The Treasury Bond Market Made Plain
The market for U.S. Treasury Bonds is receiving more attention recently. The value of the dollar tends to drop when long-term Treasury bonds decline in price. The March 2009 report of the Fed's Flow of Funds shows that there is $14.5 trillion outstanding in mortgage-backed securities, agency securities and Treasury securities.
Many countries invest heavily in our country's debt as an investment and China is the top holder of U.S. bonds. Several top economists believe that if the purchase of U.S. bonds by China were to stop, the U.S. interest rates would increase to make our debt more attractive.
With the current out-of-control spending and huge deficit in government, U.S. Treasury securities' real value is the focus of more and more attention. China wants to make sure that their assets are safe, and if there is any question that U.S. credibility is in doubt, the option to liquidate some of their U.S. assets is more likely an option.
If China and other nations refuse to buy U.S. debt, the only alternative is for the U.S. Treasury to purchase Treasury securities which would dramatically increase the money supply. To attract investors, interest rates would need to rise. As is the case, when the Fed starts buying Treasury bills habitually, inflation ensues. The Fed in the mid-2009 scenario has used much of the money to buy over $500 billion in mortgage backed securities.
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.
Washington's record breaking Treasury offerings to fund the deficit and the Fed buying the debt through its spinning out of dollar bills is staggering. The floodgate opened by the U.S. Treasury is pushing bond yields higher. Bill Gross, of PIMCO told Bloomberg, "The market is beginning to wonder who is going to be buying these bonds."
Inflationary deficit spending can destroy a nation. The renowned late economist, Milton Friedman warned that "Inflation is a disease, a dangerous and sometimes fatal disease that, if not checked in time, can destroy a society."
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. - 23162
Many countries invest heavily in our country's debt as an investment and China is the top holder of U.S. bonds. Several top economists believe that if the purchase of U.S. bonds by China were to stop, the U.S. interest rates would increase to make our debt more attractive.
With the current out-of-control spending and huge deficit in government, U.S. Treasury securities' real value is the focus of more and more attention. China wants to make sure that their assets are safe, and if there is any question that U.S. credibility is in doubt, the option to liquidate some of their U.S. assets is more likely an option.
If China and other nations refuse to buy U.S. debt, the only alternative is for the U.S. Treasury to purchase Treasury securities which would dramatically increase the money supply. To attract investors, interest rates would need to rise. As is the case, when the Fed starts buying Treasury bills habitually, inflation ensues. The Fed in the mid-2009 scenario has used much of the money to buy over $500 billion in mortgage backed securities.
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.
Washington's record breaking Treasury offerings to fund the deficit and the Fed buying the debt through its spinning out of dollar bills is staggering. The floodgate opened by the U.S. Treasury is pushing bond yields higher. Bill Gross, of PIMCO told Bloomberg, "The market is beginning to wonder who is going to be buying these bonds."
Inflationary deficit spending can destroy a nation. The renowned late economist, Milton Friedman warned that "Inflation is a disease, a dangerous and sometimes fatal disease that, if not checked in time, can destroy a society."
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. - 23162
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posted by X - Men @ 2:51 AM
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