Sunday, December 07, 2008

Treasury + Bailout = Zero

Everybody loves Treasuries these days, because all of the alternatives look so bad:

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.
(snip)

Analysts say the fear factor has pushed up demand for Treasuries, since investors are virtually certain the US government will not default.
(snip)

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.