Thursday, September 18, 2008

Negative Three Month Treasury Yield

The yield on a three month treasury bill went negative this morning. That means that people are paying the government to borrow their money. The price of gold is going through the roof because people are also willing to put their money there.

The good news: this means people still have confidence in the U.S. government, at least. They could be dropping Treasury bills for gold alone, after all.

The bad news: this means that every single other security out there is so bad that people are paying the institution they believe most reliable (the government) to take their money. People now feel like their optimal choice is taking a guaranteed loss. When the optimal is a negative return, that is not good.

I've personally been worried that when this whole Chinese-financed financial free-for-all finally burst, people would run like mad from a U.S. government that couldn't pay it's debts. Thankfully that hasn't happened yet. They're running toward the government. I guess that just goes to show that even when you've been fiscally irresponsible, having a defense budget that equals the rest of the world's combined and having the most advanced civilization in the history of the species still buys you something!

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