Wednesday, August 24, 2016

Are you ok with this? Shortage of U.S. Treasuries.

The world is short of dollars.  This is because there is a shortage of safe collateral.  In other words U.S. Treasuries.  The world is bidding up the price of U.S. Treasuries of all maturities to acquire them to use as repo collateral.  That is, they borrow dollars and use their Treasuries as collateral.

It is being argued that the U.S. needs to increase its deficit spending in order for the U.S. Treasury to issue more Treasuries for the world to buy to fill their collateral needs.

There is some so wrong with this.  But what do I know.

Very low interest rates are destructive.  Interest rates are so low it is argued because there isn’t enough Treasuries to satisfy the needs of people who want safe storage of their money.  You know, savers and investors, insurance companies and pension plans.  Not just the banks of the world to use for collateral.

This demand for Treasuries has outstripped the supply of Treasuries so prices of Treasuries are bid up and the yield down.

I think the problem is there is too much money.  But if you reduce money it is tightening and tightening creates recessions and depressions.

The solution will eventually be to forgive debt which will destroy a lot of money and not create a recession or depression as it isn’t tightening.

Good luck with that you all.

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