The United States of America is an expensive household to run. In order to pay the nation's bills, the U.S. government levies taxes. When expenditures exceed tax revenue, the government has to borrow money. The United States borrows money by ordering the Treasury Department to sell government IOUs to investors in the form of Treasury bills, notes and bonds, known as “Treasuries.”
How much does the government owe? As of Friday, according to TreasuryDirect.gov , total U.S. public debt stood at $10,620,397,126,433.54 ($10.62 trillion) - and counting.
The Case for Treasuries
Investors throughout the world - including those here in the United States - buy Treasuries because they pay interest and, moreover, because they are backed by the full faith and credit of the United States...The extraordinary flow of money into Treasuries caused their prices to rise. When prices rise on fixed-income investments like Treasuries, their yields fall...
Troubled Assets, Troubled Times
Last October, as part of the so-called Troubled Assets Relief Program (TARP), Congress allocated $700 billion to buy “troubled assets” from banks that were losing money. Those institutions were truly troubled...
The initial TARP outlays - about $350 billion - went to suffering banks, in a few cases so they could buy lipstick and pretty themselves up before courting other wallowing institutions ...
None of the TARP bailout money actually went to buying troubled assets from floundering banks...Instead, most of the capital given to banks went onto their balance sheets as a capital asset and most of those institutions bought the highest-yielding government and agency paper they could find...
The other $350 billion that Congress authorized from the original bailout package was released last week , without any clear plan as to where it should go...
Stop the Presses?
As if it isn't frightening enough that the Treasury is selling huge amounts of cheap debt to investors to bail out bloated, insolvent banks and inefficient industries, the Federal Reserve is printing money to buy commercial paper and illiquid assets from just about everybody to facilitate lending in almost every corner of the economy - and is then carrying these “assets” on its balance sheet.
Isn't that how the credit crisis got started, with banks holding illiquid “troubled assets” on their balance sheets?
A Blueprint for a Burst Treasury Bubble
...Boosting debt even as we print more money will have a devastating effect on the U.S. dollar. While a devalued dollar makes U.S. manufactured goods and services cheaper overseas, it also makes the goods and services we import more expensive, as it takes more dollars to buy the same amount of imported products - especially oil..
...There is a much quicker and safer way out of the credit crisis that takes us forward toward an economic recovery. The problem is that no one wants to hear it because no one wants to swallow the politically devastating harsh medicine that's necessary to cure the plague we've infected ourselves with. As usual, there are too many vested interests protecting the same old turf.
Throwing good taxpayer money after badly wasted taxpayer money will not fix anything. But throwing out overly leveraged, overly greedy, overly dependent banks and bankers is a good start...
Read the entire article:
U.S. Treasury Bond Bubble About to Pop - 28th Jan 09
By Shah Gilani Contributing Editor
Money Morning/The Money Map Report
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