Economic Terms
1. A Default is someone reneging on their obligation to pay a debt. It is a breach of covenant, a breach of a promise The term default should be distinguished from the terms insolvency and bankruptcy.
3. Deficit
4. What Are Treasuries and How Do They Work?
The demand for T-bills is why Congress can kick the can. When demand dries up, it will be fast. Demand reappears if recession looms. Frightened investors always flee to T-bills. This is habit. It will take a monumental crisis to change the minds of institutional investors. Marc Faber remarked on July 14 that "It is mind boggling that somebody will buy 10-year U.S. Treasuries at a yield of less than 3% denominated in U.S. dollars."
5.
The public thinks the deficit is unsustainable, which it is, apart from hyperinflation. But investors are ready to buy T-bills. So is the FED, if demand ever falters. The FED will do its best to stay on the sidelines for as long as it can. But it will go to QE3 to save the economy from a major recession.
They will not default on T-bills until the FED stops buying them, and investors know that the FED means it. That will be the turning point. It is years away.
Dr. North,
I read your article on "When the Government Defaults Begin . . . ," and want to know more about T-bills, how they are used, who uses them, to what effect, and so forth.
Borrowing more money will raise interest rates and slow growth.
1. A Default is someone reneging on their obligation to pay a debt. It is a breach of covenant, a breach of a promise The term default should be distinguished from the terms insolvency and bankruptcy.
- "Default" essentially means a debtor has not paid a debt which he or she is required to have paid.
- "Insolvency" is a legal term meaning that a debtor is unable to pay his or her debts.
- "Bankruptcy" is a legal finding that imposes court supervision over the financial affairs of those who are insolvent or in default.
3. Deficit
4. What Are Treasuries and How Do They Work?
The demand for T-bills is why Congress can kick the can. When demand dries up, it will be fast. Demand reappears if recession looms. Frightened investors always flee to T-bills. This is habit. It will take a monumental crisis to change the minds of institutional investors. Marc Faber remarked on July 14 that "It is mind boggling that somebody will buy 10-year U.S. Treasuries at a yield of less than 3% denominated in U.S. dollars."
The public thinks the deficit is unsustainable, which it is, apart from hyperinflation. But investors are ready to buy T-bills. So is the FED, if demand ever falters. The FED will do its best to stay on the sidelines for as long as it can. But it will go to QE3 to save the economy from a major recession.
They will not default on T-bills until the FED stops buying them, and investors know that the FED means it. That will be the turning point. It is years away.
Dr. North,
I read your article on "When the Government Defaults Begin . . . ," and want to know more about T-bills, how they are used, who uses them, to what effect, and so forth.
Borrowing more money will raise interest rates and slow growth.
