Tags: ashish | advani | Treasury | Bubble | Toxic

Look Overseas as Treasury Bubble Turns Toxic

By    |   Wednesday, 27 Oct 2010 10:15 AM

The recent news made my stomach turn. I grimaced in agony when I comprehended the meaning of it.

I am talking about us having to pay the US Treasury for safekeeping our dollars. It is bad enough that we get robbed when our dollars lose value nearly every day, but now we have to pay the government to buy their debt.

Let us begin with U.S. Treasury bills. In simple terms, when the government wants to spend money on programs, and doesn’t have the money to do so, it issues U.S. Treasury notes. In simple English: They issue debt instruments. We, the citizens, hand over our money and expect interest on our investment.

Given that the U.S. national debt has grown out of control, I would be demanding a high rate of return because my investment is at a high risk of default. The growth rate is slow, jobs are nonexistent, housing is in shambles and manufacturing has been outsourced.

Instead, I am now expecting to pay to be allowed to lend money to the U.S. government. What an outrage! I have to pay to have the privilege to lend to the drunken sailor, who is spending like there is no tomorrow. But that would be unfair to the drunken sailor, since he was still spending his own money …

The U.S. Treasury issued TIPS (Treasury Inflation Protected Securities) on Monday. Normally the investor buys these bonds at par ($100) and expects a return that is at pace with inflation. However, on Monday the investor bought these bonds at $105. Even after factoring a 0.5 percent yield, the investor won’t break even on these bonds.

What a concept. Pay money to buy U.S. debt. No wonder the dollar is sinking, and sinking fast. The only ones who want to hold dollars are the poor, trapped citizens.

Talking about debt in the United States, the Norfolk Southern Corp. sold $250 million in 100-year bonds in the market. They are offering a 6 percent yield on the bonds.

There is a sucker born every minute.

In an environment where officials can’t tell me whether we will be successful next year, there are people buying debt of a company that claims it will be here after 100 years to repay them.

All in the name of chasing yield.

So, a company in the business railways (heavily dependent on domestic business) promises you 6 percent on debt and you line up to buy that debt?

Sigh.

So, we will pay to own U.S. government debt and/or earn 6 percent yield, not withstanding that our principle may not be returned.

Folks, there are much safer and simpler ways to earn high yield on your money by taking much smaller and measured risks.

I have been stashing away money in various diversified investments that pay me 6 percent interest. And there is an upside of even higher gains if the dollar continues to decline.

The investment: foreign currency CDs.

You can buy foreign-currency denominated CDs that pay you interest at high rates plus give you currency-appreciation returns as long as the dollar continues to dive.

So, let’s not pay the U.S. government to hold its debt or chase a pipe dream of 100-year bonds. Let’s diversify overseas with measured risk and certain returns.

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Advani
The recent news made my stomach turn. I grimaced in agony when I comprehended the meaning of it. I am talking about us having to pay the US Treasury for safekeeping our dollars. It is bad enough that we get robbed when our dollars lose value nearly every day, but now we...
ashish,advani,Treasury,Bubble,Toxic
547
2010-15-27
Wednesday, 27 Oct 2010 10:15 AM
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