The Treasury Bond Market Made Plain
Serious attention is being paid the the U.S. Treasury bond market in recent trading. When T-bonds show action, the dollar does also. If there is a decline in long-term Treasury bond prices, the dollar also plummets. According to the March 2009 report of the Fed's Flow of Funds, there was $14.5 trillion outstanding in agency securities, mortgage-backed securities and Treasury securities.
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.
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.
The record-breaking Treasury offerings out of Washington along with the Fed churning out dollars bills is incredible. The floodgate pushed open by the U.S. Treasury is making bond yields soar. Economists are beginning to wonder who will be purchasing these bonds.
A nation can be destroyed by inflationary deficit spending. Milton Friedman, the famous late economist, gave a warning about inflation being a ''dangerous and sometimes fatal disease''. He believe that it could destroy a society if not checked in time.
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. - 23229
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.
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.
The record-breaking Treasury offerings out of Washington along with the Fed churning out dollars bills is incredible. The floodgate pushed open by the U.S. Treasury is making bond yields soar. Economists are beginning to wonder who will be purchasing these bonds.
A nation can be destroyed by inflationary deficit spending. Milton Friedman, the famous late economist, gave a warning about inflation being a ''dangerous and sometimes fatal disease''. He believe that it could destroy a society if not checked in time.
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. - 23229
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