Thursday, March 10, 2011

This Is A Pretty Chilling Story

The mutual fund Pimco believes the government has been propping up Treasury bond prices and expects them to drop dramatically shortly as the government can no longer afford to keep buying its own paper back. Right now, they hold zero, nada, nothing in terms of US backed securities.
Should bond prices collapse, interest rates on the bonds will skyrocket. Which means interest rates in general will be under enormous pressure, despite the Fed's stance at near-zero lending rates, to spike.
You see, Treasuries often set a benchmark for consumer and business loans, the so-called "T-bill +" rates where loans to you and me are set at a fixed rate above whatever the current yield for Treasury securities is.
So that means less borrowing, meaning less economic activity, meaning more layoffs, all so that banksters can protect their bonuses.