US dollar because they have so much of it. If this is a Japanese or Chinese operation, the bonds would have to be real. It would be their way of reducing exposure to the US dollar in the black market. If counterfeit, North Korea would be the only Pacific Asian nation that would make sense.

Update (6/18/09)

So the verdict from the US Treasury is that the bonds are fake. Apparently they look nothing like the real thing. If so, what the hell were those “Japanese” men doing? If they look nothing like the real thing, can they even be considered “counterfeit”?