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[Proton Soup]

You have missed the point. Every dollar in a treasury is a dollar not somewhere else. Why are banks putting money into treasuries at a real of -0.02% when they could put that money into business loans at a real of 4-5%?

There is never any risk to holding treasuries using borrowed money from the Fed. Again, it would have been WAY more profitable in 2007, why weren't they doing it then?

You've also ignored a series of questions I posed- "Your assertion is that banks are NOT making loans to small businesses at real rates of about 4-5% in order to invest in treasuries with real rates of -0.02% or so. Why aren't they? Whats the rationale? How much lower would treasuries have to go before the 5% return is appealing?"

Until you answer these questions, I don't see much point in continuing this.

some would say that the point is a pretty obvious manipulation of the economy.

 

[mheslep]

I understand you point - please consider this - when a public company wants to increase or support the price of their own shares (and they have cash available) they re-purchase their own shares. If they borrowed money to buy their own shares it would raise a great many questions from shareholders.

While the stocks are equity and the Treasuries are debt - the Government did basically the same thing except they didn't have any cash and instead printed cash to pull back the debt under Quantitative Easing. The other component of this is the artificial suppression of interest rates.

They've changed the rules and manipulated the system into uncharted waters.

If the debt ceiling is not increased the next time - where would the re-payment of US Government held US Government debt be prioritized - I don't think the left pocket paying the right pocket will be a priority and smart lenders will tell them the same.

You're conflating government practices that you don't like (nor I) with the assertion that treasuries are worthless. You might argue that treasuries may loose value with some inflation to come, etc, but to say without caveat that they are worthless, today, is silly.

 

[WhoWee]

You're conflating government practices that you don't like (nor I), with the assertion that treasuries are worthless. You might argue that treasuries may loose value with some inflation to come, etc, but to say without caveat that they are worthless, today, is silly.

I understand your argument - but you said it yourself and I agree.
"Now, having some huge holder, such the SSTF start to sell off a couple trillion dollars worth of treasuries would necessarily drive up the rate (lower its value), as would happen with anyone flooding the market with any item."

 

[WhoWee]

You're conflating government practices that you don't like (nor I) with the assertion that treasuries are worthless. You might argue that treasuries may loose value with some inflation to come, etc, but to say without caveat that they are worthless, today, is silly.

Let's look at this a different way. Quantitative Easing (2) - involved printing $600Billion in US Dollars. These funds were used to purchase Treasuries back from member banks. This $600Billion was initially held in reserve in the banks.

The most obvious question is what have the banks done with these funds since QE-2 ended? I've listed a few possibilities - there may be others?
1.) Do the banks still have the (freshly printed) cash?
2.) Did the banks make (US business) loans - if so how much remains in reserve?
3.) Did the banks purchase new US Treasuries (and how much)?
4.) Are these banks now participating in the European bailout plans?
5.) Did the banks purchase alternative securities?


Listen to this analysis from August 1, 2011 - it discusses the possibility of QE-3.
http://video.ft.com/short-view As the video predicted, the President hinted at another stimulus Bill in his speech today - but that will be difficult to pass - the second prediction is QE-3.

Now consider this - if the banks still hold the cash in reserves - what would QE-3 accomplish in building cash reserves higher? If the banks have purchased new US Treasuries - would buying the new ones with more freshly printed money effect the value of the Treasuries purchased and held by the Government?