Debt Fears

We have been explaining to many Americans how exactly the Federal government borrows money. Sadly, most of us have absolutely no idea....and simply assume that someone else does...and that they have our best interests in mind...and that everything will work out for the best.

Yesterday, we hypothesized that if the U.S. continues to pressure Israel to not build homes in Jerusalem that our housing market could crash making it harder for America to build homes.

How are these first two statements related?? Let's look at today's Wall Street Journal and see.

A sudden drop-off in investor demand for U.S. Treasury notes is raising questions about whether interest rates will finally begin a march higher—a climb that would jack up the government’s borrowing costs and spell trouble for the fragile housing market.

For months, investors have focused their attention on the debt crisis in Europe, but there are signs the spotlight is turning to the ability of the U.S. to finance its own budget deficit.

This week, some investors turned up their noses at three big U.S. Treasury offerings. Demand was weak for a $44 billion 2-year-note auction on Tuesday, a $42 billion sale of 5-year debt on Wednesday and a $32 billion 7-year-note sale Thursday.

The poor demand, especially from foreign investors, sent the bonds’ prices sharply lower and yields higher. It lifted the yield on the 10-year note to 3.9%—its highest since last June, and approaching the psychologically important 4% mark. That mark has been pierced only briefly since the financial crisis in 2008.

Investors’ response marked a big shift from auctions in recent months in which major foreign buyers, such as central banks, had snapped up Treasurys. It could spell trouble for the U.S. housing market; the rates on many mortgages are linked to the yield on the 10-year note.

See it here; http://online.wsj.com/article/SB20001424052748704094104575144244213486742.html

Remember, when the Federal Government is out of money, they tell the Treasury to sell Treasury bonds and then put the sale proceeds in the Federal checkbook. The Treasury sells bonds at auction. They will be attempting to sell over $4 trillion in Treasury bonds this year.

Ask yourself a very simple question....what happens if no one shows up at the auction? You can see by the bold above that demand is already falling from foreign investors.

Even a 10 year old would understand that if you had an auction to sell household furnishings and no one bid on your table lamp....then the lamp is worthless.

Why is it that the smartest people in the world, who are our leaders in government, are failing to see the obvious?

Now back to Israel.....if rates keep going up, we might not build a house for a very long time in America.....just like we are demanding the Jews to quit building in Jerusalem.