Tuesday, December 09, 2008

More On The Bush Economic Miracle: Less Than Zero Interest Rate

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People put their money in Treasury bills, even though they pay less interest than almost any other investment, because they are considered the safest investment on earth. The full faith and credit of the United States government stands behind them. So you can be sure you at least preserve your capital. And if you lose a little buying power because of inflation... well it won't be too much. At least it wouldn't have been until today.
Interest rates on four-week Treasury bills fell to zero in Tuesday's auction, as investors still sought the safety of government securities without any return on their investment.

The Treasury Department says it sold $32 billion in four-week bills at an interest rate of zero percent. That meant investors were willing to earn no return at all on their money as long as they cold park it in the safety of Treasury securities.

Today's L.A. Times reports that at one point in the day the rate actually dipped below zero. "In effect, a negative yield means some investors are so hungry for Treasuries that they’re willing to pay more for a security than they’ll get back when it matures, and earn no interest while they hold it." That happened at the height of the Great Depression, brought on by a series of presidents with a series of economic agendas very similar to the ones we've just been through. And tomorrow's NY Times paints a bleak picture: "In the market equivalent of shoveling cash under the mattress, hordes of buyers were so eager on Tuesday to park money in the world’s safest investment, United States government debt, that they agreed to accept a zero percent rate of return. The news sent a sobering signal: in these troubled economic times, when people have lost vast amounts on stocks, bonds and real estate, making an investment that offers security but no gain is tantamount to coming out ahead. This extremely cautious approach reflects concerns that a global recession could deepen next year, and continue to jeopardize all types of investments." Enjoy Elvis:

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3 Comments:

At 9:08 PM, Blogger Jimmy the Saint said...

As commented on over at Calculated Risk or at Barry Ritholtz's place, something like this is unprecedented. We are very lucky the stock market isn't completely in the crapper right now. It will be very interesting indeed to see what the Doris Kearns Goodwin's of fifty years from now have to say about Dubya's time in office. They might even wonder how in the hell the republic survived.

 
At 1:22 PM, Anonymous Anonymous said...

Jimmy, you're assuming the republic will survive. Personally, I think the next major terrorist attack here will send us into "It Can't Happen Here" land.

--wmr

 
At 6:56 PM, Anonymous Anonymous said...

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