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Strategies & Market Trends : Value Investing
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To: Dr. Ipsofacto who wrote (42289)4/15/2011 1:31:37 PM
From: E_K_S  Read Replies (3) of 78740
 
Hi Dr. -

What is the possibility that the FED creates a new "Preferred" $US Treasury Bond that is backed by a basket of hard assets. These new "Preferred" $US Bonds might be backed by a basket of gold, oil, food products or even Gov owned land (w/ mineral rights). Interest could be paid in units of the Index or even in components of the index (ie. Oil, bags of rice etc.) One could receive one of these new preferred bonds by turning in old US Treasury Bonds (or $US) based on some market exchange rate.

The thing is that foreign owners of "old" treasury bonds might find these new "collateralized" preferred bonds to have more value. The Fed uses this new "hybrid" currency to buy back all of the outstanding "old" Treasuries not residing in the US using some floating exchange rate 10:1 (old for new).

What if future debts had to be paid w/ this new "hybrid" currency and there was a transition time line that started w/ all foreign obligations first (say w/ China).

Therefore you would not have a failed treasury auction if some transition "asset based" bond was developed by the FED which was seen as much more valuable by market buyers and resulted in a huge demand for the new currency (ie bond).

Does it take an act of Congress to state that the $US is no longer accepted to settle debt obligations (foreign and/or domestic) or can the FED unilaterally decide this by the specific terms in the bonds they issue?

EKS
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