Who knew?--Law of supply and demand applies to government borrowing
NY Times:
Because there are a limited number of willing buyers and a seemingly unlimited number of borrowers it is a buyers market and those willing to buy can demand higher yields. This is also reasonable in light of the Obama administrations decision to expand health care coverage at the same time it will be depressing the economy with a cap and trade system on energy.
When you look at all Obama and the Democrats want to spend over the next few months, it is no wonder they had to send the treasury secretary to China. There is also the hostility the administration has shown to wall street which is still suffering from the credit crunch caused by the Democrats insistence that loans be made to those who could not afford them. Those entities that have had to borrow from the government have also had to take a bath on the auto bailouts while the Obama administration put union unsecured creditors ahead of them. This leads to less money they can invest in government bonds.
With the administration also telegraphing that it will be taxes high income earners more, it means those earners will have less money in the future to invest in securities of any type. By being so profligate Obama is creating a credit crunch for the government too.
As governments worldwide try to spend their way out of recession, many countries are finding themselves in the same situation as embattled consumers: paying higher interest rates on their rapidly expanding debt.The Obama administration seems taken back by finding there is not an infinite number of people and entities willing to buy their debt. There is also the concern that as the debt expands the government will be tempted to monetize it and inflate their way out of debt.Increased rates could translate into hundreds of billions of dollars more in government spending for countries like the United States, Britain and Germany.
Even a single percentage point increase could cost the Treasury an additional $50 billion annually over a few years — and, eventually, an additional $170 billion annually.
This could put unprecedented pressure on other government spending, including social programs and military spending, while also sapping economic growth by forcing up rates on debt held by companies, homeowners and consumers.
...
Because there are a limited number of willing buyers and a seemingly unlimited number of borrowers it is a buyers market and those willing to buy can demand higher yields. This is also reasonable in light of the Obama administrations decision to expand health care coverage at the same time it will be depressing the economy with a cap and trade system on energy.
When you look at all Obama and the Democrats want to spend over the next few months, it is no wonder they had to send the treasury secretary to China. There is also the hostility the administration has shown to wall street which is still suffering from the credit crunch caused by the Democrats insistence that loans be made to those who could not afford them. Those entities that have had to borrow from the government have also had to take a bath on the auto bailouts while the Obama administration put union unsecured creditors ahead of them. This leads to less money they can invest in government bonds.
With the administration also telegraphing that it will be taxes high income earners more, it means those earners will have less money in the future to invest in securities of any type. By being so profligate Obama is creating a credit crunch for the government too.
Comments
Post a Comment