Our Treasury Bonds Made Plain
1:02 AM
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.
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 consequence of huge deficits and out of control government spending, the real value of U.S. Treasury securities are the focus of increased attention. China wants their assets safe and if any question of U.S. credibility would ensue, the pressure to liquidate a portion of their U.S. assets in self-survival mode may seem a likely option.
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.
During normal economic times, higher interest rates are a result of the central bank trying to ward off inflation associated with an increased money supply. Yet, there is less of a demand for Treasuries and higher interest rates to entice buyer demand is the only other option. However, this would only accelerate a declining economy deeper into a hole. Higher interest rates only place a greater burden on the population which results in more defaults on mortgage loans and higher 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."
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.
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 consequence of huge deficits and out of control government spending, the real value of U.S. Treasury securities are the focus of increased attention. China wants their assets safe and if any question of U.S. credibility would ensue, the pressure to liquidate a portion of their U.S. assets in self-survival mode may seem a likely option.
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.
During normal economic times, higher interest rates are a result of the central bank trying to ward off inflation associated with an increased money supply. Yet, there is less of a demand for Treasuries and higher interest rates to entice buyer demand is the only other option. However, this would only accelerate a declining economy deeper into a hole. Higher interest rates only place a greater burden on the population which results in more defaults on mortgage loans and higher 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."
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.
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