Day of Reckoning

November 22nd, 2009 10:42 pm | by John Jansen |

The New York Times carries a story on the financing debacle which the US will face as debts come due over the next several years.

I do not think that the Treasury has thought through the arduous task that it will confront when the exigencies of circumstances force it to sell piles of debt into a bear market. I have oft stated here that a Federal Reserve rate hike is something well off in the distant future.

However, that view does not preclude me from contemplating the debacle which shall ensue when my new friends at the Treasury realize that they need to issue trillions and investors have no compelling reason to buy because the FOMC has instituted a program to normalize rates.

Against that background, I believe that a five basis point tail on Treasury coupon auctions will become the norm.

And if I am right on that point, I fear a self fulfilling prophecy which send yields spiraling higher.

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  1. 9 Responses to “Day of Reckoning”

  2. By Fullcarry on Nov 22, 2009 | Reply

    John,

    That day may not be as far off as you might imagine. Just wait for year end to be over.

    Ed

  3. By M on Nov 23, 2009 | Reply

    So I guess you don`t agree with Paul Krugman that there it will not be that bad?
    http://krugman.blogs.nytimes.com/2009/11/22/1994/

  4. By Ad Orientem on Nov 23, 2009 | Reply

    I read that story and and even posted it on my own blog. We are in deep trouble. The debt is actually far worse that the 12 Trillion they are discussing since they exclude the 50+ Trillion in unfunded mandates we have coming down the road.

  5. By Kid Dynamite on Nov 23, 2009 | Reply

    you even mentioned as much at the Treasury meeting – but were kinda blown of with a response of “why would you think that?”

  6. By John Jansen on Nov 23, 2009 | Reply

    Kid,

    I find it troubling. Life is good today but two years from now it will turn rather ugly.

    It was great to meet you and hope you are well.

    JJJ

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