Our Treasury Bonds Unraveled
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 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 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.
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 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 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. - 23208
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 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 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.
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 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 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. - 23208
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