So what happens when the government can no longer borrow?

[makloda]

Quote from ralph00:

I remember that Japan had a bond auction in the late 90s that nobody showed up for - 10 year jgb was yielding about 2% at the time. All the JGB bears leapt for joy. 5 years later, JGBs were yielding 0.43%. 10 years later, JGBs are still below 2%.

The US tried every trick in the book to debase the currency and discourage gov't bond investors in the 30s, yet bond yields fell throughout the entire decade.

Until the economy looks like it has something profitable to invest in, folks will continue to buy gov't bonds, no matter what the rate.

That's a good analogy.

In Japan's early 90s the curtain was pulled off of financial institutions' balance sheets as they were filled with

a) non-performing corporate loans
b) crashing commercial real estate and land "investments"
c) crashing equities

During the 40 year boom in Japan that lasted till 1990, no corporate treasurer put any money into government bonds to secure their balance sheets.

Then, trillions of yen were shifted from toxic investments to JGBs. Likely, that's what helped keep their yields low for almost two decades now.

I read a lot of commentary now how "irrational" the widespread institutional buying in US treasury bonds is today. But what options do insurance companies, pension funds or banks really have?

 

[ralph00]

edited to say: I'm referring to harkm's post above.

They did it for the same reasons politicians are doing inane stuff today ... they're in a panic.

My point is that bad policy, large debts, and massive devaluations don't necessarily lead to a collapse in gov't bond prices.

http://www.nytimes.com/2009/01/14/business/economy/14bank.html?pagewanted=3&_r=2&ref=business

Check out the above story. This small bank received some millions in TARP money. What did they do immediately ... they paid down debt. What their next plan w/the money ... buy gov't agency securities. What's not on their agenda ... lending it out. They follow this course not because they are evil or bad, but because they are interested in getting their money back, with interest. Right now, there aren't many profitable places to invest in this economy. Until it changes, money will flow right back into gov't securities.

 

[KrispyKreme50]

Government willl always be able to borrow money. Even after Argentina defaulted on its debt, there were investors willing to lend as long as the rate of return was high. The problem for us is that the debt will become unsustainable once 30 year interest rates go up beyond a certain point.

 

[swtrader]

Quote from ralph00:

edited to say: I'm referring to harkm's post above.

They did it for the same reasons politicians are doing inane stuff today ... they're in a panic.

My point is that bad policy, large debts, and massive devaluations don't necessarily lead to a collapse in gov't bond prices.

http://www.nytimes.com/2009/01/14/business/economy/14bank.html?pagewanted=3&_r=2&ref=business

Check out the above story. This small bank received some millions in TARP money. What did they do immediately ... they paid down debt. What their next plan w/the money ... buy gov't agency securities. What's not on their agenda ... lending it out. They follow this course not because they are evil or bad, but because they are interested in getting their money back, with interest. Right now, there aren't many profitable places to invest in this economy. Until it changes, money will flow right back into gov't securities.

all that really happened here, is that the citizen placed himself in debt to this bank, in exchange for nothing

in business law, the bond the bank has is not a valid contract, because there was no consideration

too bad we're no longer a nation of laws

 

[harkm]

Quote from ralph00:

edited to say: I'm referring to harkm's post above.

They did it for the same reasons politicians are doing inane stuff today ... they're in a panic.

My point is that bad policy, large debts, and massive devaluations don't necessarily lead to a collapse in gov't bond prices.

http://www.nytimes.com/2009/01/14/business/economy/14bank.html?pagewanted=3&_r=2&ref=business

Check out the above story. This small bank received some millions in TARP money. What did they do immediately ... they paid down debt. What their next plan w/the money ... buy gov't agency securities. What's not on their agenda ... lending it out. They follow this course not because they are evil or bad, but because they are interested in getting their money back, with interest. Right now, there aren't many profitable places to invest in this economy. Until it changes, money will flow right back into gov't securities.

I can certainly see your point. The way I see it, if the dollar moves substantially lower against the Yen(another 30 %) import prices will rise reguardless of the demand situation. When imports rise, domestic prices also rise. Bonds can't hold up under those conditions.

 

[TGregg]

Feds ready to pony up $825,000,000,000.00 in another round of stimulation.

http://news.yahoo.com/s/ap/20090115/ap_on_go_co/obama_stimulus

A trillion here, a trillion there, pretty soon. . . holy #@&^!

 

[harkm]

Quote from TGregg:

Feds ready to pony up $825,000,000,000.00 in another round of stimulation.

http://news.yahoo.com/s/ap/20090115/ap_on_go_co/obama_stimulus

A trillion here, a trillion there, pretty soon. . . holy #@&^!

How can the rest of the world pony up for our benefit? How is this lending really helping their own situations? It can't hold up. I remember the 50 page housing bubble threads on this site and how there were always posters saying that house prices could stay elevated for years. You can dig up any reason for why bond prices should stay elevated but in the end they will crash unless the government takes major steps to stop its spending. There is always a breaking point.

 

[damon_achey]

Quote from harkm:

How can the rest of the world pony up for our benefit? How is this lending really helping their own situations? It can't hold up. I remember the 50 page housing bubble threads on this site and how there were always posters saying that house prices could stay elevated for years. You can dig up any reason for why bond prices should stay elevated but in the end they will crash unless the government takes major steps to stop its spending. There is always a breaking point.

The problem is that the housing stayed that high and went higher for years after people started saying that. Bonds could do the same.

 

[harkm]

Quote from damon_achey:

The problem is that the housing stayed that high and went higher for years after people started saying that. Bonds could do the same.

I am not short bonds for the record. I am just watching it closely because sooner or later it is going to crack. We will see the signs before it breaks wide open.