Sunday, May 31, 2009

Dumbfounded

Yup.

According to a story from Reuters (linked below) Federal Reserve officials are confounded by the recent steepness in the yield curve for Treasuries. Regardless of their hypothetical ponderings, the wide disparity between the rates for near maturities and those on the long end is caused by investor preference for short-term money.

Unless someone is totally ignorant of economic principles and the consequences of printing money on a whim, then no mystery exists as to why investment dollars are turning tail from the 10, 15, and 30 year Treasury bonds. No rational person fearing the distinct possibility of hyperinflation would dare lock money in for the long term where devaluation destroys the principle and coupon.

(4) Comments
Posted by Owen at 2159 hrs
Economy

  1. So much for the Obama brain trust. I guess they don’t teach that kind of stuff in Law School and political science classes.

    Of course - anyone with even a basic education should be able to suse this out in a few minutes…

    Yes he can, screw up our economy!

    Posted by .(JavaScript must be enabled to view this email address) on June 01, 2009 at 0005 hrs


  2. There is a great quote in that article where a Fed official (presumably an Obama appointee) says that it can’t be the deficits since people have known about those “for awhile.”

    What an idiot.  Things like this take time.  Everyone knew Nasdaq at 5,048 was way too high, but it takes time for it to sink in and the market to work. 

    And what may have also changed here the past two weeks is that Obama is going full force with his healthcare plan, telling people that somehow giving out free health insurance to 40 million underinsured is going to save us money and solve our fiscal problems. 

    People are now coming to realize that Obama, Pelosi and Reid are indeed going to spend at a greater level than any regime previous.  This can be good news.  Only the bond market has the chance to reign in Obama, presuming the market is allowed to work.

    Posted by .(JavaScript must be enabled to view this email address) on June 01, 2009 at 0502 hrs


  3. What people didn’t know about was the percentage of debt that the government would have to buy from itself, iessentially printing money.    Scarily stupid comments from the fed.

    I’ve thought for a while that there are standing orders at the fed to say nothing negative about the dollar given the stupidity of what some are saying.  I think they truly believe this is all just a psychological exercise.

    Posted by .(JavaScript must be enabled to view this email address) on June 01, 2009 at 0747 hrs


  4. Yea, I heard foreign countries, such as China and Saudis are also reducing their treasuries holdings or changing from longer maturity to short maturity ones to reduce their risk.

    Posted by Alex Wu on June 27, 2009 at 2150 hrs


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