The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!
8/19/09 12:40 PM
Grasping Reality with Both Hands The Semi-Daily Journal of Economist Brad DeLong: A Fair, Balanced, RealityBased, and More than Two-Handed Look at the World J. Bradford DeLong, Department of Economics, U.C. Berkeley #3880, Berkeley, CA 94720-3880; 925 708 0467; delong@econ.berkeley.edu. Weblog Home Page Weblog Archives Econ 115: 20th Century Economic History Econ 211: Economic History Seminar Economics Should-Reads Political Economy Should-Reads Politics and Elections Should-Reads Hot on Google Blogsearch Hot on Google Brad DeLong's Egregious Moderation August 11, 2009
The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds! Peter Boockvar: 3 year note auction | The Big Picture: The 3 year note auction, the easiest of the big three this week because of its short maturity, was very good. The yield was about in line with expectations but the bid to cover of 2.89 is well above the average this year of 2.52 and the highest since Nov ‘08. Indirect bidders totaled 62.5% which is above the prior two which reflected the new methodology of calculation. With many, particularly the Chinese, shifting to the shorter end of the curve from the longer end, today was an easy sale. The tough part though comes tomorrow when the 10 yr benchmark note auction takes place with the 30 yr following on Thursday. I must say that our country’s finances are in such a state of affairs that the biggest economy in the world has to now cross its fingers right before the published results of debt auctions. The standard Chicago "Ricardian equivalence" argument is that government deficits have no effect on nominal aggregate demand because private savings rise dollar-fordollar with the government's deficit. The magnitude of the tax cuts associated with the stimulus package are running at about $25 billion per quarter--an extremely small share of the rise in Treasury borrowings. Otherwise, Chicago says, supply-anddemand are supposed to rule--and a sharp increase in Treasury borrowings is supposed to carry a sharp increase in interest rates along with it to crowd out other forms of interest sensitive spending.
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The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!
8/19/09 12:40 PM
Hasn't happened. Hasn't happened at all:
it is astonishing. Between last summer and the end of this year the U.S. Treasury will expand its marketable debt liabilities by $2.5 trillion--an amount equal to more than 20% of all equities in America, an amount equal to 8% of all traded dollardenominated securities. And yet the market has swallowed it all without a burp... http://delong.typepad.com/sdj/2009/08/the-us-can-sell-bonds-boy-can-the-us-sell-bonds.html
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The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!
8/19/09 12:40 PM
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How Would We Figure Out Whether Cash-for-Clunkers Makes Sense?(this site) The Fiscal Fed(Emac's Stock Watch) 2 more recommended posts Âť Brad DeLong on August 11, 2009 at 08:50 PM in Economics, Economics: Finance, Economics: Fiscal Policy, Economics: Macro | Permalink TrackBack TrackBack URL for this entry: http://www.typepad.com/services/trackback/6a00e551f0800388340120a53f51d1970c Listed below are links to weblogs that reference The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!:
Comments You can follow this conversation by subscribing to the comment feed for this post. The market is hedging the double dip. If we go through another round of deflation, those long bonds will rise in price. The alternative is that the Fed is forced to raise short term rates to defend the dollar, then those long bond were bought with cheap money. If the market believed that Obama will get his programs through and they are efficient, then the market would be investing in equities and expect a V recovery. We are in the period in which the market wants to see solutions to the steepness, can the American economy fill in the details such that short term investing is coherent with long term plans? Posted by: Mattyoung | August 11, 2009 at 10:15 PM It will be more interesting to see what effect this all has on other countries debt auctions. The cash crunch is just heating up around the world. Posted by: purple | August 11, 2009 at 11:11 PM Next year brings triple the offerings. Posted by: jkf/ugLG? UFVJbkNlig/iyfcytdxsyrszrysduh:OJ"PJOPYGoufdtusrydfghJP"hGfdszkrstd.fg/lhJ'piuytoresazxcvbn;jhg | August 12, 2009 at 08:02 AM First, you are assuming that the buyers of these bonds will not come to regret this decision. Perhaps in a year or two these buyers will look like idiots for accepting such a small return from a government running trillion dollar deficits every year. Perhaps they won't, I can't say for sure. But if they do come to regret it and this result is viewed as a bad judgement on the part of these buyers, it will tell us that yields should have been higher. Second, this ignores the fact that rates would have been lower had there not been a sharp increase in offerings. This data does not disprove the assertion that an increase in borrowings places an upward pressure on rates.
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The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!
8/19/09 12:40 PM
Third, part of the reason why rates have been kept low is the Fed's $300b buyback program, which . If this program had never been created, we likely would have seen a rise in rates, you can't ignore this factor. Fourth, you probably should think twice about touting the success of a 3 year auction. The 10 year auction today did poorly, and it is likely that the 30 year tomorrow will also run into problems. What does this mean? Our lenders are moving from long term yields to short term yields, which essentially means that we are being put on an adjustable rate lending scheme due to our decreased creditworthiness. This is how the amount of cash we raise can stay the same each month in spite of an increase in our debt's risk. From this point of view it is perfectly logical that the 3 year would do well... but that's a cause to celebrate. Posted by: Christopher | August 12, 2009 at 05:41 PM the last sentence should read "but that's not a cause to celebrate" Posted by: Christopher | August 12, 2009 at 07:48 PM That's because you're right and they're wrong about the so-called Ricardian equivalence isn't correct - and really, David Ricardo should sue to have his name removed because he wouldn't have agreed with it! (Can a ghost file suit?) Posted by: jonathan | August 13, 2009 at 08:36 AM Jonathan - me thinks Brad has combined a couple of different arguments as if they were one. At least that's what I wrote here: econospeak.blogspot.com/2009/08/why-deficits-have-not-increased.html Posted by: pgl | August 13, 2009 at 10:55 AM Yes the US can sell bonds, because it sells safe-haven access. The problem is that instead of the Fed or the tax-payer charging the admittance fees to that safe haven, the US government gets almost free money and feels it deserves it. The dollar states in “God We Trust” but when I publicly asked an Argentinean Professor of much repute, why the international market trusted the dollar so much, he responded without any hint of irony in his voice… “Because it trusts the American taxpayer” Let me assure you that his comment provoked quite a lot of embarrassed wriggling among the American tax payers in the audience. Posted by: Per Kurowski | August 16, 2009 at 10:19 AM
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The U.S. Can Sell Bonds. Boy! Can the U.S. Sell Bonds!
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