FED TO BUY U.S. TREASURIES
March 19th, 2009WARNING: This is not a recommendation to buy, sell or hold any financial instrument.
Well, guys, there it is. The main mechanism of U.S. debt financing has broken down.
This is, by far, the most serious economic development to occur in my lifetime (I’m 37). What will happen, and when, as a result of this, is a mystery to me. I have no way of assessing an event of this magnitude.
In a sane world, the dollar would collapse, but we all know that “sanity” left the building a long time ago.
What happens now? How much longer can the check kiter keep writing bigger and bigger checks to his debt holders?
Via: Reuters:
The U.S. Federal Reserve said it will buy government debt for the first time since the 1960s as part of an extra $1 trillion injection into the ailing economy, buoying government bonds and denting the dollar.
Wall Street and Asian stocks climbed after the Fed’s surprise decision on Wednesday to buy up to to $300 billion of longer term U.S. government debt over the next six months and expand an existing scheme to buy mortgage related securities by another $850 billion, to $1.45 trillion this year.
The Fed, which has already brought its benchmark interest rate to near zero, had said it was considering buying long-term Treasuries, but few Fed watchers had expected it to follow Japan and Britain in pumping money directly into the economy so soon.
“This is a pretty dramatic move,” said James Caron, head of global rates research at Morgan Stanley in New York. “They are trying to bring down all consumer rates.”
U.S. home mortgage rates fell toward record lows around 5.00 percent, Treasury bond yields dropped by the biggest one-day margin since the 1987 stock market crash
The sharp drop in U.S. bond yields pushed the dollar to a two-month low of $1.3536 against the euro on Thursday.
I was watching it real-time when it happened, it was so crazy. We’re truly not in Kansas anymore. The time to sink dollars into productive, hard assets is now.
FWIW, seeing that it’s not completely unprecedented (“The U.S. Federal Reserve said it will buy government debt for the first time since the 1960s”) makes it seem a little less crazy. On the other hand, despite that era’s reputation for “craziness”, I don’t think it was nearly as out of control as things are now. It’s just that the insanity is in board rooms and government buildings, now, instead of out on the street.
Kevin – realizing that sane and rational market reactions are, um, out of scope at this point, do you have any new “panic levels” for the USDX or other indicators? Are you still watching for it to drop below 72?
There’s some fascinating coma-inducing discussion of what “monetizing the debt” actually means in this publication by the St Louis Fed back in 1984:
http://research.stlouisfed.org/publications/review/84/12/Monetizing_Dec1984.pdf
but I haven’t found what Reuters means by “since the 1960s” in regards to the Fed monetizing debt.
But Kevin, to paraphrase Cheney, “reality doesn’t matter anymore,” it’s the perpetuation of the mass delusion that counts.
Well, here it is.
I’ve got about $13K in cash under the mattress so to speak.
Maybe time to spend it:
– Buy several cases of wine, vodka, etc.
– Maybe put it back in the bank (heh, heh) charge up the credit card for non-perishables that our family might need in the next TWO years (e.g. spend a fortune on farm supplies – if there are any left)and pay it off next month.
Then, gulp, take a loan against my worthless dollar retirement account and buy that freaking piece of land across the crick.
@Anothernut – I was 5 years old when the 1960’s started. There was a market crash I think in 1968 or so, same year my sister died in a car accident. My father born, circa 1917, lived through the market crash of the 1930’s Depression and STILL trusted the markets. I just remember him pacing the floor in the living room at night because he could not sleep over all the money he lost, as well, as well his pain over losing my sister. So perhaps because equities crashed in such a big time way in the 1960’s was why the Fed bought Treasuries then. I do not know.
I do know that for all of the people who were not concerned about money, there were the millions of others who were rebelling against government dictums. “Hell No I Won’t Go,” (the U.S. had a military draft). The U.S. President, and the U.S. Attorney General were assassinated (not to mention that they were brothers), as well as a cultural and spiritual leader of many who were not black, in Martin Luther King.
I only wish that in these times, that there was something more meaningful about what is happening in the world today, that people could rise up against- other than money.If it were the 1960’s – the pre-Obama administration would have been lynched by a very angry mob of self-righteous people who don’t believe in starting wars on false pretenses. Let alone torture. In the 1960’s this gang would have be guillotined.
But something, and I think it is Neptune (I think Neptune is TV), has cast a big fog of sleeping sickness over all. We imagine we’re going to wake up someday, and hope that none of what we know has happened was just a nightmare. Unfortunately, that just ain’t going to be so.
There was a saying in the 1960’s “the revolution will not be televised.” I think that today, the TV is “managing” the revolution.
In my office of fifteen coworkers I would say I’m about the only one who understands or cares what is happening to the dollar. Oh well, what am I supposed to do about that? I wish I could do something to help, but I cannot. I’m the spinster in their eyes, who “doesn’t have a life because she takes care of her mother on the weekends!”
I gotta laugh at it all. I’ve already gone insane at what has happened to my country. The heart that was in it has been evaporated by informercials blared over the fucking TV.
I don’t have the firepower to do anything about that.
But I can tell you. I’ve started a revolution. I’m infecting every brain that has cells left to listen with quiet speech about food, shelter, health. That’s about all I can do. And maybe that’s good enough.
Oops, Dad was born in 1910. Mom in 1917