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Floating on air: Treasury bills go negative

Tuesday, December 9, 2008, 4:30 PM

Separating truth from fiction, especially when listening to politicians and Fed officials talking about the positive aspects they see in our economy, is never easy.

However, separating words from actions is as easy as pie.

Today, something so unusual happened in the world of bonds that I have to tell you about it. (All quotes below from this one article).

Treasury Bills Trade at Negative Rates
Dec. 9 (Bloomberg) -- Treasuries rose, pushing rates on the three-month bill negative for the first time, as investors gravitate toward the safety of U.S. government debt amid the worst financial crisis since the Great Depression.

If you invested $1,000 in three-month bills today at a negative discount rate of 0.01 percent, for a price of 100.002556. At maturity you would receive the par value for a loss of $25.56.

A no point ever in our history, not during the worst moment of war nor at the most vicious low-point of the Great Depression, have Treasury bills yielded a negative rate of interest.

The Treasury sold $27 billion of three-month bills yesterday at a
discount rate of 0.005 percent, the lowest since it starting auctioning
the securities in 1929. The U.S. also sold $30 billion of four-week
bills today at zero percent

What could this mean?

It could mean that there's still no trust in the system.  Think about what would motivate a large financial institution to accept a negative rate of interest.  What could cause a CFO to decide to place their money in an instrument that is guaranteed to lose money?  All I can come up with is that they are unwilling to entrust their money to any of the large banks out there that are offering positive returns on invested money, because they don't trust that they'll get that money back.  This means that large companies and financial institutions with deep insider connections, and who know the lay of the land far better than you or I, do not trust that their money is safe in any of the large banks.  Think about that for a minute.

Or it could mean that the trillions of dollars that the Fed has now pushed out into the banking system have nowhere to go (or some combination of both).  The only economic reason to accept a negative rate of interest is if you are convinced that prices are falling at a faster rate.

We know that more than $600 billion of the newly created Fed money has been parked straight back into the Fed, where it is earning interest.  As of today, the rate of interest on the money that the banks can borrow is less than the rate that the Fed is paying them.  This means the Fed is offering a negative interest rate. 

Thus, negative Treasury bill rates are our second example of negative interest rates that we've encountered in the past month. 

To call this "unusual" is to engage in an extreme form of understatement.  Unusual means "not usual." A car driving by with dolls glued all over it is unusual.  A car floating by 6 feet in the air is something else entirely and on a par with negative interest rates in a debt-based money system.

So consider the proposition that you are a big bank, you've been handed several hundreds of billions of dollars, and you have to put it somewhere. What do you do?

The first thing you do is you take advantage of the Fed's extremely generous negative-interest-rate money bonanza.  But that will come to an end when/if the Fed lowers interest rates to 0.75% or below, which will almost certainly happen on December 16th:

Futures contracts on the Chicago Board of Trade show odds of 98 percent the Fed will lower its 1 percent target rate on overnight loans between banks to 0.25 percent on Dec. 16. The probability was 38 percent a week ago.

Given that the free money gravy-train is coming to an end, what does a big bank with several hundred billion burning a hole in its pocket do?  Further, suppose that they can't find any qualified borrowers with a sensible use for the money. That money has to go somewhere.

So today's bond action could simply be a reflection of the ending of the Fed's negative interest rate policy, pushing more of that bank money out into new places.

Of course, it is a stunning stroke of good luck (tongue in cheek) that the Fed's money-spigot largess, now spilling over into government bonds, comes at precisely the right moment for a US government that will shatter all borrowing records over the coming months.

The U.S. is headed toward $1.5 trillion in debt sales as the budget deficit approaches $1 trillion in the 2009 fiscal year according to Bank of America Corp. The deficit this year was $455 billion.

Watching all of this unfold is surreal.  What does it all mean?  To what end?  At the end of it all, what is the value of a dollar, when they are being created in greater and greater quantities even as economic activity retreats?

How does government borrowing in these amounts square with the fact that this same government is already hopelessly insolvent with respect to its current promises to future retirees?

Of course, there are no answers to these questions, because they are being asked by too few people.

Our job is to change that.

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26 Comments

Mike Pilat's picture
Mike Pilat
Status: Platinum Member (Offline)
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Posts: 929
Re: Floating on air: Treasury bills go negative

This isn't directly related to this story, but here is a quote I came across today from David Walker, former Comptroller General of the Government Accounting Office:

We must learn the lessons of history. The Roman Republic was the
longest-standing republic in the history of mankind. The Roman Empire
lasted over a thousand years. There were many people that said Rome was
too big to fail. I am sure that most of the citizens of the Roman
Empire felt that way. The simple facts of the matter are that Rome fell
for at least four reasons, and please listen carefully. A decline in
moral values and political civility at home; an overconfident and
overextended military; fiscal irresponsibility by the central
government; and an inability to control one’s borders. Does that sound
familiar? It’s time to wake up, study history, learn from it, and take
steps to make sure that we are the first republic to stand the test of
time.

Let future historians note that America didn't collapse due to a total lack of insight.

 

Here is the excellent article it came from, that outlines all of the money we've loaned and spent and also chronicles the views of "experts" at periods in the recent past: http://www.financialsense.com/editorials/quinn/2008/1209.html

 

Mike

switters's picture
switters
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Re: Floating on air: Treasury bills go negative
Quote:

To call this "unusual" is to engage in an extreme form of
understatement.  Unusual means "not usual". A car driving by with dolls
glued all over it is unusual.  A car floating by 6 feet in the air is
something else entirely and on a par with negative interest rates in a
debt based money system.

I laughed out loud reading that.  Somehow the image of a car driving by with dolls glued on it sent me over the top.

Perhaps it was a nervous, giddy type of laughter that comes with emotional release.  Because this is literally one of the scariest things I've read throughout the entire crisis.  

Even a five-year old could understand that buying bonds with a negative rate of return is just backwards.  Doesn't make any sense at all.

I think this is one of the clearest indications that things are about to really turn upside down. 

gregroberts's picture
gregroberts
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Re: Floating on air: Treasury bills go negative
Here's an article that I found in my email, nice to have a conspiracy theory to explain the unexplainable, maybe that's what they're for,  ;-) 
"Rich working to Bankrupt the Middle Class, world economic system now infected with toxic waste, golden parachutes for some and hyperinflation for others, a better plan would be to give a cheque to everybody, plans to help people won't really be implemented, credit problems thicken. We were hit with the greatest act of terror in our nation's history on 911, an intelligence failure of the highest magnitude, and no one got so much as a hand-slap while many even got promoted.  Now we have the world's greatest financial failure, and not only do we not see anyone getting a hand-slap, we see each of the very people responsible for this debacle getting golden parachutes and bonuses in the tens of millions of dollars as they resign in disgrace, and few are fired other than the hard-working employees who had little or nothing to do with making the big decisions that brought about the ruination of their companies.  There is no such thing as responsibility or accountability anymore for our leaders in government and business.  
    Perhaps this is the comeuppance of a society that teaches moral relativism.  They did what was right in their own eyes, so who are we to condemn them?  But the most cogent reason for this lack of accountability is that our governmental and business systems have been corrupted in their upper echelons by the Puppet Masters and their bootlicking, puppet sycophants.  The satanic trillionaires, the Illuminati, who we just referred to as the Puppet Masters, such as the Rockefeller's, the Rothschild's and the Black Nobility of Europe, who run the world as everyone's shadow government, are rewarding the people who are responsible for causing these disasters because these people have done exactly as they were told.  For these people to have done otherwise would have been very bad for their continued health and/or their reputations.  They were all following orders and knew exactly what they were doing.
    The many events surrounding 911 and the various forces and causes behind the current financial catastrophe have been carefully planned and implemented for many decades by the Illuminati.
    The purpose of 911 was to scare sucker-dupe Americans into giving up their many precious Constitutional freedoms and protections, with the ultimate goal being to have Americans abandon the Constitution and give up their sovereignty in favor of global governance, with a regional arrangement such as the clandestine Security and Prosperity Partnership of North America (SPP) sufficing as a stepping stone to a one-world Orwellian police state.  As a bonus, via 911, they were able to shed more of our children's blood in yet another phony, false-flag war for profit so they could continue to line their pockets with trillions of dollars along the way to their precious one-world government.  Then, as an added bonus, this pathetic group of satanic sociopaths and malefactors arranged for the staged election of the King of Abortion as our next President so that more innocent blood could be shed on the alter of world government.      After all, we can't have a bunch of pesky new children running around, thus clogging up the system with too many serfs who the Illuminati could not easily control.
    The purpose of the current financial catastrophe was to infect the entire world financial system with toxic waste and other unregulated derivatives, also known as financial weapons of mass destruction, to bring it crashing down so that a single world financial system with a single medium of exchange could be set forth as the suggested solution and then crammed down our throats in yet another nauseating and tiresome iteration of the Hegelian Dialectic.
    The Illuminati will attempt to blame the resulting financial debacles on the cutthroat competition and rampant cheating that goes on between the various national economies, meaning that we have to have a single world financial system with centralized regulation and oversight to put an end to these shenanigans so we can all work together toward world financial prosperity.  But in reality, it is the Illuminati themselves who are the root cause behind all those shenanigans, which they continually wage in furtherance of their plans to implement a global, corporatist, fascist police state of Orwellian feudality.  And the only financial prosperity they intend to bring about will not be the world prosperity, which they will promise.  The prosperity of the would-be masters of the universe is the only prosperity anyone will ever see if they are allowed to implement their one-world government and global financial system.  The rest of us will live in Halliburton-built, slave-labor internment camps, enjoying our daily cup of gruel as we are worked into an early grave for Illuminist fun and profits, while our children are sent to centralized disinformation camps to be brainwashed and programmed into good, little, compliant serfs so they can serve their satanic masters with alacrity and enthusiasm.
    Hence, the Illuminist henchmen-destroyers get their disgusting golden parachutes while the rest of us get hyper-inflated into oblivion.  What you see happening at the corporate level is a microcosm of what these miscreants have in store for everyone on a global basis.  They get the gold mine; you get the shaft -- the Illuminist plan in a nutshell.
    If we are going to hyper-inflate our economy into oblivion, at least let's do it the right way.  Throwing trillions at failed financial and business institutions saddled with moronic, outdated business plans aimed at bringing about the intentional destruction of these companies in order to bust unions, to ship our good-paying jobs overseas and to implement a centralized global economy and government, while simultaneously rewarding the morons who destroyed these institutions by continuing their employment, while throwing in hefty salaries and bonuses to boot, is, it would seem to us, hardly an intelligent use of the printing press.  Let's at least give the sheople one final party before we send them to forced labor internment camps or draft them into compulsory cannon fodder service and send them overseas to meddle in everyone else's affairs as they get blown up by IED's.  Let's give them a blindfold and one final cigarette before we execute them with hyper-stagflation.
    It should be obvious that throwing hundreds of billions into a black hole of losses numbering in the tens, and perhaps even hundreds, of trillions (i.e. the Quadrillion Dollar Derivative Death Star), is like trying to empty the Pacific Ocean with a coffee can.  Let's take ten trillion and buy out all the mortgages in the US, and then modify all the interest rates to a 5% fixed rate.  We can float 10 year treasuries at 2% to fund the deal, and pocket the 3% spread of $300 billion, which we can use to shore up our budget deficit, to rejuvenate zombie corporations after we run them through Chapter 11, and to make loan workouts for those who can't even afford 5%, which would number in the millions, because fogging a mirror was the only qualification for getting a mortgage over the past five or so years.  This will cure all real estate defaults and immediately convert the toxic waste into real AAA paper for the first time while everyone gets to buy a new house at 5% fixed also, thus saving the real estate market.      The banks, now flush with cash, can start lending again because their balance sheets have been restored, and get back into the mortgage business by doing both refinances and purchases, while our foreign owners of agencies and treasuries rejoice, and while owners of what was once toxic waste start tap dancing on the ceiling.  As the government-owned mortgages are paid off, we can use the proceeds to either float new mortgages at a 3% spread, or we can use the payoff money to pay down the ten trillion dollar treasury loan and let the banks take over again, this time with oversight and regulations that will put people in jail if they pull their cute little scams again.
    We can then also float another ten trillion dollars in bonds at 2%, and give every American, young and old, $33,000, which they would have to use with the following pre-established priorities:  (1) Cure any mortgage defaults, (2) pay off any credit cards and car loans, and (3) buy a hybrid car that gets 30+ miles per gallon from an American car manufacturer, or in the alternative, set up an IRA funded by gold and silver to protect against the upcoming hyperinflation, or for the younger citizens, set up a college fund if they can qualify for college.  That will cure all the consumer loan defaults and restore value to all the derivatives associated with them, revive our manufacturing sector, solve our energy crisis, provide reliable transportation so everyone can get off welfare and go to work, get our kids educated, and set us all up for retirement with inflation-proofing through gold and silver, while pushing trillions in available loan funds back into the banking sector to totally re-grease the system.  What the heck is $20 trillion when we already owe $100 trillion?  Sure, it's certainly hyperinflationary, but what is the alternative?  The alternative is a purging of the system and ultimate decade long depression for the world financial system with a major war as the cure, which the Illuminists will use to destroy our precious Constitutional rights and pave the way for a one-world government.  The same will happen if we hyper-inflate, but much further down the line, and you at least get to have one final party together with some gold and silver protection, and who knows, we might figure a way out in the meantime.
    You will never see such a plan implemented, because as should be obvious from the $700 billion Paulson Ponzi Plunder Plan, the idea is to bankrupt the middle class, and not to save it, by pumping taxpayer largesse into failed and insolvent banking and business entities so that the dollars are wasted and are used to destroy the middle class with hyper-stagflation, while Illuminist executives walk away with trillions in salaries, bonuses and stock dividends after buying up all the smaller fry in a fresh round of competition elimination.  The Illuminists want to play god with your money and decide who lives and dies in the business world.  Obviously it is their crony capitalist companies that will survive, while everyone else heads off to see the bankruptcy trustee, who will then auction off all their assets at pennies on the dollar to newly formed and nationalized Illuminist super-conglomerates that will swallow up all the old discarded, insolvent Illuminist companies that have sucked out the value of our money through their black hole of losses.  These new super-conglomerates will form the backbone of our new corporatist, fascist, Orwellian police state.  As we said, they get the gold mine; you get the shaft.  Expecting the Illuminati to do anything that would benefit working Americans is a form of insane delusion.
We are told that the Federal Reserve may cut interest rates another ½% to 1% in December.
Normally, when the Fed cuts rates, credit-card issuers follow suit, resulting in lower monthly payments for cardholders. Rates have generally fallen slightly, but banks and retailers are trying to offset rising costs and loses by raising fees.
Those with less than perfect credit ratings and those with excellent credit ratings are having credit lines cut dramatically. They are raising rates on cash advances and overdraft protection. JP Morgan Chase will start charging a new monthly fee of $10.00 for cardholders who have been carrying large balances for at least two years, while raising their minimum monthly payments to 5% of their outstanding balance, from 2%. Citigroup’s Citibank and American Express will raise such rates 2% to 3%. Amex is raising its rates on cash advances, late payments and defaults, increasing its foreign-exchange fee to 2.7% from 2% on its consumer and small-business cards and eliminating ways to earn rewards on one of its popular cards.
Home Depot is reducing credit lines on its in-state cards. Nordstroms and Target are raising interest rates on in-store cards
In the third quarter credit card losses at issuer banks were over 5% of total credit card balances and are poised to deteriorate further. This is why interest rates are climbing and fees are rising. You get penalized because others do not pay their bills. Now you can better understand why we have been telling you for the past eight years to eliminate credit card and revolving debt. It is the most expensive of all debt.
Credit card use in the second quarter fell 5% from the first quarter to $663 million, the biggest drop in several years.
Promotional deals are being done away with or cut back as are reward programs. You will see them in next month’s mailing or you’ve already noticed some changes.
All we can say is pay off those balances monthly as they occur and get rid of debt balances ASAP."
jdownie's picture
jdownie
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Re: Floating on air: Treasury bills go negative

Here is an interesting article, by, yes, that Antal Fekete. Keep in mind though it was written in 2007.

www.professorfekete.com/articles\AEFCanWeHaveInflationAndDeflation.pdf

I think Exter's Pyramid is growing very fat around the middle, how long before the fat slides to the bottom?

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Lemonyellowschwin
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Why scary?

Sorry all, maybe I'm being dense here, but why is this scary?  I understand that people are looking for a perceived safe haven and are willing to lose a bit of money to have most of their money returned to them.  I have my arguments with their strategy, but whatever. 

But why is is scary?  To me, scary would be when the price goes down, the yield goes up but yet no one is buying.  An "auction failure."  Help me out here.

GDon's picture
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Re: Floating on air: Treasury bills go negative

Hmmm....

Can things get weirder?

If the FED and USTreasury are intentionally flooding money (as they must), perhaps the Bond markets reflect that they are directing their next "bubble" at Goverment lending and debt.

It would appear that the huge reserves on Bank balance sheets, not being lent to the private sector (or other banks), are being limited to "investment" in negative-return Government borrowing and debt.

What does a government (like ours) do with this helicopter drop of devalued currency into the coffers?

Is this a wind-up for the next New New Deal in the USA, looking at internal employment of the vast unemployed?

Will governments compete with each other for world commodities, for use in internal infrastructure and domestic employment, killing international trade?

"Personal and Corporate Debt be damned, but the US Gov gets the money first" appears to be the play.

If so, that would leave government agencies and corporations set to do public bidding as the first-in-line recipients.

Ultimately though, foreigners are going to eventually need to repudiate the US debt instruments, or be left holding an empty bag, and it is hard to see how a bankrupt borrower gets to continue to persuade lenders to offer such "amazing" rates for very long.

Perhaps just long enough for the new Administration to announce a record litnany of programs....

So... does this scenario look plausible?

Global Deflation ->    $ into Bonds ->    $ into US Gov ->    $ into Infrastructure & Debt rollover (locked-in on cheap commodities) ->    eventual Commodity inflation"

Curiouser and Curiouser......

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Re: Floating on air: Treasury bills go negative

Is it safe to be in treasury money market funds anymore?  Seems like they could break the buck if too many new treasuries with negative interest rates are bought by the fund.

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Re: Floating on air: Treasury bills go negative

My 100% move into treasuries this summer keeps getting better and better.  Soon Bernake will start buying treasuries to push down the yields of the long term bills.  We are headed toward a very very flat yield curve.  Anyone still not believing in a deflationary outcome?

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Re: Floating on air: Treasury bills go negative

Actually I do not find this odd at all.  I expected that we should see negative interest rates at some point.  Why?  There simply isn't enough paper money out there to satisfy demand.  If you were a large corporation and you had to have cash to pay your employees and suppliers at the end of the month what would you do?  Put it in the bank?  That is ok if the amount that you need to hold is less than the FDIC guaranteed amount but what if your cash needs are several orders of magnitude higher than this?  Would you put all your money in an uninsured account hoping that it would be there when you need it?  Of course not.  Too many banks have already failed and many more are likely to do so in the near future.  So you buy short term treasuries instead.  It matters not that you are not earning any interest or that you may even have to pay a "fee" for the Treasury to hold your money for you until you need it.  In other words, treasuries have now become the equivalent of Federal Reserve notes for large amounts.  Simple isn't it?

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Re: Floating on air: Treasury bills go negative

Hey do you know how to get out of a great depression?   Yes, thats right.  War.  World War III. 

 

Personal prediction:  much of it will be fought on American soil.  That would be the first war on our land since the civil war.  Except all the soldiers will be starving the whole time, and the countries they are fighting for won't be whole nations when they are done.  AND, their hummers will run out of gas all the time, so it will be mostly fought on horses and foot, civil war style.  How ironic.   

 

By the way, I don't buy any of that Illuminati crap posted above.  The illuminati is better known as the collective human (un)consciousness, which causes us to f%#k ourselves over again and again and again.  The Romans did it, and we will too.  Sadly, our kids will do it also, unless we write lots of books telling them not to do it at all costs.  Of course being people they will think that they are smarter than us, and try to modify a fundamentally flawed system, only to watch it all burn to the ground again.   Everything is a wave.

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Re: Floating on air: Treasury bills go negative

cm, et al

Some questions, some comments

Think about what would motivate a large financial institution to accept a negative rate of interest.

If you are a primary dealer you might be working at the behest of the Fed. IE, the motivation might not be economic in the sense of profit.

 

...they [CFOs] are unwilling to entrust their money to any of the large banks out there...

Or it could mean that the trillions of dollars that the Fed has now pushed out into the banking system has nowhere to go. (Or both) ...

Longer term treasuries should have been available. Couldn't the money have gone there if they had so chosen rather than buying the 3mo with a negative rate?

The only economic reason to accept a negative rate of interest is if you are convinced that prices are falling at a faster rate.

They are falling quickly, aren't they? Still, knowing who bought these bonds, or for whom would be valuable. If it was a foreign entity whose currency is falling relative to the dollar, the return in their currency might, in fact, be positive. Isn't that right? 100xyz=100dollars now Later 99dollars(from treasury bond)=110xyz. Why they wouldn't just sit on the dollars, I don't know.

 

the rate of interest on the money that the banks can borrow is less than the rate that the Fed is paying them.

 

I don't understand. The banks can borrow at FF or higher, and the Fed pays FF on reserve and excess. The minimum bid rate at the TAF auctions is FF. Was your statement intended as a reference to the worthless junk taken as collateral?

The first thing you do is you take advantage of the Feds extremely generous negative interest rate money bonanza. But that will come to an end when/if the Fed lowers interest rates to 0.75% or below which will almost certainly happen on December 16th:

Buying treasuries paying neg rates -- how is that taking advantage? You're giving up investable dollars for promise of future payment as you said. I'm sure I missed a transition here, can someone elaborate please.

BTW, Mish had a good article explaining why real interest rates are still quite positive if you use the Case Shiller CPI rather than the Owner Equivalent Rent version.

http://globaleconomicanalysis.blogspot.com/2008/12/case-shiller-cpi-vs-c...

 

At the end of it all, what is the value of a dollar when they are being created in greater and greater quantities even as economic activity retreats?

This is a good question. You might find an answer in a course by some guy named Martinson ... <g>

But, in this particular instance, the purchase of treasuries, dollars are removed from the system, ie the money supply is decreased. I'm sure these dollars will be returned to the system quickly, but they would be sterilized, no increase in money supply beyond that existing before the treasury sale. Isn't the sale of treasuries the most common Fed open market action to reduce liquidity?

 

Also Mish article this evening looks at some Fed data, like the M1 multiplier which shows that the money base increase is not going into M1. He also said "The only other time we have seen base money supply soar like we have now was during the great depression and World War II, neither of which was a hyperinflationary event to say the least."

http://globaleconomicanalysis.blogspot.com/2008/12/huge-demand-for-treas...

Negative interest rates, gold backwardation, sub-prime collateral for the Fed. ... If there is enough of civilization left and I'm still around, I hope somebody is taking notes for a book. I think I hate living in interesting times.

-Caasi

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Re: Floating on air: Treasury bills go negative

There is an elegance to the fed's quantative easing.  The more they inflate (print money), the more treasury rates are driven down which signals deflation.  

Its the perfect cover for an inflationary monetary policy.

And better yet, it provides cover for fiscal policy as well.  

If one accepts the deflation signals, then one might also accept the story that there is true demand for US government debt at these rates (under the premise of "real yields"). 

Well done, ben! 

 

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My Take - Another Nail In The Coffin?

After reading this latest article, the past information Chris has presented in other posts...then reviewing litany of financial rates...draw three broad conclusions.

 

1.)   Actions by government...subsequent results on financial system are not working even close to properly (leave it at that) at increasing rates.       A given...Chris and others have explained why.

 

2.)   National and World economies are weakening at rates putting more stress...not less stress on world systems beyond most decision-maker expectations.    Like a negative feedback loop.

 

3.)  System broken.   Pressure is building within the "cooker"...do we understand where the gauges are and can read when/where we've passed the "red lines"?   Which ones will be key to diagnosing where the "points of failure" will first occur?

Since this not sustainable...increasing risks for potentially even more non-linear unforeseen actions (uh-oh).  Tremendous pressure will be released from the "cooker" like a spring that will be released with inflation (currency collapse<s>?) overwhelming and invalidating past financial decision-making successful criteria.   Is a financial/economic collapse possible at rates, scopes and breadths beyond many of us can envision.   How much times do we have?   How can government solve that when they're the architect? 

 

Consider latest post evidence of another dot toward this risk being higher than ever and more non-linear.

 

Nichoman

 

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Headless
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Re: Floating on air: Treasury bills go negative

And now for reality: Consider how you would feel about your gold if your neighbor discovered how to create gold by combining water and wood pulp, and every time you looked out your window, your neighbor was producing piles and piles that overflowed into the streets and were being trucked off to his bank...

Consider these bonds which are being purchased at a loss: 

1. These are U.S dollar-denominated bonds;

2. "People" (banks et al) who have billions that need to be stored, have safe enough safes (or hard drives for the 1's and 0's) which would secure Whole dollars in lieu of the partial dollars that the bonds are offering; they thus have no need to buy bonds--at a loss--from the Greatest Criminal Organization of all time, the U.S. Treasury--unless they are a supporting pillar in the ponzi scheme;

3. I don't know what the mechanism is, but you can bet that this is a short squeeze, an exploitation of circumstance, or a confidence game that is being perpetrated by the same people that brought you oil at $147 and the SKF and the SRS at $300; that is to say, this ( a negative return on a Toilet-Paper denominated (water and wood-pulp) bond) is simply more manipulation by those who have enough wealth to maintain the irrationality of the market longer than sensible people can remain solvent. There is no other way to make sense of it, no matter how loud you scream: "Flight to quality." "Quality" still has an accepted connotation due to standard use; it comes nowhere near to denoting "loss" or "stupidity."

A few truths:

Oil should never have reached $147 in a manipulation-free market;

natural gas should not have doubled and halved in the space of 5 months;

solar stocks that had P/E's of 1000 should never have had P/E's of 1000;

189 stocks that increased by a factor of 10 or more between late 2006 and late 2007 (One Year!) never should have done so--in a manipulation-free market!;

finally: Every commentator on CNBC et al that continually, and with a self-deluding lack of remorse, attempts (and has attempted) to "explain" and rationalize every irrational movement of every stock and index is as guilty of the damage done to innocent, hard-working, save-every-cent-for-our-kids-education families as the criminal elements that manipulated the stock prices to absurd levels and siphoned off the wealth of endowments and retirement funds and the college tuition.

Maria Bartiromo: Guilty--for a long, long, long time!

Larry Kudlow: Can't behead the headless--you can only find them employment at criminal networks.

Dillon Ratigan: A lot late!

Mark Haines: Occasional moments of clarity.

Joe Kernan: It must hurt to be that smart and find it necessary to completely disregard one's inner voice.

Jim Cramer: They don't sell guns at Kmart anymore, but he could buy one elsewhere and save the world a lot of pain.

Trying to explain why unreasonable things happen without first exploring the obvious and most likely explanation, criminal manipulation, renders the explain-or just another idiot like those who have been "explaining" every move of every stock every obnoxious minute of every trading day on CNBC et al for the last 15-odd years of market manipulation. Everything is Market Manipulation--by people who have ungodly sums of money; it's all coming to an end soon...because the city is in ruins, the pillaging is complete, the women have been had, and  there is little enjoyment in fuc*ing the dead!

The Catch 22 for those who have perpetrated this destruction of a country: They may have enough money to move to countries that don't have extradition treaties with the U.S. when the real end arrives, but it's not hard to "disappear" on Any Given Night in countries with such governmental morals. Have a nice trip!

 P.S. There is a new card game going round: Parrots and Idiots:

A deck of cards (with caricatures of sack-the-middle-class financial show hosts).

One person picks up a card and acts either like a parrot or an idiot (with artistic license based on recent events).

The first person to guess which CNBC (et al) commentator it is wins the card.

The next person takes a card.

The person who wins the most cards has to by drinks and apologize for...

 

kiwidave's picture
kiwidave
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krogoth's picture
krogoth
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Re: Floating on air: Treasury bills go negative
Nonzeroone wrote:

 

finally: Every commentator on CNBC et al that continually, and with a self-deluding lack of remorse, attempts (and has attempted) to "explain" and rationalize every irrational movement of every stock and index is as guilty of the damage done to innocent, hard-working, save-every-cent-for-our-kids-education families as the criminal elements that manipulated the stock prices to absurd levels and siphoned off the wealth of endowments and retirement funds and the college tuition.

Maria Bartiromo: Guilty--for a long, long, long time!

Larry Kudlow: Can't behead the headless--you can only find them employment at criminal networks.

Dillon Ratigan: A lot late!

Mark Haines: Occasional moments of clarity.

Joe Kernan: It must hurt to be that smart and find it necessary to completely disregard one's inner voice.

Jim Cramer: They don't sell guns at Kmart anymore, but he could buy one elsewhere and save the world a lot of pain.

 

I stopped watching CNBC about 2001. Back then the garbage they were spewing was ridiculous. These people should all be included in the heads that should roll list. 

 

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Mike Pilat
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Re: Floating on air: Treasury bills go negative

I agree, CNBC is the most twisted and factless form of "news" we have on tv.

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skyriver
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Re: Floating on air: Treasury bills go negative

This makes the most sense of all the things I'm reading here.  When I search around for where to safely park money, the Treasury bills are the only thing I can come up with, regardless of a guaranteed loss.  The known, predictable loss is safer than the unknown, unpredictable loss.

capesurvivor's picture
capesurvivor
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Re: Floating on air: Treasury bills go negative

Jim Rogers, still on target but looking old:

 

 

SG

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malpert
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Re: Floating on air: Treasury bills go negative

Negative interest rates increase the demand for physical currency (Nominal rate = 0%)

Therefore the Fed will need to "store" institutional dollars at a minimum of 0% interest as an institutional alternative to the negative rates offered by T-Bills.

Otherwise, we might see 100% non-fractional reserve banks begin to arise, storing billions of physical dollars.  Unlikely that the Fed would approve of this strategy. They'll provide the alternative.  

 

 

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Doug
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Re: Floating on air: Treasury bills go negative

 

In a NYT column today VIKAS BAJAJ and MICHAEL M. GRYNBAUM basically take the line that US treasuries are still the safest place to park money that has to go somewhere.

http://www.nytimes.com/2008/12/10/business/10markets.html?th&emc=th

Quote:

In the market equivalent of shoveling cash under the mattress, hordes of buyers were so eager on Tuesday to park money in the world’s safest investment, United States government debt, that they agreed to accept a zero percent rate of return.

The news sent a sobering signal: in these troubled economic times, when people have lost vast amounts on stocks, bonds and real estate, making an investment that offers security but no gain is tantamount to coming out ahead. This extremely cautious approach reflects concerns that a global recession could deepen next year, and continue to jeopardize all types of investments.

Quote:

Investors accepted the zero percent rate in the government’s auction Tuesday of $30 billion worth of short-term securities that mature in four weeks. Demand was so great even for no return that the government could have sold four times as much.

In addition, for a brief moment, investors were willing to take a small loss for holding another ultra-safe security, the already-issued three-month Treasury bill.

Quote:

The rapid decline in Treasury yields — which since summer have headed toward lows not seen since the end of the World War II — also renders the Federal Reserve less effective, as investors and banks stuff the money that the central bank is pumping into the financial system into Treasuries, rather than fanning it out across the broader economy.

“The last time this happened was the Great Depression, when people are willing to accept no return on their money, or possibly even a negative return,” said Edward Yardeni, an independent analyst. “If people are so busy during the day just protecting the cash they have, it’s not a good sign.”

Quote:

If there is a silver lining to the Treasury market’s gyrations, it is that the United States can borrow money more cheaply from investors, whether they be the governments of China or Japan, or big fund managers. That could help Washington finance various programs intended to revive the ailing economy.

That's a silver lining?  When are these investors going to decide they already own too much of our worthless paper?  And, what happens then?

Quote:

Another reason, analysts say, that Treasury yields may be falling is that foreign investors are using American government securities to protect themselves against the falling value of their own currencies. Many investors are also pulling money out of mutual funds and hedge funds, forcing portfolio managers to sell more risky assets and hold Treasuries, which are easier to sell.

This looks very much like another bubble.  There will be hell to pay when it bursts.

I'll be very interested to hear what Chris has to say about this today on the webinar.

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bobbybrasko
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Re: Why scary?

Why wouldn't you just keep your money in cash?

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the5thw
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Commissions and Fees

Is't the point of a fee's-based incentive system simply to move money regaurdless of any rational purpose or value?  The economy and government is run by the benefactors of this socially and biologically insane business model.  The profit of their cabal is computed on volume, completely divorced from content.  This post on Joe Nocera's blog really opened my eyes to this reality.  http://executivesuite.blogs.nytimes.com/2008/11/26/pik-your-own-poison/

Once it is given that this won't change, we need to decouple ASAP.  Chris your post here is eloquent and clear to this layman with no dog in the fight of global finance, but with the conceptual tools taught in the Course. You are really teaching us how to fish.  Perhaps we need to get some emphasis on solutions here.   The problem and its creative resolution was updated from Classical times about 40 years ago. Nothing out there today is close to the synthetic thinkers of my youth, where economics was a subset of anthopology and biology.  I don't even hear the foundational truth any more that life and consciousness developed by doing more with less. 

fisherdi's picture
fisherdi
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Re: Why scary?

Whats so scary is that it indicates to us that people are so concerned that they are not going to get their money back when they deposit it in a bank that they are willing to except negative returns by buying treasury notes. Essentially there is no faith whats so ever in our banking system. The problem with this is although much effort has been made by the fed through extrevagent stimulus packages and extraordinarily low interest rates no one is willing to lend money to the banks and thus peoples ability to get there hands on credit is limited. This puts a huge speed bump on growth. So what is scary?  Its what negative yields indicate and what negative yields indicate is a whole lot of uncertainty. When people are uncertain they are less likely to invest/ spend that money and that dramatically reduces economic activity.

 

Dillon

 

 

fisherdi's picture
fisherdi
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Re: Floating on air: Treasury bills go negative

Well negative yields or not. I think that the US has had its day and treasuries will soon become worthless. The reality is the current account deficit is swelling at an extrodinary rate i.e the US is getting further and further into debt by the day. The problem with this is the US is broke. AS Chris says you have to ask yourself the question how  does the fed pay back its creditors( China, Japan, Europe and the rest of the world). It certainly does not produce much anymore i.e export products to the rest of the world and pay them back with proceeds. I personally can only see one feasible option and that is to go to the printing press and simply print money. This is all good and well but this is entirely inflationary. Essentially inflation erodes purchasing power and that means that everyone who holds dollars now will be able to buy less with those dollars tomorrow. In my opinion it is only a matter of time before china, japan and the rest of the world see this and start pulling there money out of treasuries and putting it else where. This in turn will see the USD plummet as treasuries get sold off at an alarming rate.

 To create an analogy, when you an investor have shares in a company lets say Lehmans brothers and you hear that they have made some bad investments and that the company is in a whole lot of trouble what do you and the rest of the shareholders do? You dam well sell your shares and get out while you still can. Especially when you see that the company is broke and facing potential bankruptcy. This can be no more true than treasuries. People will eventually wake up to the predicament of the US and this will cause a massive run on the US (just like a company/ bank) where holders in treasuries scrap to get out of there treasury bonds causing the USD to fall like a stone.

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fujisan
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Posts: 296
Re: Floating on air: Treasury bills go negative

Could it be russians buying massive amount of dollar as the rouble goes into abyss?

Russians Buy Jewelry, Hoard Dollars as Ruble Plunges (Update1)

They still see the dollar as a "safer" haven!!!

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