(11-28-2012, 03:49 PM)kandrathe Wrote: Multiple factors explain the low yield;
A) Boomers retired and retiring will still see T-bills as safer than other investment vehicles, especially in shorter terms. Ergo, demand is high. People are willing to let the government use their money for this low yield.
Great! Give the boomers what they want: nice, safe US debt. Use the money for stimulus. Those 30 year bills sound like a great idea - they're currently pushing them out. http://online.wsj.com/article/SB10001424...46938.html
Why not even a consul? Just issue perpetual debt at 3%. People would buy it.
Quote:B) The shell game. As long as the US borrows in its own currency, which can be created at will, the market isn’t going to assign any kind of credit risk to US debt.
If that were true (it isn't), then why did US bonds go up to double-digit yields in the 1970s? There is little to no *default* risk for a country that prints and borrows in its own money, but there is a compensating *inflation* risk. Investors, aware of this, price accordingly: This is not a shell game, it is not a hoax, it is not a scam, a ponzi scheme, or anything else of the sort. However, markets don't seem to care about that either right now, so: Borrow!
Quote:C) At 1.66% yield per annum over ten years is better than the BEST savings account rates of 0.9% interest per annum. My bank is offering 0.3% for a premier account. Why are bank savings rates so low?
If it was more profitable to hold liquid US dollars than US treasury bills, why would anyone buy treasury bills? Ever? That's what treasury bills are - a loan to the government, trading liquidity for returns. The situation you describe, in terms of this relationship, is better known as "always".
Even Bernanke only has so much traction on this, because in theory, if investors are worried about inflation, even if banks get money very cheap, very few people will keep it in savings, and rates will increase. If people thought US dollars (or bonds) were a risky investment, they would drain their bank accounts and sell their bonds, and buy tangibles. This has not happened. The US can still borrow almost unimaginable sums of money. More than 10 years ago.
Quote:We can spend the fiat money we create out of thin air.
Yep! Monetary reflation saves the day. Exactly as Milton Friedman said about the Great Depression. Only, with interest rates flattened out barely over zero, you need other tools too.
Quote: And, then this is where I get more utilitarian and harsh. Everything else we spend is suspect if it does not promote the general welfare of the nation as a whole. So, while we expect to keep people from dying in gutters from disease or starvation, we shouldn't expect to make everyone "happy". We need to dial our spending on entitlements down to what people "need", and not as it's been, making them "comfortable". We individually pursue happiness. It is not given to us.
The US has the least generous and least redistributive social welfare net of any developed country. If your objective is to reduce social benefit spending, because you're sick of making people happy when they should be suffering in squalor, then make the case for that independently. But don't do it by conjuring up a debt crisis that not only doesn't exist, but exists less than at any time since the 1960s. The US has enormous space left for fiscal expansion.
-Jester