So what happens when the government can no longer borrow?

Discussion in 'Economics' started by swtrader, Jan 14, 2009.

  1. you know it's coming

    sooner than you think

    a radical increase in borrowing simply is NOT going to be met with a radical increase in lending - and the first treasury auction balk will be an event that NOBODY will ever forget - not anyone that buys or holds treasurys, anyway

    printing only goes so far, you have to have something to dillute, you cant dillute water
  2. fed reserve can only shill the auction so far

    once they're the only ones there, it's over
  3. that's my bold prediction for this year
  4. I remember that Japan had a bond auction in the late 90s that nobody showed up for - 10 year jgb was yielding about 2% at the time. All the JGB bears leapt for joy. 5 years later, JGBs were yielding 0.43%. 10 years later, JGBs are still below 2%.

    The US tried every trick in the book to debase the currency and discourage gov't bond investors in the 30s, yet bond yields fell throughout the entire decade.

    Until the economy looks like it has something profitable to invest in, folks will continue to buy gov't bonds, no matter what the rate.
  5. harkm


    It all depends on the USD. If the USD holds up OR gold doesn't go substantially higher, bonds will hold up. When you see the USD starting to break down, nobody will buy those bonds.
  6. laputa


    They can monetarize the debt. That's real money printing.
  7. In 1933, FDR devalued the $ from $20.67/oz. to $35/oz. A 75% devaluation overnight! Bond yields fell and continued to fall for the next decade.
  8. printing is a game of 'stone soup'

    gotta have something to dillute

    cant dilute water

    once they quit lending, it's over
  9. if they can't borrow, they will print.
  10. harkm


    But why did they do that? From what I understand, and I could be wrong, was that gold was held artificially low and they were just bringing it back to equilibrium. Now, gold and the currencies float. Any change now will signal a loss of confidence in the USD.
    #10     Jan 14, 2009