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Strategies & Market Trends : The Residential Real Estate Crash Index -- Ignore unavailable to you. Want to Upgrade?

To: Lizzie Tudor who wrote (107351)	2/29/2008 6:35:56 PM
From: Hawkmoon	Read Replies (1) \| Respond to of 306849

Hey Babble"babe".. Again, I fail to see anything where I posted that deficit spending benefitted the TAXPAYER, as you asserted I stated. You are just like my Ex.. avoid admitting your wrong and try to deflect attention from your error by trying to find fault with my original premise (which you can't). In a nutshell, you tried to use an argument that institutions needed to buy treasury bonds and therefore, to avert a financial crisis, the current government was in essence "forced" into massive deficit spending in order to save the US financial system. YES.. the government has to alleviate the overwhelming demand for US Treasuries created by a combination of the collapse of the internet bubble, and subsequently, the Fed's drastic reduction of interest rates after 9/11. In case you've forgotten, when the Fed lowers rates, it makes higher yielding government debt more valuable, resulting in increased prices for those bonds. And the global pool of capital, lacking any monetary "pressure release valve" in equities, invests in bonds, and subsequently real-estate. Combine that with surplus profits from foreigners exporting to the US and trying to avoid repatriation of those profits home (in order to avoid their own currency appreciating) and you have an even greater increase in demand for existing government debt. Increased capital flow into a fixed amount of Government bonds results in lower yields. Since there is a surplus of available capital seeking to purchase government debt, the Treasury is able to issue debt at a lower interest yield. And if the government doesn't issue more debt to meet the demand from investors, the result is the yield will continue to decline. And if the Fed keeps the Federal Funds rate (the rate that banks can borrow from one another overnight) higher than the rate than the government has to pay for borrowed money, it results in an inverted yield curve: investopedia.com en.wikipedia.org NOW.. there are only TWO solutions to an inverted yield curve. The Fed can lower the FF rate to below the rate for long-term debt, or the Treasury can attempt to meet the excessive demand for gov't bonds by issuing MORE OF THEM... AND we've seen that EVEN WITH the extra deficit spending you assert has occurred, the yield curve continued to be inverted up until the last Fed rate cut. And even NOW, with the Fed Funds rate at 3%, the 10 year bond is selling at 3.51%, a scant 51 basis points above 24 hour bank to bank loans. Which means the government may be forced to increase its deficit spending to meet the increased demand for "safe" government debt. Either that or the Fed will be required to reduce interest rates again, putting increased downside pressure on the USD. So.. do you want the USD to decline even more?.. If so, then support a Fed Rate cut. If you want the dollar to remain relatively stable, then support increased deficit spending to "chase" excess capital away from bonds and back into equities. That's basic logic that even someone like you should understand. Just because you're a woman doesn't mean you have the ability to alter fundamental economic reality. Hawk