$200B of supply to be auctioned by US Gov't next week

I saw this headline yesterday … $200B of supply to be auctioned by US Gov’t next week … and I thought of 3 things.

1) This is an interesting way for the US Gov’t to say they want to borrow $200B next week from anyone that will lend them that amount of money … overall, it is somewhat vague and potentially misleading. What the headline is saying is that the US Gov’t has $200B of debt instruments like Bills, Notes, and Bonds that they will supply, or provide, as collateral to anyone that will lend the US Gov’t $200B next week.

2) Next, I thought, “what do most people think when they see that type of headline?” … “do they really understand what is going on?”. I wrote an article several weeks ago titled “Decades of Debt and Dollar Doubts. It provides a brief overview to help you understand what all this debt issuance means in terms of annual run rate at $5T, 40% of budget is being used to pay interest on the debt, how inflation might happen, and the potential risk of the US Dollar not being the world’s reserve currency.

3) Finally, I thought, “where is this $200B going to come from?” “Who is going to buy all the debt instruments?” Many domestic buyers are underwater here in the USA and trying to pay off their personal and business debt, so most of the buyers of US Gov’t debt will be from overseas. In a report released this week, the TIC (Treasury International Capital) Long-Term Purchases amount for last month was significantly below both the forecast amount and the previous month’s amount … this means that at this time, overseas buyers are less interested in our debt.

With that much supply of debt instruments (meaning money to be borrowed) and what most likely will be lower demand for this debt, the offering prices for this debt will likely be low (just following basic laws of supply and demand). One of two situations is likely to occur next week when this debt is auctioned off. Either the yield amount will be increased to entice buyers or the Federal Reserve Bank will buy the debt.

If the yield amount is increased over several auctions, this would be an indication that higher interest rates are on the horizon. With higher interest rates, many think any type of economic recovery will be jeopardized.

If the Federal Reserve buys the debt, it will just add to the many facets of Dollar Doubts described in the article.

In the meantime, many are asking what they should do to protect themselves from what yet maybe another upcoming crisis. Many are seeking to obtain more financial education and literacy in order to be aware of, and understand, alternative wealth creating strategies that are outside of dollar-denominated assets or in things hard to build, difficult to replace, and costly to substitute … perhaps oil rigs, precious metals, or potash mines.

When you get a chance to read the article, I trust you will find it insightful. You can read the entire article here: http://www.amazines.com/article_detail.cfm/1053164?articleid=1053164 .


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