The Treasury Bond Market Clarified
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.
China is the first holder of U.S. bonds and other countries heavily invest in the U.S. debt as an investment. Many economists suggest that if China stops purchasing the U.S. bonds, the economy would have increased interest rates which would make U.S. debt more enticing.
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 other nations do not buy U.S. debt, the only other option is for the U.S. Treasury to buy Treasury securities and, thus, increase the money supply dramatically. In order to attract investors, rates of interest would have to rise. As what happens when the Federal Government begins to habitually buy Treasury bills, inflation will soar. In the current climate, the Fed bought over 500 billion dollars in mortgage-back 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 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 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 is the top holder of U.S. debt. Famous economist, Milton Friedman, said that the fate of a nation was ''inseparable from the fate of its currency''. Soaring rates of interest and inflation put an already fragile economy on the alert. Thus, the bond yields are higher as the government's deficit shows no sign of slowing. - 23223
China is the first holder of U.S. bonds and other countries heavily invest in the U.S. debt as an investment. Many economists suggest that if China stops purchasing the U.S. bonds, the economy would have increased interest rates which would make U.S. debt more enticing.
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 other nations do not buy U.S. debt, the only other option is for the U.S. Treasury to buy Treasury securities and, thus, increase the money supply dramatically. In order to attract investors, rates of interest would have to rise. As what happens when the Federal Government begins to habitually buy Treasury bills, inflation will soar. In the current climate, the Fed bought over 500 billion dollars in mortgage-back 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 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 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 is the top holder of U.S. debt. Famous economist, Milton Friedman, said that the fate of a nation was ''inseparable from the fate of its currency''. Soaring rates of interest and inflation put an already fragile economy on the alert. Thus, the bond yields are higher as the government's deficit shows no sign of slowing. - 23223
About the Author:
Grab the latest news and receive insight to profit from with a wall street journal subscription. The WSJand Barrons Magazine are undisputed for expert editorials and money making direction. It's the true deal. At 80% off newsstand prices, youll get more than you bargained for. Wall Street Subscription
posted by X - Men @ 1:04 AM
0 Comments
0 Comments:
Post a Comment
Subscribe to Post Comments [Atom]
<< Home