Friday, September 11, 2009

Why is Treasury Demand Still Strong

Many of us have been waiting for the market for US debt to collapse, but the demand seems to be increasing? What is going on?

In short, the banks need somewhere to park all the excess reserve money they have on hand. The last thing they want to do is invest it in the real economy during a deflation. They are just riding it out, holding cash, as the real economy crashes. At some point, they will swoop back in, picking up dollars for dimes.

Why do they have so much reserve money now? Government bailouts! Lovely pattern isn't it? A pattern sometimes known as the clusterfuck...

Government bails out banks, banks use the money to buy government debt. Economy continues to grind down and future prospects continue to darken.

Welcome to Screw-ville, baby, population: YOU!

Treasury Bond Auctions Show Insatiable Debt Demand

Sept. 11 (Bloomberg) -- The U.S. Treasury Department’s auctions this week of $70 billion in notes and bonds shows the unprecedented amount of debt being sold to finance the record budget deficit is failing to curb investor demand.

Fixed-income investors can’t see a recovery strong enough to spur central banks to raise interest rates anytime soon, especially with the Obama administration forecasting that unemployment in the U.S. -- the world’s largest economy -- will rise above 10 percent in the first quarter.

“The auction shows investors are not afraid of inflation going forward,” said Ira Jersey, an interest-rate strategist in New York at primary dealer RBC Capital Markets. “There was a lot of cash on the sidelines that needed to go to work.”


John R. said...


In the short term the plan is viable. The government, you may have noticed, is going on a hiring spree. That will generate wages and salaries on a pretty big scale (though not big enough in the long run). There is no tax revenue to fund this, so it will be debt financed, and that to the tune of multi-trillion dollar deficits for the foreseeable future.

The short term answer is...get a job with the government, directly or indirectly.

Justin said...

I think you are right, John, their plan is viable in the short term. Change comes very slowly in an economy as big as ours, frankly, because there is a lot of wealth to be squandered.

What will it be that finally triggers a dollar sell-off? Maybe their will be no catastrophic event, maybe just a long slow decline.

I do think we will see phase 2 being recognized by the turn of the year. Government layoffs on the state and local levels will make a lot of press and noise.