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On reading http://www.itulip.com/forums/showthread.php?t=8810, I got to thinking:
Has the US built a machine to convert short term treasuries into long term debt?
Every one seems to be parking their money in 3 month Treasuries as a capital safe haven, a holding zone while they await something else to occur. However, the Fed/Treasury needs them to buy long to get the US mortgage interest rates down.
Is the Treasury selling more 3 month Treasuries than what it needs to finance its current account deficit, then handing some of that money over to the Fed and other US bank market makers, and these agents use it to buy long term Treasuries?
In effect, this is a machine to convert short term debt into long term debt. It will work as long as they can sell more 3 month Treasuries than what they need to finance the deficit. If the market demand for 3 month treasuries drops, or the deficit gets too big, the Fed will have to step in and monetize by buying up the shortfall, just as they are doing now. Once that happens, the quality of the dollar will drop, and the actual or potential buyers will lose capital on FOREX, making the Treasuries even more unwelcome investments.
For those who bought 30 year bonds, they will lose on the discount if they sell before maturity, or lose even more on FOREX over the 30 year term.
Time to find a new game, and a new safe haven, so they abandon US$ as a safe haven; then we have the beginning of the end.
Plausible? Is today the beginning of the end for the US$?:eek:
Has the US built a machine to convert short term treasuries into long term debt?
Every one seems to be parking their money in 3 month Treasuries as a capital safe haven, a holding zone while they await something else to occur. However, the Fed/Treasury needs them to buy long to get the US mortgage interest rates down.
Is the Treasury selling more 3 month Treasuries than what it needs to finance its current account deficit, then handing some of that money over to the Fed and other US bank market makers, and these agents use it to buy long term Treasuries?
In effect, this is a machine to convert short term debt into long term debt. It will work as long as they can sell more 3 month Treasuries than what they need to finance the deficit. If the market demand for 3 month treasuries drops, or the deficit gets too big, the Fed will have to step in and monetize by buying up the shortfall, just as they are doing now. Once that happens, the quality of the dollar will drop, and the actual or potential buyers will lose capital on FOREX, making the Treasuries even more unwelcome investments.
For those who bought 30 year bonds, they will lose on the discount if they sell before maturity, or lose even more on FOREX over the 30 year term.
Time to find a new game, and a new safe haven, so they abandon US$ as a safe haven; then we have the beginning of the end.
Plausible? Is today the beginning of the end for the US$?:eek:
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