The power of III

Summum ius summa iniuria--More law, less justice

11 July 2011

US Treasuries: WHAT safe haven?

Conventional wisdom: Putting your money into tax free US treasuries and other bonds is a safe and effective way to earn interest and increase your capital over time.

In fact:
-Buying a Treasury bond is basically lending the US government money. 
-We know the government is incredibly in debt to begin with, and cannot possibly pay it off. 
-We know the planned inflation rate by the Fed is about 2%, but is running significantly higher.

Here is the situation: Investors are worried that the Euro will collapse because many European governments are in debt, and the worst affected are dragging down the stronger economies. 

The tax paying European public, without their consent, is being made to pay for the risks taken by private industries, and now are having government cronies bail them out with the people's money.

Robbery, on an unbelievably massive scale.  Same in the US, by the way.

So here is my question: With the US in a situation nearly as bad as any of the weak European countries as far as the ratio of debt to Gross domestic product (and therefore likely to default on loans), why would anyone in their right mind lend the US government thousands of dollars at a rate of 3% return (losing money vs. inflation after the term of the bond) instead of buying Gold, Silver, or another tangible asset that can only gain in dollar value as the US Dollar becomes less valuable?

Does that make sense to anyone?  What kind of "safe haven" is that?

NEW YORK (TheStreet) -- Treasury yields have suffered a "one-two punch" after fears of a euro debt contagion followed bad economic news in the U.S. on Friday.
Inflows to the bond market are proving strong as investors open their eyes to a potential debt default in Italy Stocks of Italy's largest banks, UniCredit SpA and Intesa, were down by more than 6% this morning.

"It not surprising that yields are low," says Shyam Rajan, a rates strategist at Bank of America. "With U.S. data still bad and problems in Europe, people will continue to buy Treasuries." Rajan is expecting increased inflows from mutual funds.

While Greece seems to have escaped a default for now, problems in Spain and Italy have been popping up in the headlines. Europe's banking sector is significantly more exposed to Italian debt. Rajan notes that Italy has the highest level of government debt after the U.S. and Japan.

By the way: Ireland, Portugal, Greece, Spain, Italy all teeter on the brink, dragging down the more productive economies Europe.  None have escaped default. The IMF, Americans, Chinese, and Europeans have only kicked the can. 

Any public "cure" bleeds the productive public of their wealth to prevent a debt crisis.  This only leads to a more severe crisis down the road.

If Europe crashes, it will bring down the US economy as well, and the Great Depression will look mild in retrospect.

1 comment:

  1. the fools follow the blind

    you can see otherwise

    thank you for not being a fool