Negative Rate Posted on a T-Bill Auction

[samclem]

Quote:

Originally Posted by ChrisC Some people insist that the Confederate States of America was a separate country between 1861-1865 in North America. The CSA had hyperinflation and defaulted on bonds that were placed in the European market. There are numerous economic studies on the CSA.

The CSA case is interesting, but I'm not sure it directly applies here. They had only two small bond sales in Europe: One in Amsterdam ("junk" bonds) denominated and payable in pounds sterling (so, not backed by CSA fiat currency). The other sale was of "Cotton Bonds," which were denominated in pounds sterling but payable in a specific amount of cotton (so, these were not backed by fiat currency). The value of these bonds held up quite well, even with the considerable "hitch" that they bearer had to take delivery of the cotton in the CSA, and there was a blockade in place. The CSA serviced these bonds throughout the war--I don't know if you could say they defaulted on them, since the CSA "went away" before the bonds were due to be paid off.

These cotton bonds were an interesting case of attempting to buy political influence. They were targeted to wealthy and influential British buyers, and the South sold them at an attractive price. The idea was to give some influential folks in England a stake in supporting the South in the war, and there is some evidence that it worked.

More here and here.

[ChrisC]

Quote:

Originally Posted by samclem I don't know if you could say they defaulted on them, since the CSA "went away" before the bonds were due to be paid off.

The reason for the nonpayment is not simply that the CSA "went away." Admittedly, the original issuer could not make payment on the bonds because that issuer was no longer on the scene, so to speak. But no one else could step up to make payment, in pounds sterling or cotton, as section 4 of the 14th Amendment forbade payment of these bonds: "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.

[haha]

Quote:

Originally Posted by samclem The CSA case is interesting, but I'm not sure it directly applies here.

An understatement if one ever existed.

[FIRE'd@51]

Just a point of clarification. The actual auction itself did not result in a negative rate on 3-month bills. The auction result was a discount of 0.005% and an issue price of 99.998736.

Auction Results

Evidently, it was in subsequent trading that the bills traded above par, resulting in a negative rate to some buyers in the secondary market.

[Darryl]

TIPS TIPS TIPS

Guys the printing presses are working and there is no way the greatest country in the world is going to say "sorry I can't pay back the money I borrowed" it just ain't gonna happen.
At the same time we have little self restraint or ability to hold ourselves accountable so it turns out an apology "yes we know our policy is driving down the dollar but we also have an obligation to meet our domestic obligations". Is much more palatable for our rerpresentatives. I see maybe too much grey but on this it is crystal clear there is only one way for this to play out. It's the way I'm playing my bet, unfortunately my forecast may be 5 or 10 or 15 years ahead of it's time.

[haha]

Quote:

Originally Posted by FIRE'd@51 Just a point of clarification. The actual auction itself did not result in a negative rate on 3-month bills. The auction result was a discount of 0.005% and an issue price of 99.998736. Auction Results Evidently, it was in subsequent trading that the bills traded above par, resulting in a negative rate to some buyers in the secondary market.

I noticed that after I posted the heading, but as far as I know you can't change a headline so I let go. Both would seem to suggest the same things- extreme fear, or mass psychosis.

Ha