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Tuesday, February 07, 2012

We Need A Bigger Deficit!

Investors demanding larger government deficits

Commentary: Bond holders now willing to pay us to lend us money
Yields for U.S. debt have fallen to historic lows because demand for government bills and bonds is so strong.
Interest rates on government debt are at historic lows. The government pays about 0.1% to borrow money for six months, and investors are clamoring to get in on that deal. At one auction in January, investors offered to lend the government a total of $159 billion for 28 days at 0% interest. The government accepted $29 billion, leaving the rest to scramble for a safe place to park their money.
And now investors want to take the next step: Negative interest rates. Last week, the group of bond traders that advises the Treasury on debt matters unanimously recommended that the Treasury allow investors to offer to pay the government for lending it money. You’d give the Treasury $10,000 now and get back $9,990 in a few months. Read the report from the Treasury Borrowing Advisory Committee.
On Capitol Hill, all you hear is about how we have to get the deficits under control immediately, about how we must stop spending so much, about how we must stop borrowing so much. But on Wall Street, the attitude is different, because the global recession has created a huge demand for ultra-safe assets. Risk is out of favor, and safety is king.
Seems like an opportunity to rebuild a good deal of infrastructure, fund alternative energies, and re-establish manufacturing at almost no interest cost. Sounds too goo to be true, actually, but we have a small window of opportunity granted by our T-bills status as a safe-haven investment.
I believe that our biggest threat is a Republican election victory in 2012. I do not fear a possible election of Mr. Romney, who is a fine and honorable person, but I do fear the riff-raff that would be dragged into Congress on his coat tails. We have had enough of the Politics of Ignorance ("Let 'er default!"), and do not wish to experience any more.


Baysage said...

At this point, it looks like a GOP victory in the fall is pretty remote. But in order for anything to happen good, the GOP will have to lose control of both houses of Congress too. and that prospect is remote. Who's to say we won't have another four years of gridlock?

Montag said...

If we do not get something right in the fall of 2012, we will be condemned to do it the hard way.