On Nov 24, 2012, at 12:17 PM, Tony Rolfe <mr.tony.rolfe at gmail.com> wrote:
> Doug was clear that he doesn't agree with Galbraith on US debt
> politics, but I was startled at their shared sentiment that banks are
> happy to lend to the US for 2% over 10 years.
>
> Banks and insitutions buy debt that they can trade. They don't make
> any agreement to hold that debt for 10 years without selling. If a
> crisis emerged in a few years, and a US credit event is forecast in a
> way that caught traders' attention, they can change their position.
> Why is a current 2% yield on TBonds an effective argument against
> deficit hawkishness?
I thought the bit about banks was strange. Banks are minor players in the Treasury market. (U.S. branches of foreign banks hold about 15% of Treasuries, but domestic banks hold 0.2%.) Almost half of all Treasury bonds are held by foreigners, and much of that by central banks (though some of it is also U.S. hedge funds domiciled in tax shelters). Households hold about 8%, and the Fed, 15%. But his notion that banks are something of a captive market for T-bonds is hard to defend. I think I'll take it up with him actually.
Doug