No. of Recommendations: 0
What if China, one of the largest holders of agency mortgage-backed securities, or MBS, decides to sell those holdings as well in response to the U.S. trade policies. And what if other countries follow?
If there are better opportunities to invest, do it. Whoever buys those (discounted?) securities may do very nicely if "the price is right".
No. of Recommendations: 9
If there are better opportunities to invest, do it. Whoever buys those (discounted?) securities may do very nicely if "the price is right".
Certainly true.
The macro concern is that, when "the price is right", with the Elephant buyer not playing, the bonds would be trading at low prices to attract other buyers. The US would have to spend very much more on interest as new bonds have to be issued at deeper discounts.
US deficit averaged 3.9% 1995-2024. It's expected to come in at about 6.2% this year, more than half of which is already interest. (CBO figures from last month, an eternity ago). That could turn into a feedback loop: too big an interest bill, fewer buyers for such an uncreditworthy issuer, higher interest bill...
Jim
No. of Recommendations: 9
US deficit averaged 3.9% 1995-2024. It's expected to come in at about 6.2% this year, more than half of which is already interest...That could turn into a feedback loop: too big an interest bill, fewer buyers for such an uncreditworthy issuer, higher interest bill...
Yep.
I posted on the BRK board a couple of months ago "Historically, a given fiat currently is stable until it’s not – that moment being when it loses trust as a permanent store of value. Exactly when that shift happens is, I think, most akin to Hemingway’s description of going bankrupt: gradually, then suddenly."
Another analogy occurred to me when using my Visa card yesterday at the grocery store. I know it has a credit limit, but it's high enough to where (as long as I pay it off each month) I never see the shore nor hear the distant surf and can go sailing comfortably along.
But I know what the credit limit is. And if it's, say, $20K and somehow I run up $18K on it, then I need to alter my habits right now. And even if I do, should I routinely start running a higher balance, I wouldn't be surprised to hear from the Visa issuer next month that my limit is now $10K.
The US's problem here is that while there's a peak borrowing limit, no one knows what it is.
But I think we're all pretty sure that that limit is substantially lower than it was a month ago. Not good.
-- sutton
