The panic in global financial markets has sparked an unprecedented rush into safe US Treasury securities, driving yields on short-term government notes down to almost zero.
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Analysts say the fear factor has pushed up demand for Treasuries, since investors are virtually certain the US government will not default.
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A bursting of this bubble could mean a rush out of Treasuries, forcing the government to pay higher rates on an unprecedented amount of debt.
My regular readers know by now that I only highlight the most important points of an article that catches my eye. To make a long story short, the financial panic has yielded a short-term window of opportunity for Uncle Sam to issue ginormous amounts of short-term debt at virtually no cost. This is very enticing to debt-addicted Keynesian policymakers, who continue to seek deficit financing for bailout goodies aplenty.
Stories like this prompt idle speculation about a potential U.S. Government default. I believe a sovereign default is a very remote possibility as long as the Federal Reserve is chaired by an academic whose life's research has been a search for tools to prevent just such an outcome. I think we'll be hearing a lot more about "quantitative easing" in 2009 . . . more than we would ever want to hear.
I do not waste my money on investments that pay nothing. I do not hold Treasuries at this time. I would love to hold Treasuries at some future date when the U.S. government is forced to pay through the nose for the privilege of crowding out private sector investment.