Our Treasury Bonds Deciphered
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 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.
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 remains the number one holder of U.S. debt. Milton Friedman warned, "The Fate of a Country Is Inseparable From the Fate of Its Currency." Climbing interest rates and inflation scare an already fragile domestic and global economy. As such, the debt onslaught is boosting bond yields as the appetite for money to finance the government's budget deficit shows no sign of dieting. - 23199
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 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.
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 remains the number one holder of U.S. debt. Milton Friedman warned, "The Fate of a Country Is Inseparable From the Fate of Its Currency." Climbing interest rates and inflation scare an already fragile domestic and global economy. As such, the debt onslaught is boosting bond yields as the appetite for money to finance the government's budget deficit shows no sign of dieting. - 23199
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