U.S. Government Junk Bonds

June 11.2009 | Welcome2thejungle

[Welcome2thejungle]

In the 1980s Michael Milken made a vast fortune and name for himself issuing and trading high yield corporate debt securities popularly known as junk bonds at Drexel Burnham Lambert.

By the time BHO through is mismanaging the federal budget, U.S. government debt securities including T-bills, T-notes, and T-bonds are going to have the same level of safety and security as junk bonds, perhaps even worse. In the investment world, U.S. government bonds have traditionally been considered the safest of all investments. Safer than stocks, mutual funds, high grade corporate and muncipal bonds.

The problem is the first thing we learn in Econ 101--the law of supply and demand. With trillion dollar deficits now in the works, the federal government is going to have issue trillions of dollars in new bonds to pay for these vast budgets, stimulus packages, and bailouts, not to mention BHO's grandiose healthcare proposals. Too many bonds in circulation will only lead to much greater supply than there is demand causing bond prices to fall. In today's Investors Business Daily the following was reported, "...Russia's central bank said it would buy fewer Treasuries. Russia and Brazil said they will buy IMF bonds."

China is already loaded to the gills with U. S. Treasury debt and it is only a matter of time before they follow suit. So, who is going to buy all of our government bonds? Also in ECON 101, we learn that when bond prices fall, yield rises meaning higher interest rates are in the cards which will not bode well for the struggling housing and auto industries. To add fuel to the fire, the Federal Reserve has printed vast quantities of dollars and the global market is over supplied with them, meaning their value will decline as well thus auguring in a new era of high inflation. Coupled with higher interest rates this can only spell disaster.

BHO, of course, if following the New Deal big spending policies of FDR in the 1930s. The problem is, they don't work and the Depression worsened in the 1930s. A more sensible approach would be stimulate economic growth through the private sector by cutting tax rates across the board on individuals, corporations, dividends, estates, and capital gains. This would do far more to stimulate capital formation and job creation than BHO's wildly irresponsible spending programs. And, moreover, history has demonstrated over and over that it works.

If the Republicans were to forcefully advocate these policies, they could take back Congress in next year's midterm elections and stop BHO's ruinous economic policies which will almost certainly turn our traditionally safe and secure Treasury debt securities to the status of junk bonds if not stopped and reversed.

[avacado]

Let's not forget also that Obama just made the security of bond holders null and void with his thug take over of Chrysler by giving the secured bond holders the shaft. That doesn't build a lot of confidence in “Obama bonds.”

[Para-Ord.45]

Another round of 30 Year Bonds on sale today.

Last month it was 4.16%

Last week it was 4.58%

Today it is 4.77%

[NeoCaveman]

What time is today’s blood letting, I mean auction?

[Welcome2thejungle]

I’m not sure. All I know is that the auctions have not been going very well. Demand is weak and the yields keep going out.

Soros is probably making billions shorting the dollar and U.S. debt instruments.