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The government stands more to lose by a rate hike than any other individual entity. Ten year notes are traded in an open market, and sold at auction - Treasury
by newaccount2021 5y ago
The government stands more to lose by a rate hike than any other individual entity. Ten year notes are traded in an open market, and sold at auction - Treasury can't just set a price and expect people to pay. If the prevailing ten year rate reverted back to the historical average of 4.9%, 30% of the Federal budget would have to be dedicated to just servicing the interest on the debt.
For Uncle Sam, low rates are about survival. We're in deep caca.
- ping_pong 5y ago> Treasury can't just set a price and expect people to pay The Federal Reserve is the largest purchaser of UST, so effectively yes, they can. As long as QE is happening, and as long as the rest of the world doesn't stop calling USTs "risk-free assets", it won't ever stop. If somehow the US loses its grip on that status, though, all bets are off.
- machinebun 5y agoIt basically happened in the 1970s: https://en.wikipedia.org/wiki/Carter_bonds https://en.wikipedia.org/wiki/Carter_bonds
- candiodari 5y agoI don't get that reasoning. Obviously the Fed will prevent any such loop from happening, and it won't be the least bit controversial. They have many options to do this. For example, the Fed can in fact print money and buy treasuries (which they already did). They can (and do) pay the "profit" on Treasury bonds to the government, which they could accelerate to immediately, then buy a boatload. Or they can change reserve requirements on banks. Or ... Whatever you think is going to bankrupt the US government, it's not going to be treasuries. It's just not.