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Old 02-26-2019, 04:10 PM
Danny B Danny B is online now
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Join Date: Oct 2012
Location: L.A. Ca.
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The FED funds rate

Getting a sense of the FED funds rate.
Over time, most European nations have defaulted a few times. Greece was in default for 50% of their modern history. America had never technically defaulted. It partially defaulted when it raised the price of gold vs the dollar. Because we weren't destroyed in WW II, our currency was chosen as the reserve currency. This was partially an attempt to keep any State from inflating their bond market to fund an incipient war effort. Unfortunately, it did not prevent America from inflating it's bond market for wars in Korea and Viet-Nam.
Since all the various States could only have national reserves in dollars, they had to sell stuff to America to earn these dollars. They had to undecut our prices to sell us Volkswagens and Datsuns.
This allowed us to run a huge trade deficit. But, since America had not defaulted, the dollar was very much in demand. This demand carried over into U.S. Treasury bonds.
They sold us a Datsun and,,, took the profit and bought Treasury paper.
Japan holds about $860 billion.

Because of post WW II momentum, the dollar and the FED became the premier safe investment. The FED funds rate became the benchmark for return. All other investments were rated as to risk vs the FED paper. Since the FED paper paid interest, all other interest-bearing paper was sold at a depressed rate related to risk. The long-term average for FED paper was about 5%. If you could get 5% with no risk, why buy somebody else's paper? This drove interest rates down over time. The perception of risk-free was still in effect even though American sovereign debt will never be paid back.

"Several credit rating agencies around the world have downgraded their credit ratings of the U.S. federal government, including Standard & Poor's (S&P) which reduced the country's rating from AAA (outstanding) to AA+ (excellent) on August 5, 2011"
This got S&P in hot water. GOV currently pays about $1/2 half trillion in interest.
The FED, Treasury and ESF pump liquidity into all markets to keep the perception that there is actual, legitimate confidence in all American markets. Sovereign debt is rising close to exponentially but, clandestine buying of this debt has upheld confidence so far.

U.S. debt must appear safer than other debt AND gold. Italy is hard at work to make U.S. debt look low risk. In Europe, the ECB can't easily pump in liquidity without any trace. The ECB just ended the QE that was rescuing Italian debt. One month later, they are talking about starting up QE again. In America, there are various phantoms buying sovereign debt. For the present, these phantom infusions are holding up the confidence in debt that is growing exponentially and can never be repaid.

"The German economy has come to a grinding halt, with the latest growth figures showing that it remained unchanged in the last quarter of 2018. Missing the already grim forecasts of 0.1%,"
ECB: running out of runway – Part I | Claudio Grass
"By 2019, there will be fewer Germans under 30 years old than there are Germans that are 60+ years:"
Great graph.
https://www.visualcapitalist.com/ger...hic-milestone/
The feces-for-brains German GOV brought in millions of USELESS "migrants" to try to make up for the missing German babies. It just doesn't work that way. The people have to actually be productive.
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