Obama and the T Bond Albatross=Gasoline to a Flame

The Provocateur ^ | 12/02/2008 | Mike Volpe

[fiscon1]

I just wrote about the albatross about to form involving the Treasury Bond and the bailout(s). The Treasury Bond is at record levels and only giving an interest rate of 2.67% on the ten year benchmark. At the same time, we are trying to borrow several trillion Dollars. In other words, we are asking debtors to lend us several trillion dollars even though they would only get 2.67%, at least currently, as their rate. The Treasury bond, especially the ten year, is the pre cursor to most long term rates like mortgages, car loans, student loans, etc. so it's uncontrolled volatility could wreck havoc in all sorts of places. This is a potentially nuclear combination and if Barack Obama handles it wrong it will be like pouring gasoline on a flame.

[USFRIENDINVICTORIA]

The risk of higher interest rates is very real. Actually, the article might have understated the risks of all the “stimulus” spending. Running up monstrous government debts, and paying them off by printing money, is a recipe for hyperinflation.

[Yo-Yo]

Treasury Bond is at record levels and only giving an interest rate of 2.67% on the ten year benchmark.

Treasury doesn't set the interest rate. They offer bonds at auction, and it's the buyers who set the interest rate by how much they're willing to pay for a bond worth a set amount at maturity.

[pierrem15]

That's why the Dems' plan for a super-duper gazillion dollar bailout isn't going to happen-- sooner of later the interest rates will begin to creep upwards, quickly calling into question the US' ability to pay-off the debt, causing rates to rise even faster.

This will suck capital out of the economy, negating any Keynesian effect from the deficit spending.

Welcom to the real world, morons.

[fiscon1]

The article isolates the risks of having extremely low rates on the very instrument we will be using to borrow all this money combined with massive borrowing. I think the article paints a rather scary picture.

[fiscon1]

I know and so does the author. The point is that currently if a new bond were issued it would be issued at 2.67%. Another words, the treasury is looking to borrow over one trillion Dollars and yet the current rate is 2.67%. That is a recipe for disaster. At that rate it will be hard to get anyone to buy that much in bonds. It could set bonds off on an upward trajectory with nearly no end. It could create massive fluctuations in treasuries. The point is with rates as low as they on t bonds and the government ready to use them to borrow a massive amount that is bad combination.

[USFRIENDINVICTORIA]

“I think the article paints a rather scary picture.”

Yes, it does. My point was that even this article might be underestimating the risks of such unprecedented government borrowing & spending. If the economy is ill now, it may soon become overdosed on the "cure".