Treasury was able to obtain $30 Billion in interest free loans today from the U.S. bond market as 3 month t bills dipped below zero for the first time since 1940. Investors are showing their real fear of the economic situation. They have foregone any risk and are essentially paying treasury to hold their money. There is more concern over counterparty risk and deflation than anything at this point in the market. Lenders are concerned that those on the other side of the trade will not be able to repay. The sale is good for taxpayers and the government, however, as the U.S. needs more financing to bail out the big institutions of this country. The massive flight to safety in these bonds has usually indicated that a more drawn out economic downturn is in sights. A quick recovery is out of the question.
The negatives outweigh the positives in this situation. At the very least the U.S. is financed for another 3 months with most of these bonds most likely going into the hands of foreign governments such as China, not necessarily the U.S. business environment. Thirst for the safest assets in the world are probably growing at fever pitches everywhere. There is an exacerbation, a sudden quickening of the financial imbalances between governments taking place. One has to wonder how quick this is moving and where it will go in the next few months. If a snap is about to take place. Systemic risk may be approaching critical levels. If China is purchasing these bills it may be trying desperately to continue its stimulation of unprecedented growth. The money being pumped into this country may even further harm the structure of our society while the imbalances become even greater in terms of what we produce and what we consume.
http://www.theatlantic.com/doc/200801/fallows-chinese-dollars/4
http://www.guardian.co.uk/business/feedarticle/8135756
http://latimesblogs.latimes.com/money_co/2008/12/wall-street-kee.html
http://latimesblogs.latimes.com/money_co/2008/12/some-investors.html
Tuesday, December 9, 2008
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