No one will buy US Treasuary Notes so the Federal Reserve has to buy them It's going to get very bad

[TwixVoy]

The correct read of the Federal Reserve buying US Treasury Notes should be one of extreme panic and worry. This act is the final desperate act of a failed economic policy of the US government.

There are no more people out there in the real world who find us credit worthy enough to loan money to. It's like having your own mom and dad refuse to loan you money when you fall on hard times even though they are worth 350 billion dollars.

We have just entered the final end game to US capitalism.


http://money.cnn.com/2009/01/28/news/economy/fed_decision/index.htm


"NEW YORK (CNNMoney.com) -- The Federal Reserve kept its key interest rate near 0% Wednesday, and said it is prepared to take additional steps to try to fix the troubled U.S. economy and credit markets.
The Fed said it stands ready to purchase longer-term Treasurys if it determines that such a move will help get credit flowing once again. This may help lower the yield on the government bonds and further lower the rates on various types of loans tied to Treasurys.
Still, Treasury yields moved higher in the wake of the Fed decision, while Treasury prices, which move in the opposite direction, lost ground. "

[whistle]

1. That is inflationary and I believe against the law

[TwixVoy]

5. Not against the law

the federal reserve does not even have to answer to the US congress. It is run by big money, and controlled from behind the scenes by the fine folks at banks such as WAMU/Chase, Bank of America, and Citi.

[SergeyDovlatov]

23. lol. show me the law!

http://research.stlouisfed.org/fred2/fredgraph?s%5B1%5D%5Bid%5D=M1

see nearly vertical spike?

That is feds buying treasuries and other debt instruments with freshly printed (or simply added to a fed account) money

[The_Casual_Observer]

2. The money market is all the retirement investor has anymore.

Are they going to ruin that too?

[SpiralHawk]

7. Nah. Now that the Republicons screwed America's economic pooch,

there is another way to save...

[SoCalDem]

10. When they killed pensions and "created" the 401-k , I knew this day would come

For the 401-k to "work", it had to operate in high gear..permanently, and it had to be worth something whenever a person retired or reach the proper age..

The age limit on them meant that there were records available to the business whizzes, so they knew exactly how much time they had to grab the loot, at just the right time...before more started taking out, than were putting in..

Think about it.. when people were told to save it in the bank, we had "life's savings" gobbled up by greedy S&Ls.. just as a batch of oldsters were starting to take it out in numbers..

We've all just been giving greedy gamblers a bunch of money to play with...our retirement money..and they are on a killer losing streak..but they still get their bonuses, and we get screwed..

[taught_me_patience]

3. It's called printing money

Zimbabwe anybody?

[Wapsie B]

4. But all that deficit spending was necessary.

We were at WAR! :sarcasm:

Countries like China funded *'s war, and now they won't even buy our paper. Thanks gop.

[Ron Green]

6. It's worrisome that the only remaining leverage the US has in the world is

its military.

[exboyfil]

8. I think it is time to think about moving more into

Treasury Inflation Protected Securities. I have been surprised that most of mine are up 7-10% since November.

[TwixVoy]

9. Actually it's time to get OUT

A bubble now exists in TIPS. Tons of money has been flooding in to them over the past 18 months seeking safety. This has created an artificialy high amount of money in them. Obviously a bubble. Now that the yields are going so low that money is going to run out, and you will be left holding the bag.

It's the same logic as saying back in 2006 "My real estate mutual fund is giving me 30% returns. Obviously it's time to put more money in".

[exboyfil]

20. You are right

I agree with you that TIPS being up is not a reason to invest more money. I am just happy that I timed the yield properly (the real rate of return cracked 3% when I purchased them). Even if they crash my plan was to hold them for the really long term (think holding to maturity for my retirement). If I get a true 3% real rate of return (ie +3% over inflation), then I will be satisfied. They are supposed to act like that (even though you are still subject to a lag from reset and the Fed could always monkee with the formula).

I am just thinking that, if the next treasury offering lays an egg (even for the TIPS) it would be good to acquire an additional position (especially if they get back up over 3% again). When I bought the TIPS the yields were getting battered by anticipated deflation. No one has a crystal ball, but they have a par floor under them so I feel good about however deflation/inflation proceeds (at least for this investment).

If the government monetizes the debt then I see TIPS as only one of few ways to deal with it (I don't like gold).

I guess I could get out and get back in after the next debt offering, but my crystal ball is not that good.

I suspect others I thinking the same way that I am, and the TIPS will hold up pretty well. Straight Treasuries on the other hand???

[slipslidingaway]

19. 7-10% since September...

tops and bottoms are hard to call, but when something is appreciating too fast, it is best to keep an eye on the exit.

JMHO

[Winterblues]

11. Isn't that just taking money out of one pocket and putting it in another?

Reminds me of people using one credit card to make the payment on another one..Eventually you find out there is no there there..

[TwixVoy]

12. DING DING DING

You nailed it head on. That is exactly what is happening. Your analogy is dead on as well. It is exactly like paying off one credit card with another. In other words, we are fucked. This is obviously a last ditch move to buy time.... and just like when paying off one credit card with another, once the game is over it all goes to hell.

[SergeyDovlatov]

24. Nope. Wrong analogy.

It is stealing from the people on fixed incomes and giving to the bankers.
Whoever gets to spend the new money first before price levels increase gain, those who are lower in the chain lose.

When you move money from one pocket to another. It is a wash. You have exactly the same amount of money as you had before. Nothing changes.

When fresh money injected into the banking system. Those who borrow the money and speculate / invest before price level is goes higher are getting something at the expense who does not borrow and does not speculate. Especially those on social security.

[Winterblues]

29. I understand the Federal Reserve is considered a Private enterprise

But it is basically a Federal Government entity, and to use it to buy US Treasury Bonds is to me the same as me taking money from my piggy bank and putting it in my checking account and thinking I suddenly have more money..

[SergeyDovlatov]

30. federal reserve is not a bank in the traditional sense

As long as your piggy bank has a dollar machine inside, sure.

If you need money you write on a slip of paper, "I (Winterblues) owe my piggy bank $1,000,000". Then you deposit that paper slip in your piggy bank. Piggy bank money making machine turns on and spews out a pile of cash you can spend on whatever you want.

That million dollar wasn't in the piggy bank before you put your little note in the piggy bank.

[DFW]

13. Some friends of mine work at a gold coin dealership in Dallas

And they say they are running out of product.

Scary stuff, indeed. Buying gold is, in my opinion, an anachronistic way of protecting yourself financially. Gold pays no interest, you can't eat it, live in it, heat your house with it, or make your car run with it. It won't take you from here to there or turn into water for you to drink. Buying gold is strictly an action that arbitrarily values a fairly inert metal for few other reasons than that it is pretty and chemically stable. It is a reaction to financial trouble that SHOULD have been long past its time. Not yet, apparently.

[TwixVoy]

14. Well remember

Through just about all of human history (written anyway) gold has always been considered a precious metal. It is logical to assume for the next hundred years that will still be the case.

Gold is actually a GREAT buy IF and ONLY IF you believe the US dollar is going to become worthless or next to worthless. Think $1000 needed to buy a loaf of bread worthless.

Why? Because you can trade your gold for something that hasn't collapsed. Like Euros, for example.

It is a way of protecting what you have. Let's say (totally made up numbers here) I buy 500 ounces of gold for $5000. You hang on to your $5000 US dollar cash. Today both of us can trade what we have for 4000 euros.

Let's say two years from now the US has turned to shit economically. Your $5000 US cash is now worth one euro. My 500 ounces of gold is still worth 4000 euros give or take.

In theory I could take my 500 ounces of gold, ditch the united states which would probably be in martial law/civil war stages for years, and go to a stable nation and have some cash that is worth something. You on the other hand have nothing of value anymore, and likely wouldn't be able to leave the US as easily.

But if the US dollar doesn't crash and burn you are right gold is not a good investment.

[eilen]

15. Three or four times my grandfather experienced his money becoming worthless

in Germany throughout his life. Retaining wealth is why people buy gold. It isn't to invest or earn interest. Imagine if the dollar became the peso. No one of my generation or of my mother's generation in this country has this experience so it seems silly. It can be an overreaction but I'm sure people thought would have though cashing in all your stock and 401K's was an overreaction 2 years ago but today seems not only prescient but possibly suspicious. Think about it, if you cashed in your 401K two years ago, even with the penalties, you probably would be ahead.

[whosinpower]

18. Well, my take on this

Is that gold is thought to be more stable than currency - hence the rush(?) to buy up gold - and gold can be converted to any currency - but right now, no currencies are immune. It would indicate that some people have lost faith in the US greenback - and really.....who could blame them? I am sorry to say that, but your overall debt is staggeringly high - not even including the rescue bills and stimulus. You consume more than you produce - and have done so for many years. The real question is how can it be that the US greenback is worth what it is now? That defies logic. As a canadian, I understand if commodity prices of oil, potash, etc go down, then the value of the canadian dollar also goes down - as it relates to the value of a canadian product, and the future prospects of value.
We could suggest that the US greenback is the global reserve currency because the US financial institutions are so rock solid - but this is no longer the case, as fraudsters and ponzi schemes erupt now in increasing frequency - banks going bust - and tie that into your massive trade deficit and overall debt burden, not even taking into account your citizens personal debt obligations.......it boggles the mind that the US greenback is still the reserve currency at all. There is something artificial that is propping it up - and whatever that is......is facing tremendous pressures right now.
One reason why economists insist there is only one shot to get this right is because if you print too many dollars as debt, then the value of that currency will collapse - you won't be facing deflation, which is bad enough - you will be facing its evil twin - hyperinflation - and that is the end of America as we know it. If you think losing your job is bad enough - couple that with costs of food increasing to the likes unseen in America.
Personally, I think part of what is propping up the US greenback is all the foreign investors that finance your debt - they do not want to see the US greenback collapse - as it would mean trillions of losses for them as well.....however.....without the key fundamental of TRUST - there will be an increasing number of them who will question the validity and wisdom of maintaining the US greenback as a global reserve currency.

Gold never faces the same volitility as currency - that is why some people put their money into it. I would.

[DFW]

28. In part, so have I

Modest though my "holdings" are, I have put some of them into gold. Just because I don't
agree with it on an intellectual level, doesn't mean I am shutting my eyes to reality.

What money I had in stocks is now over half gone while the bit of gold I have has tripled
in dollar terms since 2001. It's not going to buy me a new house, or anything, but the
ratio and trend are both very disturbing. The fact that the euro is now under $1.30 and
gold has again surged above US$900 an ounce is a reflection on worldwide uncertainty. If
it continues, I agree that gold will continue to increase in value in dollar terms. Should
there really be a severe world-wide crisis, gold may buy you more than any currency, but
those who really hold value will be those who own land that has food and water--if they can
manage to hold on to it, that is!

[SergeyDovlatov]

31. Agree, but still better than holding slips of colored paper with arbitrary numbers written on them

Aside from potential monetary value, gold still has intrinsic value as a commodity. It is used in jewelry, electronics.

Pieces of paper are of value only because other people will take them and give you something real in return. But they can only do so if they believe that other people will accept the same green piece of paper for something similar in value.

Due to demand in electronics and jewelry. Gold has a floor in terms of how low it can go.

Pieces of paper are worthless if other people stop accepting them as money. (Apart from collectors of failed currencies, but they, collectors, just need a few samples, they don't need a whole lot of them)

[IDemo]

16. I'm beginning to wonder if there will be anything in the pot to cover my EE savings bonds

which won't begin to reach full maturity until 2021.

[slipslidingaway]

17. K&R n/t

[theophilus]

21. Could the gov make a higher yield "recovery bond" and sell it to

U.S. citizens, and others possibly, to get people to save and provide the government with some cash. Like the War bonds during WWII? Could that work? Maybe use the proceeds to build infrastructure? Your thoughts.....?

[TwixVoy]

22. Unfortunately I don't believe so

For a couple reasons that come to mind right away

1. For one thing the yield would have to be at least as high as a certificate of deposit at a bank/credit union. Which granted are not that high right now, you can still find rates of 4-5% in relatively short term CDs if you look hard enough. Especially from credit unions. If the bond yield was not at least that high it would not be attractive to investors/savers. After all, why buy a bond when you could earn a higher yield from a CD?

So would the feds offer a yield of 6+% right now? Highly unlikely. The fed gov is running massive deficits. We sadly don't have to cash to be paying out such yields even if we wanted to.

The ONLY practical way to offer such a high yield would be to offer long term bonds. Possibly 10, 20, 30, years or even longer. Of course at such a high rate the feds would have to hope to god come maturity they have the cash. But they will never be issued even long term for some more reasons that follow.

2. Part of the reason we are in this mess is because big money investors (at all levels, both private/corporate/government) are starting to doubt the united states ability to pay up in the future. This would make people putting any "real" money in such a bond hesitate.

3. The US government has adpoted a policy of spending, unfortunately. The current goal is to increase spending AND lending. The goal is definitely not to encourage saving right now especially for consumers. Right now government and especially corporate interests are fighting depserately to get business as usual back.

In this respect we are sort of in a damned if we do and damned if we don't situation. Lack of spending on the part of consumers is going to result in massive job losses, deflation, massive defaults on debt, etc. However, the reason all of this came to be was over spending and doing so on credit. So can more spending fix things? In theory yes... and in fact for the economy to grow this HAS to happen. The problem is they are trying to build a house with out the foundation first. So they will never get it off the ground. What I mean by that is - the party has ended. Half the country is making $10/hr on average many of them part time. Not even really enough to pay basic living costs. Many simply don't have the cash to put down on long term bonds.

4. These same people I mention above (the US consumer) that are finding it hard to find the cash to pay their bills. Guess what? If they are finding it hard to even pay the bills, and in many cases coming up short even in doing so, they definitely are not going to feel they have the cash to put down on a 10, 20, or 30 year US bond... nor are they going to want to wait such a long period of time when they feel they have more immediate financial concerns. Many people want to keep any extra money LIQUID. Many people are just a few pay checks away from disaster. They certainly don't want to have any extra cash they have tied up in long term bonds.

5. Sadly these days most americans younger than 40 probably don't even know what a bond is, nor were ever educated in the value of saving or the reasons one might want bonds. They simply lack any desire to save or education for why doing so is important.

6. Most of the country is in debt. The first priority is to get them out of debt, and once they are no longer living in the red THEN it is time to save. Why put your cash down on a bond - even lets say one that pays 10% - when your credit card debt is costing you 20% the longer you don't pay it off?

The best way I see for the government to collect cash at this time is in the form of taxes and finding new things to produce. Definitely not trying to get a people that are broke and in debt to buy bonds.

Also when you say US Citizens "AND OTHERS POSSIBLY" - "OTHERS POSSIBLY" are the ones who HAVE been buying bonds from us. When china "gives" us money they are doing so through US bonds. Basically we promise to pay them back plus interest. The problem is "US CITIZENS" are broke and have no money to give so scratch them off the list. "OTHERS POSSIBLY" are starting to realize we may not be able to pay back.

[SergeyDovlatov]

25. good points! n/t

[BzaDem]

26. No one will buy US Treasuries? That is COMPLETELY false.

The fed lowered the fed funds rate to essentially 0%. In other words, there is nothing more the Fed can do with the federal funds rate to stimulate the economy.

So, the Fed is using different methods to stimulate the economy and prevent deflation: it is printing money. (The Fed buying treasures is just printing money.) This does NOT mean that no one else will buy US treasuries: people do this and will continue to do this every single day. The problem is that other people buying US treasures does not increase our money supply, and the Fed wants the money supply increased PRONTO (to counteract deflationary effects).

This is exactly what the Fed should be doing. As in, if the Fed weren't doing this, the chairman should be thrown out of office. The only people who are opposed to this are right wing hacks who don't care about the effects on working Americans that a deflationary spiral will cause (another great depression).

Please stop posting false information.

[Statistical]

27. Oh Noes. Panic Panic

Did you actually think about WHAT happens when Fed buys T-Bonds? Then did you think why?

New debt is sold at AUCTION. The Fed isn't buying new debt.

The Fed is buying debt on the secondary market where owners of bonds buy/sell/trade.

By buying a large amount of bonds they drive the price higher......
higher price = LOWER YIELD....

Now why would they do that?
Remember those banks. The ones who aren't lending. How are they paying the bills?

Think. They are holding T-bonds.

As the Fed (who is much more powerful than Citi, BofA, Wells Fargo, etc) slams yields into the floor the banks will be FORCED to start lending.

NOW:
Banks paying interest on deposits -> banks collecting interest on T-Bonds.

FED FORCES THE YIELD DOWN:
Banks paying interest on deposits -> banks have to lend to cover their costs.

[SergeyDovlatov]

32. How holding T-bonds helps?

The yields are much lower than the interests payed on the deposits.
Banks are hoarding reserves to cover the worthless assets on failed loans, investments.

Banks want to pretend that they are solvent.

[galileoreloaded]

33. Only if the Fed stops paying interest on reserves and deposits.N/t