The Treasury Bond Market Puzzle Skunk-Work
The U.S. Treasury bond market has come to receive serious attention in recent trading. When Treasury bonds show action, so does the dollar. If we see a decline in prices for long-term Treasury bonds, the dollar sinks. According to a March 2009 Fed's Flow of Funds Report, there are $14.5 trillion in Treasury securities, agency securities and mortgage-backed securities outstanding.
Foreign countries are heavily invested in U.S. debt as an investment with China being the first holder of U.S. bonds. More than a few economists believe that if China stops buying them, the U.S. economy would face ever increasing interest rates to make U.S. debt more attractive.
The actual value of U.S. Treasury securities is increasingly being focused upon because of out-of-control governmental spending. China wants assurance that their assets will be safe; if the question of U.S. credibility would arise, they may likely liquidate some of their U.S. assets to cover themselves.
If foreign countries refuse to buy U.S. debt, the U.S. Treasury's only other option is to buy Treasury securities, thus increasing the money supply in a dramatic fashion. Interest rates would have to rise in order to attract investors. And, inflation would occur after the Federal Government habitually purchases T-bills. Currently, the Fed has used much money to purchase mortgage-back securities to the tune of $500 billion.
Normally, high interest rates is associated with the central bank as the government attempts to ward off inflationary pressures that come with an expanding money supply. Yet, there is less demand for Treasuries and the only other viable option is to have higher interest rates to entice buyer demand. Unfortunately, higher interest rates would only further decline the economy. As the result of higher interest rates, a greater burden is placed on the citizen which results in an escalation in mortgage defaults and more consumer debt.
The current administration's record-breaking plans to fund the deficit and the Fed printing out dollar bills to buy the debt is staggering. The U.S. Treasury is pushing the yield on bonds even higher and the floodgates are open. Some economists are wondering who is going to be purchasing these bonds.
A nation who spends in an out-of-control way can eventually destroy itself. A famous economist believed that inflation was a disease which could destroy a society if it wasn't stopped.
China remains the #1 holder of our nation's debt. Economist Milton Friedman warned that the fate of a country could not be separated from ''the fate of its currency''. High inflation and high interest rates are not comforting to an already fragile global economy. The increasing debt boosts bond yields at the same time that the government's budget deficit is not putting on the brakes. - 23221
Foreign countries are heavily invested in U.S. debt as an investment with China being the first holder of U.S. bonds. More than a few economists believe that if China stops buying them, the U.S. economy would face ever increasing interest rates to make U.S. debt more attractive.
The actual value of U.S. Treasury securities is increasingly being focused upon because of out-of-control governmental spending. China wants assurance that their assets will be safe; if the question of U.S. credibility would arise, they may likely liquidate some of their U.S. assets to cover themselves.
If foreign countries refuse to buy U.S. debt, the U.S. Treasury's only other option is to buy Treasury securities, thus increasing the money supply in a dramatic fashion. Interest rates would have to rise in order to attract investors. And, inflation would occur after the Federal Government habitually purchases T-bills. Currently, the Fed has used much money to purchase mortgage-back securities to the tune of $500 billion.
Normally, high interest rates is associated with the central bank as the government attempts to ward off inflationary pressures that come with an expanding money supply. Yet, there is less demand for Treasuries and the only other viable option is to have higher interest rates to entice buyer demand. Unfortunately, higher interest rates would only further decline the economy. As the result of higher interest rates, a greater burden is placed on the citizen which results in an escalation in mortgage defaults and more consumer debt.
The current administration's record-breaking plans to fund the deficit and the Fed printing out dollar bills to buy the debt is staggering. The U.S. Treasury is pushing the yield on bonds even higher and the floodgates are open. Some economists are wondering who is going to be purchasing these bonds.
A nation who spends in an out-of-control way can eventually destroy itself. A famous economist believed that inflation was a disease which could destroy a society if it wasn't stopped.
China remains the #1 holder of our nation's debt. Economist Milton Friedman warned that the fate of a country could not be separated from ''the fate of its currency''. High inflation and high interest rates are not comforting to an already fragile global economy. The increasing debt boosts bond yields at the same time that the government's budget deficit is not putting on the brakes. - 23221
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posted by X - Men @ 3:01 AM
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