The Trap Is Set …… Has It Been Sprung? 3 Month US Treasury Bills Hit 0%!!!!!!

image

I’m wondering if it might be better to start charging people for us to hold their money. 

US Treasury bill rates flat to higher; 3-month at 0 percent

WASHINGTON (AP) — Interest rates on short-term Treasury bills were unchanged to higher in Tuesday’s auction. The rate on three-month bills remained at the lowest level on record and the rate on six-month bills reached their highest level since late September.

The Treasury Department auctioned $20 billion in three-month bills at a discount rate of zero percent, unchanged from last week. Another $20 billion in six-month bills was auctioned at a discount rate of 0.080 percent, up from 0.065 percent last week.

Because of the Columbus Day holiday on Monday that closed federal government agencies, this week’s auction was held Tuesday.

Short-term rates have been at ultra-low levels for a number of years, reflecting efforts by the Federal Reserve to boost the economy by pushing borrowing rates down. The Fed’s key benchmark rate has been at a record low near zero since December 2008.

This week’s continued three-month rate of zero percent means the government was able to auction $20 billion in short-term securities to investors who were willing to loan money to the government for three months without getting any return on the investment. The 0.080 percent rate for the six-month bill was the highest since those bills averaged 0.105 percent on Sept. 28.

The discount rates reflect that the bills usually sell for less than face value. The three-month price for a $10,000 bill was $10,000, showing that the buyers are earning no interest on those bills. The six-month price for a $10,000 bill was $9,995.95.

At those prices, the annualized rate of return for a three-month bill was zero, while the rate of return for a six-month bill was 0.081 percent.

Separately, the Federal Reserve said Tuesday that the average yield for one-year Treasury bills, a popular index for making changes in adjustable-rate mortgages, fell to 0.27 percent last week from 0.31 percent the previous week.

Well, we’ve finally gotten to the point of free money.  We are suppose to believe people and entities are willing to loan the US money, for nothing in return.  Well, actually at a loss given that we have an inflation rate above zero.  Happens all the time, amirite?

This is illusionary.  It’s not real, and it doesn’t reflect reality going forward. 

I fear the Fed is now firmly entrenched in modern Keynesian economics and politics. 

While the low interest rates set by the Feds may have originally been an effort to boost our economy, it isn’t today.  We’ve gone 7 years without the low rates giving the economy any measurable boost.  Even the dimmest of idiotic central bankers should by now realize that’s not how it works.  One must have prospects of future gains in order to borrow money, even if the rates are low. 

Here is a graph of the Fed’s interest rates since 1990 ……

image 

Here’s how we stack up against other central banks …….

 

central bank interest rate

region percentage date
 FED interest rate United States 0.250 % 12-16-2008
 RBA interest rate Australia 2.000 % 05-05-2015
 BACEN interest rate Brazil 14.250 % 07-30-2015
 BoE interest rate Great Britain 0.500 % 03-05-2009
 BOC interest rate Canada 0.500 % 07-15-2015
 PBC interest rate China 4.600 % 08-25-2015
 ECB interest rate Europe 0.050 % 09-04-2014
 BoJ interest rate Japan 0.100 % 10-05-2010
 CBR interest rate Russia 11.000 % 07-31-2015
 SARB interest rate South Africa 6.000 % 07-23-2015

 

Pardon the formatting, I can’t seem to get the table to cooperate. 

Now mind you, the world, as a whole, is in an economic $hit-hole.  And, mind you, the interest rates on our treasury notes are not the same as the interest rates of the Fed.  Rather, the rates the Fed sets impact the rates we get from our treasury notes. 

Given that low interest rates do not stimulate an economy (look at the ECB’s and Japan’s rates!), then, the reasons for keeping the rates low are for a different effect.  Now, I do believe a sudden large jump, for instance, to 2% or some such would cause a huge shock and a probable sudden depression.   But, are we to believe a slight increase to, say, 0.4% would cause a calamity of any sort?  Nope.  Great Britain seems to be doing better than the US and their rates are twice ours! 

That’s not the reason why they’re keeping their rates so low. 

Here’s the reason why they’re keeping the rates low ……

image

Now, many would see this as a good thing.  …….. Let me be clearer for those not so well versed in this “stuff”. 

The interest paid on our treasury notes goes directly to our “US FEDERAL BUDGET DEFICIT”.  Even a slight uptick in the rates the Federal Reserve charges would cause a significant increase in the interest rates our treasury notes would have to pay.  The higher the Fed rates, the higher the deficit, the more we have to issue bonds, and then the higher the deficit.  A vicious cycle! 

But, what if we didn’t have to pay any interest on our treasury notes?  Or, what if what we paid in interest was less than our real inflation rate?  Then, the money we pay back is less than the money which was loaned to us!  Suddenly, we’re making money off of the people loaning us money!!!!  Which is exactly what’s happening with our short-term treasury notes

Mull that over in your head for a bit.  Think about it. 

It’s illusionary.  It’s the equivalent to the perpetual motion machine.  Indeed, it is the perpetual motion machine.  Money is only a proxy for things done and made.  Things done and made are the only things which gives money any value.  If we can make money from people lending us money, then, we’ve solved the perpetual motion problem.  But, the perpetual motion machine isn’t real.  It can never be real.  And, neither can it ever be a reality that you can borrow yourself wealthy. 

But, this is why the Fed is keeping their rates low, and, it entirely violates their charter and our law. 

This then brings me to start to understand why we have the insipidly stupid stubborn insistence that GDP is a euphemism for economic health.  You see, government spending is part of the GDP.  Start cutting government spending and the GDP will initially lower.  Yet, it can easily be seen that if government spending is cut, the average citizen can be wealthier.  (Less spending = less necessity to tax). 

Earlier in the post I wrote “modern Keynesian economics”.  I predicated Keynesian with “modern” because Keynes, in spite of his short-sightedness, never advocated what we see today.  It’s an interpretation and bastardization of what Keynes thoughts were.  It is done so because his writings more closely fit as an excuse indebt an entire nation of great wealth. 

Consider what the leading Repub presidential candidate advocated, recently.  We should tax the wealthy more and no taxes for the rest of us rabble.  I seriously doubt that Trump has ever read Keynes, or any other economic thinker.  Tax proposals such as his have no regard towards the debt of the US, nor, does it even regard the attempt to alleviate the necessity for taxes.  The proposals such as what Trump and others, such as Sanders, are only vehicles to control the masses and accumulate power. 

[On an aside, I’m personally repulsed by the notion that I would be compelled, by federal statute, to suck off the teet (or other appendage) of a fellow citizen.]

The low interest rates are simply an addiction, much like an addiction to heroin.  Only, an addiction to heroin would be much safer. 

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23 Responses to The Trap Is Set …… Has It Been Sprung? 3 Month US Treasury Bills Hit 0%!!!!!!

  1. I. Lou Minotti says:

    Suyts, you’re a genius on issues like this. Finance, banking and international economics escapes me, except for the biblical mandate that says “the debtor is the slave of the lender.”

    As far as I’m concerned, a mattress protected by an 870 Wingmaster is the best answer, and to not be in debt to anyone for anything–mortgages included.

    But of course, the gummint’s politicians and bureaucrats have found a way around the biblical mandate, as they always do. It’s called property taxes. Even if you own your home free and clear, it can still be taken from you by Satan’s unthinking pawns that have never cracked open a Bible.

    • Latitude says:

      +100 on all counts….and yes, he really is on the ball with this….I’m in awe when he’s on a roll…..

      question: Has Keynes ever worked?

      • suyts says:

        Yes, and no. It depends on how one defines the application of Keynes, and how one defines “worked”.

        The short answer is no. It’s never worked, not once.

        According to Keynesian economics, state intervention was necessary to moderate “boom and bust” cycles of economic activity.

        Clearly, our “boom and bust” cycles have not been moderated. They’ve been modulated, but, not moderated.

        OTOH, during WWII, nearly all of the nations involved went into deficit spending. It worked out for the Allies. In that extreme example and sense, some Keynes advocates have claimed it worked.

        Sadly, that became an economic model for some morons in the US. That is to say, they believe war is good for the economy. It’s never been demonstrated since WWII. Yes, very temporary gains, but, the aftermath always leads to a recession ….. The Korean War ….. Ike suffered a recession when he ended it. Vietnam war …. recession after Nixon ended it. ….. Bush Sr. and Iraq? ….. recession. Bush Jr.after aggressions ended in Iraq? ….. recession.

        The why is easy. Once wars end, there’s no longer need for the aggressive deficit spending. So, jobs get cut, less people working, less people making and creating, less people spending. <—- that's a recession.

        I suppose there are some jackasses out there, who would then advocate perpetual war as an economic panacea. But, perpetual war is unsustainable because perpetual and increasing debt is unsustainable. It's the notion of the perpetual motion machine on steroids.

        A note. Prior to Keynes, there were nations which issued "IOUs" in various forms. In the long term, it worked for none of them.

        And, thanks Lat!

        • DirkH says:

          “OTOH, during WWII, nearly all of the nations involved went into deficit spending. It worked out for the Allies. In that extreme example and sense, some Keynes advocates have claimed it worked.

          Sadly, that became an economic model for some morons in the US. That is to say, they believe war is good for the economy. It’s never been demonstrated since WWII.”

          USA waited and sold mil hardware to USSR for Gold in return (lend & lease ) (also, to the Brits). When most of the killing was done, USA came and occupied.

          War is not good for the economy per se – but looting works for a while.

        • David A says:

          My understanding is that WW 2 worked for the US because we ramped up our production tremendously for the war effort, and the means of production in Europe took a very destructive hit which the US did not; thus after the war that production went into profit mode.

        • David A says:

          …additionally this was a strong impetus into a rapid change and increase in the labor participation rate, which is now reversed and about 6 to 7 million workers less then what demographics suggest it should be since 2007.

        • DirkH says:

          David A says:
          October 14, 2015 at 5:28 am
          “My understanding is that WW 2 worked for the US because we ramped up our production tremendously for the war effort,”

          Production is good when someone pays for the product. UK and USSR did.

          When WW 2 ended economists expected fallback to depression (as the very good customers UK and USSR were gone). It was a surprise to them that a peacetime economy can work. This had nothing to do with factories being there. After all, post war Americans didn’t need tanks.

        • David A says:

          Dirk, there were many factors to the post war boom and those factors are most often orthogonal. The existence of infrastructure, undamaged by carpet bombing, both allied and German, was certainly a factor. Many private sector factors were actually taken over and converted to military needs. Post WW11 they were quickly reconverted back to domestic peace time production, from toasters to Cars this was real. Also the US female production force was very trained, with many thousands of trained factory workers, welders etc.

          GDP as a percentage of Govt work declined, as the private sector expanded.
          I studied a fair bit many years ago. This is just a hint from a quick research, http://r.duckduckgo.com/l/?kh=-1&uddg=http%3A%2F%2Fmercatus.org%2Fpublication%2Feconomic-recovery-lessons-post-world-war-ii-period

          The post war weapons sales were a part of the GDP increase, but not required.

        • DirkH says:

          Well, but you say yourself, factories were converted to mil needs – then converted back. Meaning, they existed during FDR’s catastrophic reign. Yet, no boom under FDR before his war business.

        • DirkH says:

          Probably the real reason for the postwar boom was that German competition *AND* FDR were gone. Two major impediments to any US boom.
          Plus, German pharma patents were part of the loot. Plus, all German Gold. Ah, that again. Seems to be a bad habit.

        • suyts says:

          Dirk, I think more than the gold, the importance of the many scientists and other good minds we brought over from Germany. And, yes, having FDR gone was a very important factor in the post war economy.

          And, David is also correct about the infrastructure and workforce. With Europe in shambles and tasked with rebuilding, the US had as much business they wanted and as many workers as they needed. The war effort actually ironed out some production processes, and, again, we had most of the German scientists and engineers by wars end.

        • David A says:

          Suyts, the article I linked pointed out how the private sector, despite the “predictions” f government economist at the time, boomed after WW II…

          “In 1944, government spending at all levels accounted for 55 percent of gross domestic product (GDP). By 1947, government spending had dropped 75 percent in real terms, or from 55 percent of GDP to just over 16 percent of GDP.[6] Over roughly the same period, federal tax revenues fell by only around 11 percent.[7] Yet this “destimulation” did not result in a collapse of consumption spending or private investment. Real consumption rose by 22 percent between 1944 and 1947, and spending on durable goods more than doubled in real terms. Gross private investment rose by 223 percent in real terms, with a whopping six-fold real increase in residential- housing expenditures.[8]”

          “The private economy boomed as the government sector stopped buying munitions and hiring soldiers. Factories that had once made bombs now made toasters, and toaster sales were rising. On paper, measured GDP did drop after the war: It was 13 percent lower in 1947 than in 1944. But this was a GDP accounting quirk, not an indication of a stalled private economy or of economic hardship. A prewar appliance factory converted to munitions production, when sold to the government for $10 million in 1944, added $10 million to measured GDP. The same factory converted back to civilian production might make a million toasters in 1947 that sold for $8 million—adding only $8 million to GDP. Americans surely saw the necessity for making bombs in 1944, but just as surely are better off when those resources are used to make toasters. More to the point, growth in private spending continued unabated despite a bean-counting decline in GDP”.

          “As figure 1 shows, between 1944 and 1947 private spending grew rapidly as public spending cratered. There was a massive, swift, and beneficial switch from a wartime economy to peacetime prosperity; resources flowed quickly and efficiently from public uses to private ones.”

          The transition now ( “resources flowed quickly and efficiently from public uses to private ones.”) would not be so easy, as 2015 government resources relating to GDP consists of millions of people locked in perpetual poverty and co-dependence on government aid. Turning this ship around will not be so easy, and the production capacity of the R.O.W. is almost infinitely greater then immediately post WWII. However as recently as the 1980s (I think) when conservative welfare reform kicked in, the number of people in poverty and dependency on government was reduced, and minority groups made significant advances.

    • suyts says:

      Thanks, Lou! I’m not sure I would apply “genius” to my offerings, but, it’s appreciated.

      Without undue external forcing, economics are pretty easy and clearcut. It’s just what people naturally go about doing. Left alone, people continually enrich themselves and humanity. We naturally want to and strive to do things better, more efficient, easier. We create wealth and innovate. That’s what we do! (We ate of the tree of knowledge.) Knowledge begets knowledge. If we can do that, then we can also do this ….. It works in the micro and the macro.

      Today, a mattress isn’t a bad place to put your money ….. assuming it will hold value. Right now, I wouldn’t bet on it beyond a couple of years.

      I agree, property taxes are a spawn of Satan. It was the first implementation in the US of the “tax the rich” notion, for no other reason than to punish property owners. We already paid taxes on the money we made to buy the property. Now, once we own said property, we have to perpetually pay taxes on the value we already paid! I once made ~ $50,000, which, I paid federal and state income taxes on. I bought a house with the money left over. Now, I’m obligated to perpetually pay taxes on it. If I live long enough to enjoy the home, the $50,000 will be entirely owned by the state. Currently, I’m facing a deadline on property taxes and it’s going to skin me. The state I currently live in also views vehicles as property, and the taxes on them are due, now, as well.

      • I. Lou Minotti says:

        You’re a genius, and a good man, to boot. Don’t shortchange yourself about what you know, or how you act. Leave that nonsense to the idiots that don’t like you because you’re honest, and never will even if you abandon your positions to ameliorate them (which I know you’d never do). They will then call you a phony.

  2. DirkH says:

    ZIRP/NIRP punishes holders of cash accounts, so they go and buy EVERYTHING for it – treasuries, property, stocks – no matter the returns, any return is better than effective NIRP for cash. Now 3 month treasuries have been bid up so much they also achieved ZIRP/NIRP territory…
    and cash will bid up other things now even more.

    By this buying frenzy – you absolutely want to get rid of the contents of your cash account – the cost structure for the real economy is being priced out of affordability, simplest example: inflated house prices in USA in stagnant economy. A house is a good that workers need – yet when they can’t buy one or can’t pay the rents which are priced out of affordability as well, it soon becomes more economic for the worker to retreat into some cheap backwater – he might not have a job there but his cost is going down even more. This diminishes economic activity as he has to withhold his talents from the companies that need them.

    High cost structure is a drag for every economic activity in other words (typical megacity problem and limiting factor. Most of the corps I work for have their factories out in the countryside for this reason).

    • David A says:

      In southern California the local populous has been forced out of buying homes to live in by foreign buyers with nowhere to park their money. They continue to buy when the projected returns on rentals are, assuming 100 percent occupancy, less then 3%. The property bubble in the US is fully inflated again. Rents have skyrocketed to their sustainable max. The rental income leaves the local area, and in many cases the nation, causing a further drain on the local economy. I am looking forward to the mostly Chinese buyers experiencing what the mostly Japanese buyers did in the 1980s.

    • Lars P. says:

      The problem is too much money created by banks that needs to find a location, a place for itself. The money does not “trickle down”, so the peons do not have enough to spend. With the economy slow down most of the bubbles will burst = trillions will disappear. Question is whose trillions? (There was a post a zerohedge that some 13 trillions – if I correctly remember – did already disappear in the last quarter…)
      Bonds are seen secure, so trillions go park in those bonds, but there is not enough parking place that’s why people are happy to park the money there even if they pay an additional bill for the parking place.

      In theory the money would go fund an industry and get a dividend out of there, but who places nowadays money for the dividend? That would be very very long term investment, when one gets the same amount of “dividend” through transactions. And besides a lot of those financed through ZIRP industries are losing money but are kept afloat through ZIRP.
      We have a fictive financial economy which recirculates the same amount of money again and again “creating” wealth.
      Debt is not wealth. Money creation out of thin air is not creating wealth.

      • DirkH says:

        “In theory the money would go fund an industry and get a dividend out of there, but who places nowadays money for the dividend? That would be very very long term investment, when one gets the same amount of “dividend” through transactions. ”

        Well it’s not long term; you can buy Exxon now and get a dividend the next quarter – it’s just that the risk of holding the stock is currently much too high compared to the dividend yield.

        • Lars P. says:

          Yes, and how long is the average time between the buys and sells? Hours? Minutes? Seconds? Comparable to this a year’s quarter is very long…

        • DirkH says:

          Ok, long term for me is buy&hold over a number of years.
          Just because you’re flipping stocks in seconds doesn’t mean you make a profit.
          Many very large institutions would be happy to get a few percent a year, for low risk. Say the Norwegian souvereign wealth fund.

        • DirkH says:

          TO be precise, high frequency trading is not some supersmart artificial intelligence predicting the future in milliseconds; the trick is they are allowed to look into the order books of all the pools and frontrun the orders, becoming middlemen. Quite simple actually, just a matter of getting the info, which should be illegal, and acting fast enough.

          Alternatively, they spoof, issuing orders and retracting them nearly instantly to trick the market maker algorithm into thinking there is demand, driving up prices (or down). Which *IS* illegal but they never get busted as long as they pay the right congressmen.

        • Lars P. says:

          “Ok, long term for me is buy&hold over a number of years.”
          I remember having read info showing that such persons & transactions are a small minority now

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