Posted on 12/16/2008 11:35:21 AM PST by Sub-Driver
Yup.
I’ve got to say that it is uncanny, with the number of purportedly “smart” people in DC, that we’re quickly homing in on replicating the Japanese experience. About the only new wrinkle I’ve seen yet is the Fed buying agency and T debt directly to warp the curve.
I'll say. Fed Funds Rate policy has been unable to prevent a downward trend in general money supply since about 2002, preceded by flat M1 levels over the late-90s. It was able to create a spike in 02, but the downward trend during 2 years of 1% Funds Rates is pretty significant.
And the effective rate has been under 0.3% for some time already, with most of impact coming at the time of quatitative measures.
Hang on tight. We're in for an interesting experiment.
This is what they do (did) in vietnam. The commie types
didn’t like owners to hoard cash to capitalize and grow
so there were notes that would expire. So no one could be
rich for very long.
This Fed thing is a re-enactment of Japan in the 90’s
They Also Tried Stimulus spending sapping their reserves until they are now a big debtor country. (remember how unbeatable Japan seemed with all that land value) why they could buy california.
I am going to take my best advice, gona go buy gold coins
of 1 oz and 1/10 oz. I am pretty sure if things get bad
enough it will be illegal to buy gold. Their reasoning being is that it ties up capital and accelerates the economic downturn.)
so my liquid positions will be 50% Cash & 50% Gold Coins
that way I am covered either way
4% is not yet available. We have a lender here in north Idaho that has 4.75% available. Do not know if they do national loans.......
So ... at what point does loaning the money at a miniscule interest rate just become so pointless as to be, well, pointless? If Treasury bills are nigh unto 0%, why would anyone loan the government money?
Since the vast majority of the mortgage market now depends on Freddie/Fannie, the price/yield on agency bonds is what matters now for fixed mortgages, and LIBOR is one of the big benchmarks for ARM’s.
The Fed has done a couple of buys of agency paper to deliberately depress the yield on agencies in the last couple of weeks, with the idea of trying to force rates on fixed mortgages down to 5.0% or less. The mortgage rate, especially on fixed conforming loans, is not the problem just now. It is the buyer qualifications that banks are putting on borrowers that is putting a lid on the housing market.
After losing hundreds of billions to trillions of dollars, bankers are suddenly developing a criterion of expecting the borrower to be able to repay the loan before they write the loan. Wow, who woulda thunk it?
In a hyperinflation, equities are the place to be.
Right now, the reason given by large buyers of T’s and bills is that they’re seeking safety. They’ve been made so gun-shy of debt and “money market” instruments that the big wheels don’t trust anything - not even the guy in the office next door.
They reckon that they can trust the Treasury to return their money - even in quantities of 10’s of billions of dollars. So rather than deal with those they can’t/won’t trust, they’ll effectively pay the government to hold their money.
Yeah that is what I was thinking too, I remember a thread on FR about it not working in Japan.
That’s the only reason I can see.
Unfortunately, when standing on the edge of a cliff is the safest place, you’re not in a safe place.
Interest rates can’t go negative (at least not without dire consequences). We’re not far from the point where it will be cheaper to just build a big vault and throw big piles of cash into it - which raises the demand for cash enormously, leading to (here we go again) serious deflation (people will trade a great deal for cash) shortly followed by hyperinflation (as the government runs out of cash, and has to print more because nobody will loan it any).
When they come for your gold, give them lead instead.
You know, if the jokers put pressure on the banks to cut rates on unsecured debt (credit cards) WITHOUT increasing credit limits (and perhaps in conjunction with cutting them a bit, esp. for poor credit risks), then that would help the economy a bunch. Fewer defaults on credit cards, for one, leading to more confidence in the banks' balance sheets. A bit more spending, as Joe Blow's monthly gets slashed by $200 or so.
But they'll never do that - why let the little guy in on even a few crumbs, when the rapacious bankers and investment thieves haven't gotten their fill just yet? Anyhow, the little guy has to pay for it all.
Several factors make Treasury Notes the rough equivalent of Federal Reserve Notes in a liquidity trap:
* The Fed is buying up Treasuries in order to work its magic, putting upward pressure on their price and downward pressure on their yields. Plus, they don't mind that the gov't can borrow for free.
* When inflation is negative, a 0% nominal yield actually results in a positive real yield - that is, investors get more than 0% increase in purchasing power back. Of course, the real yield on a 8% corporate bond is even higher, but...
* Investors flee to safety, and view Treasuries (backed by the US's taxing authority) as safer than corporates (backed by the potential of future profits in an uncertain economy). Of course, 3% CDs are also taxpayer insured, which brings us to...
* FDIC covers a limited amount (currently $250k per depositor per institution). If you're managing $100MM of cash, it's kinda difficult to spread that out into $250k accounts. And they don't want to walk to the bank and walk out with a wheelbarrow full of $1000 bills... kinda attracts unwarrented attention. So you stick it into Treasuries until the crisis passes over.
Of course, T-Notes and Fed-Notes are the equivalent in many other ways too.
What’s a good guess as to when they’ll hit around 4%? I’ve got a 30 year at 5.65% and would LOVE to refi a full point lower!
Agree. Negative T-bill yields, EVEN AT AUCTION, mean things are seriously f’d up.
As we see from the Madoff (what a great name, eh?) case, the “Best and Brightest” from Ivy League schools who are running Wall Street, the Treasury, The Fed, et al — are beginning to show us that the the fact that Harvard gives out A’s to 50% of their class isn’t a sign that 50% of them are geniuses.
I'm currently sitting on enough cash to pay off my mortgage, and wonder if that is a good move in this current environment? Seems that the market is giving me poor to no returns elsewhere, so why not pay off this debt. BTW it wouldn't make me cash poor to do so.
Thanks for your insights!
When it gets down to 4 percent, I’ll consider refinancing.
If you don’t mind our asking, what is your interest rate and how many more years does your note run?
Sure, my rate is 5.87/30 fixed, I bought in 2000, and I owe about 180k.
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