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Most of the foreign debt is 1-5yr bonds. So basically, we've taken out a teaser rate on our debt similar to how loser home speculators took our teaser rates hoping to "flip this house" to the next sucker. When those bonds mature, what is the likelihood that hot money, likely bought by other central banks rather than individual investors, will be reinvested into another short term treasury security? None.
I never said it was going to have a positive effect - in fact I said just the opposite, but it's hardly a disaster, was to be expected at some point, and in fact reflects the relative good news in the overall trends of what's happened so far in regards to the recession approaching the bottom. And of course, bond rates are still VERY LOW even now.
Ken
are you saying russia selling their treasuries was to be expected?
are you saying russia selling their treasuries was to be expected?
No, I'm saying it's not indicative of some mass sudden dumping of the dollar. The fact is, NO ONE can afford to let that happen - NO ONE - not the US, not the Chinese, not the Russians.
No, I'm saying it's not indicative of some mass sudden dumping of the dollar. The fact is, NO ONE can afford to let that happen - NO ONE - not the US, not the Chinese, not the Russians.
Ken
Fear mongering BS with zero evidence to support it.
Consuming is so fun and easy, and anyone can do it. Well, anyone with something reciprocal to exchange. That's where new trade agreements between Aus <-> China, Russia <-> China, Vietnam <-> Aus, etc come in. America is irrelevant to these countries, as evidenced by the recent dollar dumping and stalling of treasury purchases.
But TurboTax Tim suuuuuuuure is entertaining to the Chinese students.
No, I'm saying it's not indicative of some mass sudden dumping of the dollar. The fact is, NO ONE can afford to let that happen - NO ONE - not the US, not the Chinese, not the Russians.
Ken
Never say never.
The talk of this started months ago. There are deals in place already to use other currencies. The number of countries in favor of replacing the dollar is growing.
I don't think there would be a mass dumping. I think it would take place slowly as it seems to be doing today.
I may be wrong, but I don't think so (someone feel free to correct me if I'm wrong - but provide proof). I believe the rate on such government debt is determined at the time of sale - meaning that current debt interest rate is already fixed at whatever rate it was sold at to begin with, so a jump in rates now only affects bonds that are sold at the new rate - not all the other bonds sitting out there.
I am incorrect in that assumption?
Ken
Kind of correct.
Yes, the rates are determined at the time of sale, but in the past, the government has been known to refinance higher yielding bonds with lower, newer rates yielding a HUGE savings to the taxpayers. Clinton used this method substantially to cut down on the national deficit to help balance the budget.
With the rates going up, it means that as the lower 10 year bonds sold during the Clinton administration mature, they need to be refinanced at the current, new, higher rates that bonds are being sold for.
Kind of correct.
Yes, the rates are determined at the time of sale, but in the past, the government has been known to refinance higher yielding bonds with lower, newer rates yielding a HUGE savings to the taxpayers. Clinton used this method substantially to cut down on the national deficit to help balance the budget.
With the rates going up, it means that as the lower 10 year bonds sold during the Clinton administration mature, they need to be refinanced at the current, new, higher rates that bonds are being sold for.
Actually, 10 year bonds sold during the Clinton years were mostly set in 5-6-7% range (with very few sold below 5% - and none below 4%, lowest I see on the table (remembering that I've got OLD eyes) is around 4.16% and those super low numbers were only for a VERY SHORT TIME) so until we get significantly higher than we are now, renewing 10 year bonds is a GOOD deal for the US government.
So, the method you describe Clinton doing is a very real possiblity for Obama - and in fact we may be doing so (I don't know). As I said, 4% rates are very very low by historical standards. Under Reagan they got up to close to 16%.
Actually, 10 year bonds sold during the Clinton years were mostly set in 5-6-7% range (with very few sold below 5% - and none below 4%, lowest I see on the table (remembering that I've got OLD eyes) is around 4.16% and those super low numbers were only for a VERY SHORT TIME) so until we get significantly higher than we are now, renewing 10 year bonds is a GOOD deal for the US government.
So, the method you describe Clinton doing is a very real possiblity for Obama - and in fact we may be doing so (I don't know). As I said, 4% rates are very very low by historical standards. Under Reagan they got up to close to 16%.
Ken
Yes, Clinton was refinancing those Reagan bonds for a HUGE savings to the taxpayers. The problem was they didnt save, they just increased spending. (i.e. government).
Jan 99, bond rates were at 4.3% so yes, a refinancing of them now would = savings until you start to add in brokers and underwriting fees which are computed on top of the interest paid. Dont know what the fee is, but we arent that far away from 4.3% right now so it wouldnt be hard to see how we would surpass that mark after adding in the fees.. Lets not even discuss compounded interest on top of compounded fees etc to refinance the same debt over and over etc..
And no, I am not arguing that this is Obamas blame (that bonds need refinanced) but one does need to look at the amount being financed and then look at who's doing all of the spending.. Its no longer Republicans..
Yes, Clinton was refinancing those Reagan bonds for a HUGE savings to the taxpayers. The problem was they didnt save, they just increased spending. (i.e. government).
Jan 99, bond rates were at 4.3% so yes, a refinancing of them now would = savings until you start to add in brokers and underwriting fees which are computed on top of the interest paid. Dont know what the fee is, but we arent that far away from 4.3% right now so it wouldnt be hard to see how we would surpass that mark after adding in the fees.. Lets not even discuss compounded interest on top of compounded fees etc to refinance the same debt over and over etc..
Well, there is no doubt that the bond rates WILL be driven upwards - especially as the economy recovers so I would expect rates to continue to climb from what are truly artificially low rates at the moment. Although that WILL make the recovery more difficult, I'm not personally concerned until rates get at least to historical norms - say, above 6% or so. In truth an increase to 4% wouldn't even be worthy of mention if it wasn't for the fact that the economy is so poor and we are counting on low interest rates helping us recover.
Quote:
Originally Posted by pghquest
And no, I am not arguing that this is Obamas blame (that bonds need refinanced) but one does need to look at the amount being financed and then look at who's doing all of the spending.. Its no longer Republicans..
Well it's definitely on the Democrats now - and I'm not particularly excited at the prospect of all that spending. All I can say it that this IS an economic emergency and I believe the spending is simply necessary right now. I know you disagree but that's the approach the Administration is taking - and I agree with it - as opposed to Bush and the GOP running up the deficit at a time when they SHOULD have been paying it off (ie relatively good economy - of course now it becomes apparent that it was only good because of the housing bubble (but that' another topic)).
Ken
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