Two-year notes sold by the billionaire’s Berkshire Hathaway Inc. in February yield 3.5 basis points less than Treasuries of similar maturity, according to data compiled by Bloomberg. Procter & Gamble Co., Johnson & Johnson and Lowe’s Cos. debt also traded at lower yields in recent weeks, a situation former Lehman Brothers Holdings Inc. chief fixed-income strategist Jack Malvey calls an “exceedingly rare” event in the history of the bond market.
The $2.59 trillion of Treasury Department sales since the start of 2009 have created a glut as the budget deficit swelled to a post-World War II-record 10 percent of the economy and raised concerns whether the U.S. deserves its AAA credit rating. The increased borrowing may also undermine the first-quarter rally in Treasuries as the economy improves.
“It’s a slap upside the head of the government,” said Mitchell Stapley, the chief fixed-income officer in Grand Rapids, Michigan, at Fifth Third Asset Management, which oversees $22 billion. “It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.”
““It could be the moment where hopefully you realize that risk is beginning to creep into your credit profile and the costs associated with that can be pretty scary.†”
Hope AND change? Doubtful.
Coincidental with the passage of of Health Care Reform legislation? It would be poignant, would you not agree? American now awaits the postman to deliver the bill in our collective mailbox.
This manifestation of our deep-seated debt problem is only beginning. One of these months we shall see the abject failure of a US Treasury auction of Treasury paper. The bond vigilantes will demand higher interest, and the administration, desperate for cash, will have to pay it.
Interest on existing debt now accounts for about 15% of federal revenues — at a time when interest rates are at multi-generational lows. To take advantage of those rates the current administration is borrowing primarily at short durations. [b]This is equivalent to an upside-down homeowner taking out an interest-only adjustable rate mortgage.[/b]
Once rates begin to rise it will be too late to lock down favorable rates at long durations. Merely returning to pre-crisis interest rates will push interest payments on existing federal debt up towards 40% of current revenues — and that does not include $3 Trillion of new federal borrowing over the next two years.
It will not end well. The only questions are how much pain, how rapidly, and with what political response from this administration.
As it is, federal deficit demand for lending is absolutely suffocating the legitimate credit needs of productive businesses. Without expansion and without improvements there will be no growth, no improved productivity, and no new jobs.
My predictions:
1) We will have to immediately pass comprehensive immigration reform, with our President telling us the country will collapse if we don’t immediately provide a quick path to citizenship for all illegals in the country. Translation – I have to have the extra 5 or 6 million Democratic votes so I can get reelected.
2) We will have to immediately implement a national VAT tax to prevent a collapse of U.S. finances. We will be told that it is nothing to worry about – Europe has had this for years and look how much Obama and co. admire them. I mean how much difficulty is there in paying an additional 16-18% for everything. Congress will pass tax law saying that everybody except the evil rich will get a VAT credit on their taxes. “Evil Rich” will be defined as everybody who makes over $100,000 a year, except for government employees and union members, who will be exempted. The “evil rich” definition will be indexed for debt; the higher the national debt, the lower the income needed to classify you as part of the “evil rich.”
3) When it gets hot this Summer, we will have to immediately pass cap & trade legislation to prevent the planet from burning up and keep all our new “guest workers” from dying of thirst on their long trek here from Mexico.
4) Social unrest will strike and we will immediately have to outlaw civilian ownership of all firearms to keep us safe. I mean, look at how well things worked out for Europe and Australia when they did this.
5) BHO will sign friendship & cooperation agreements with Hugo Chavez and the Iranians. This will be hailed as giving us “peace in our time.” Chavez will become an adviser to BHO on how government policies can be used to promote domestic harmony and tranquility. The first domestic tranquility policy will be for the FCC to reinstate the “fairness” doctrine.
6) BOAKYAG will be the most popular bumper sticker that has not been outlawed for the promotion of domestic peace and tranquility.
dwstroudmd you miss heard that he actually said [i]”Hope & Chains”[/i]
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