Ugly Economy Part Seven
Here is an excellent article from the London Telegraph about the global economic crisis. The article points out that last week’s US Treasury auction was a bust, with foreign investors standing aside. Foreign investors took only 5.8% of the auction, compared to an average share of 25%. Also, I didn’t know this, but Italy also had a bust of a bond auction last week, a real bust, in which they were unable to place all the bonds they were seeking to sell.
Folks, this is getting very, very ugly.
As I have noted in these pages, I am unable to figure out why a foreign investor would lend money to the US government at a rate in the 1s or 2s, when monetary inflation is 20% annually and CLIMBING. Why would anyone lend any money to any foreign government at such a huge loss? I don’t get it. And I think, increasingly, foreign investors won’t get it, either.
March 17th, 2008 at 7:48 pm
I think I warned you about this more than a year ago. US could not keep borrowing indefinitely on a falling dollar. without foreign investors demanding higher rates of interest if they buy at all. That’s where we’re headed, and it will only create a vicious cycle.
It does not take a genius to figure this out. Basic economic theory.
LC
March 17th, 2008 at 7:57 pm
So what should the average Joe American do with their money? Put everything in cash that’s rapidly losing value? Pour it all into the stock market? Foreign stocks? Foreign bonds? Gold bullion? MREs?
March 18th, 2008 at 4:34 am
I’m inclined toward gold bullion. Oh, and pillowcases.
March 18th, 2008 at 4:39 am
I’m with Polimom, ex the pillowcases. The learned counselor already owns producing farmland, i think that’s a good gig. Get yourself a cow, a goat, some chickens, and a lot of armaments.
The Learned Counselor is correct in his first comment above, he did predict that foreign investors would eventually eschew our auctions. I did not see it coming that the fed and the treasury would systematically debase our currency.
March 18th, 2008 at 4:40 am
It looks as though we could get a little equities rally today prior to the interest rate cut. If you’re going to play, be sure you play before the announcement. And be careful, everyone and his dog will be selling into the rally, if it takes place.
March 18th, 2008 at 4:52 am
By the way, I added a link in the blogroll to Helicopter Ben’s 2002 speech, where he discusses how to prevent a depression. This speech is an excellent roadmap to what he will do next.
March 18th, 2008 at 11:30 pm
enrico,
Helicopter Ben and his gang fooled a lot of people by cutting 75 basis points instead of 100 today. Do you think he is trying to send a signal to the markets that the Fed thinks its new and exotic tools are sufficient to deal with the liquidity crisis without totally trashing the dollar, i.e. that further interest rate cuts will be few and small? The Master thinks he might have been (even if it’s a bluff!)
So far, at least, the stock market seemed to like the message. We’ll see how the next Treasury auction goes to get the foreign investors’ take on it.
March 19th, 2008 at 5:21 am
I think the Master has it right. Cutting the short rate does nothing to solve the proximate problem, and ultimately it is like pouring gasoline on a bonfire, in terms of monetary inflation (sorry, Milty, I know that phrase must gall you), but it is like Napoleon’s cannon in the streets of Paris: the Fed has few other tools it can use to quell the mob.
This morning, it looks as though the rally is over.