Just a few days from the near default brought on by Tea Party fanatics in the House, T-bills are selling in record amounts, with yields dropping across the board, as investors worldwide abandon stocks and seek the safety of bonds backed by the full faith and credit of the US government.
This is seen by economists as a global rebuke of Republican austerity policies, rammed through Congress by the contingent of radical conservative House Tea Partiers as part of the debt ceiling deal, intended to drastically cut federal expenditures in coming years. Investors see the cuts as a threat to the economic growth of the US, and hence the world economy.
The surge in bond sales is also a stunning rebuttal to conservative, Austrian School predictions that the US economy is on the verge of hyperinflation due to budget deficits. Investors around the world have voted with their greenbacks that the opposite is true by buying low-yield treasuries as a hedge against the deflationary pressure of GOP budget cuts.
Significantly, the run on treasury bills has made available to the US government a huge pot of low-interest loans to finance the debt, which is why most highly regarded economists, Paul Krugman being foremost among them, suggest using this unique historic opportunity to increase, not reduce, spending on infrastructure.
In short, the economic facts on the ground have once again turned out to be 180 degrees opposite to conservative talking points: a pattern that has been established since the Reagan years brought us the Laffer Curve and trickle down. The debt is a pseudo-problem.
Quote: “Hot money is flowing into U.S. Treasuries in a flight to quality,” said Hiromasa Nakamura, a senior investor in Tokyo at Mizuho Asset Management Co., which oversees the equivalent of $37.9 billion and is a unit of Japan’s second-largest bank. “All bonds are benefiting.”