By John Galt
October 23, 2011 – 14:15 ET
The Financial Times just broke a story which apparently solves the debt crisis for the United States with the U.S. Treasury floating the idea, er, tossing the poop against the wall, to see if the concept of issuing “floating rate” bonds. The problem with this idea is summed up in this one extract from the story:
In contrast to normal fixed-rate Treasuries, which pay the same coupon throughout their lifespan, the payment to investors from floating-rate notes would go up or down as the Federal Reserve changed short-term interest rates. That could make them attractive to investors who think that Treasury yields have hit a floor and are set to rise in the coming years.
Take a sip of beer, if you are a Tampa Bay Bucs fan at this point in time increase that to chugging a pitcher, because they look like crap and this story will make your head literally explode.
The first opinion of this is that this is nothing more than a sick joke validating the theory that America is indeed the new home of Mussolini style crony capitalism. The Chinese are envious of our system because we not only permit and encourage economic and political corruption, we reward it. Thus the sentence above should cause great concern because instead of reflecting actual capitalism where high risk borrowers are punished with higher interest rates, the Fed is guaranteed to maintain ZIRP and impose low interest rates at the behest of the very entities which are destroying the United States with their policies of economic malpractice.
To make matters worse, instead of allowing the markets to determine rate policies, the input of the very primary dealers and members who compose the ownership and membership of the Federal Reserve are being asked for their input on the design! Also, from the article:
According to the agenda for the meetings, the Treasury will ask dealers about the “optimal structure” for floating rate securities, how they “would affect Treasury’s overall cost of borrowing”, and whether there would be “robust market demand” for such debt.
“There would be demand for floating rate Treasuries,” said Rick Klingman, managing director at BNP Paribas. “From my perspective I would rather own floating-rate than fixed-rate debt over the coming years.”
This is akin to asking a rapist if they would prefer a blonde, brunette, or redhead as the criminal implications of this process will only result in more debt monetization, more liabilities for the taxpayers to bail out both European and U.S. banksters engaged in these purchases should the economy experience massive deflation, and lastly gives the political elites the cover they need to ramp the national debt from over $15 trillion to well north of $20 or $25 trillion. Talk about enslaving future generations.
To read the article in full from the FT click on the link below then register: