Posted on 02/10/2006 12:53:35 PM PST by presidio9
More than a decade ago, bond investors were widely considered the watchdogs of government finances. Not today.
Back in the 1990s, as deficits and government borrowing rose, Washington worried that bond investors would rebel against rising deficits. The fear: Investors would demand lower prices for an increasing supply of government debt, which would drive up yields and borrowing costs across the economy.
Contrast that with today, as the government brings back the 30-year bond amid a new bout of deficit spending. Bond vigilantes -- investors who rebelled against deficits in the recent past -- are nowhere to be seen, and that's rekindling an old economic debate about the complex interplay among deficits, financial markets and interest rates.
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Bond-market professionals see the return of the 30-year Treasury, which they call simply "The Bond," as a boon, because it revives a familiar benchmark and provides pension-fund managers with the kind of safe, long-term investment they need to cover obligations to future retirees.
Traders expect strong demand at today's auction of $14 billion in 30-year Treasurys -- the government's first such auction in five years. That would push prices on the bonds higher, and thus yields lower. Traders say the yield on the new issue could come in as much as 0.1 percentage point below that on the most comparable issue, a 25-year government bond that yields 4.68%.
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Theoretically, the more bonds the government issues to finance its deficits, the less investors should be willing to pay for them, all else being equal. That, in turn, should push up Treasury yields, punishing the government by increasing its cost of borrowing. The higher interest rates would also hurt economic growth by making corporate borrowing less attractive -- an effect that economists call "crowding out."
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(Excerpt) Read more at online.wsj.com ...
At first I was going to ignore your comment completely, because it has nothing to do with the article. However, I will take the time to point out that increased foreign ownership of US debt in an indication of nothing more than international confidence in our economy. The Japanese do not get to forclose on Hawaii if we default.
Cramer has turned bearish on the market. The Fed may have tightened one notch too far and will have to back off.
Kramer is a liberal jackass.
The Cramer Show may disappear from our radio next week. I don't know where else I can go to get such s&%% advice.
Confidence? Nah. We are paying the highest interest rates right now (we can, as we have the strongest economy, though at this point that is not saying much). That is the main reason why foreign countries/investors are dumping money into Treasuries. Money (such as the pitiful state of it is) is to be made there. But when the central banks of Europe and Japan start raising rates, we will see a reduction in the sales of US debt.
We have a few years before we have to start worrying though. With the time that the tax cuts that the President pushed through literally bought, we have an opportunity to fix what is wrong. But it seems we are determined to squander it via consumer spending. K-winter. Oh well.
I wonder how loud the 'everything is just hunky-dory' crowd will clamor for a .gov bailout when reality catches up?
But I forgot. It really IS different this time!
"Faith and Credit" is a tricky thing (as Joe DiMaggio put it, "Predictions are tricky especially about the future"). My own read is that China is making a serious long term play (unlike the French frivolous attempts from Law's System to the Euro) for an implicit RMB world currency standard.
One can think about the result as "liquidity rate of change" somewhat like the "inverted yield curve" idea.
Notice the strong correlation between changes in party control of the presidency and earlier dips (to about zero to one percent) in this function. Carter sure was sandbagged. Looks like Hillary gets the job next, sigh.
See my # 10.
Looks like the Chinese aren't buying as many Treasuries as we need them to. The trade deficit with China last year through November was around $185 billion. By November the Chinese had only bought 26.3 billion worth of US debt. So, what did they do with the extra $160 billion we sent them via this trade imbalance? I will guarantee that what they did with it will not benefit us.
We are in trouble, and a lot of supposed conservatives here think Keynesian economics is a good thing. Debt is bad, not good, contrary to the prevailing lines of thought found by many here. We are making the same mistakes that brought on the economic collapse of the late 1920's into the 1930's (40's?) and claiming that we know better this time! Hogwash. We are going into the same economic cycle. But these 'conservatives' will be the first to demand MY savings to bail their sorry rumps out of the mess of their own making.
I started to give it a shot, like you suggested, but I already realize that I have less patience for this levle of stupidity than I do with drug addicts.
Then, why does it feel like the first time?
LOL...I know exactly what you mean.
Or did you mean, perchance, in respect to current, world wide interest rates?
America garners foreign investment because we have a stable country, a good leader, and a good economy.
Somehow..., when one brings up the history of economic cycles..., one is being "unpatriotic" or at the least, "unrepublican"! If one is lucky enough to live through a few cycles (and personally learn from them), the old "It's Different This Time" refrain is merely accepted with a smile at its true value (nil)!
Moderation and diversification result in wealth accumulation and retention, and always will! "Rolling the Dice" in any aspect of life is risky.... A select few will win but the vast majority will lose in the process!
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