Bernanke's Cheap Money Keeps the Bond Vigilantes at Bay

Monday, June 14, 2010 , , , 0 Comments

Does Bloomberg see the problem with this? Does Ben Bernanke? Certainly Obama doesn't.


Federal Reserve Chairman Ben S. Bernanke has tamed the bond vigilantes.

While investors punish European nations from Greece to Spain for deficits by pushing up bond yields, Treasury rates of all maturities have fallen to an average of about 2 percent from 2.75 percent a year ago even as the amount of marketable debt outstanding increased 20 percent to $7.96 trillion.

The market’s advocates of fiscal discipline are being placated as Bernanke keeps benchmark interest rates at a record low, allowing them to profit from the gap between short- and long-term yields with inflation at a four-decade low. Bill Gross, the manager of the world’s biggest bond fund, said as recently as March that “bonds have seen their best days.” On June 4, he called Treasuries “attractive.”

Just a reminder here that the Treasury told Congress earlier this month that if things keep up, the national debt will reach nearly $20 trillion by 2015. Debt in the form of T-bills is expected to reach $9.1 trillion by the end of the year.

Who the hell is buying these things? Ohhh yeah, the guys borrowing money at 0%. Heyyyyyy it's all good, at least we saved the TBTF!

Let's be fair to Bernanke (because this little plan can't possibly work indefinitely): it isn't his easy money, he couldn't do it without help from his friends at the FOMC. Keep that in mind when everything goes to hell and you're looking for someone to point your big greasy finger at.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.