Apr

16

Investors wrongfooted as ‘higher for longer’ rates return to haunt markets

Zubin Al Genubi asks:

Interest alone on US debt is 1 trillion dollars a year! Anyone concerned?

Larry Williams is definite:

NOPE. NOT AT ALL.

Art Cooper, however:

*I* am certainly concerned, in the long term. When the coverage ratio on gov't debt auctions drops close to 1.0, it will be time to take meaningful action, with a major re-allocation of investment portfolios.

Larry Williams responds:

Not to worry…says MMT guys…as long as we are not gold-backed $, it's all just accounting numbers.

Kim Zussman wonders:

Reallocate to what? (he says looking around twice with stocks near ATHs)

Art Cooper suggests:

There are a universe of hard assets out there, including gold (though GLD could easily go far higher). Because I like to emulate the Sage and shop in the bargain basement, I personally find extremely distressed income-producing real estate of interest. Babies are being thrown out with the bath water.

Larry Williams writes:

The public debt is just $ in savings accounts at the Federal Reserve Bank. When it matures the Fed transfers those dollars to checking accounts (aka reserves) at the same Fed. It's just a debit of securities accounts and a credit of reserve accounts. All internal at the Fed. When gov sells new Tsy secs, the Fed debits the reserve accounts and credits securities accounts. Those $ only exist as balances in one account or the other.

Asindu Drileba adds:

David Graeber once mentioned that the US can never default on its debts since the Fed is the largest holder of Treasuries.

William Huggins comments:

its not that the US -can't- default on its debts, its that 70% of those debts are to americans. so what is the probability of americans voting to default on themselves when they have the ready alternative of printing money? more important might be whether or not the 30% foreign holders will keep playing along but that analysis is an exercise in ranking "next best alternative" for them. when one starts looking under the hood at the alternatives, its boils out like china's bank regulator said in early 2009, "except for treasuries, what can you hold? gold? you don't hold japanese government bonds or uk bonds. us treasuries are the safe-haven. for everyone, including china, it is the only option: "we hate you guys but there is nothing much we can do."

H. Humbert replies:

The Americans would be about equally unlikely to default if most of the debt was held by foreigners. If you can print money there is no need to piss off any of your "customers". It's not like things worked out super well for Argentina, at least until they hit bottom.


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