So ... at what point does loaning the money at a miniscule interest rate just become so pointless as to be, well, pointless? If Treasury bills are nigh unto 0%, why would anyone loan the government money?
Right now, the reason given by large buyers of T’s and bills is that they’re seeking safety. They’ve been made so gun-shy of debt and “money market” instruments that the big wheels don’t trust anything - not even the guy in the office next door.
They reckon that they can trust the Treasury to return their money - even in quantities of 10’s of billions of dollars. So rather than deal with those they can’t/won’t trust, they’ll effectively pay the government to hold their money.
You know, if the jokers put pressure on the banks to cut rates on unsecured debt (credit cards) WITHOUT increasing credit limits (and perhaps in conjunction with cutting them a bit, esp. for poor credit risks), then that would help the economy a bunch. Fewer defaults on credit cards, for one, leading to more confidence in the banks' balance sheets. A bit more spending, as Joe Blow's monthly gets slashed by $200 or so.
But they'll never do that - why let the little guy in on even a few crumbs, when the rapacious bankers and investment thieves haven't gotten their fill just yet? Anyhow, the little guy has to pay for it all.
Several factors make Treasury Notes the rough equivalent of Federal Reserve Notes in a liquidity trap:
* The Fed is buying up Treasuries in order to work its magic, putting upward pressure on their price and downward pressure on their yields. Plus, they don't mind that the gov't can borrow for free.
* When inflation is negative, a 0% nominal yield actually results in a positive real yield - that is, investors get more than 0% increase in purchasing power back. Of course, the real yield on a 8% corporate bond is even higher, but...
* Investors flee to safety, and view Treasuries (backed by the US's taxing authority) as safer than corporates (backed by the potential of future profits in an uncertain economy). Of course, 3% CDs are also taxpayer insured, which brings us to...
* FDIC covers a limited amount (currently $250k per depositor per institution). If you're managing $100MM of cash, it's kinda difficult to spread that out into $250k accounts. And they don't want to walk to the bank and walk out with a wheelbarrow full of $1000 bills... kinda attracts unwarrented attention. So you stick it into Treasuries until the crisis passes over.
Of course, T-Notes and Fed-Notes are the equivalent in many other ways too.
Right. Why would I want to buy a T.bill paying me nothing? Better to sit in cash and wait for good buys in commodities.