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This is a good point, which is the reason setting transaction tax rates based on a T-bll rates (as opnposed to, say, the Fed Funds rate) lends itself to a certain encouragement for traders to step into to the T-bill auction every week with 0% bids, which would makes their transaction tax, one-tenth of 0%.
What incentive do I have for buying a T-bill at 0%, no matter how low the transaction tax is. Isn't buying a T-bill with 0% yield and 0% transaction tax rate always equivalent to simply holding the dollars?
Unmanly/cowardly fear of the so-called "bond vigilantes" is Rubinomics 101.
This goes back 20 years now to the early part of the first Clinton administration... and was covered in detail in Bob Woodward's (moron) book from back then...
Woodward has been a BIG problem in promoting this falsehood and is still at it in even his latest book on the 1st Obama admin... Woodward is a card-carrying member of the Debt Doomsday Crowd and looks like lords it over even some of the younger people there at the WaPo like Klein who may otherwise be open to a new perspective...
Dan,
I think the only entities allowed to actually participate in a Treasury auction are the Dealers Dan...
You have to be a Primary Dealer.
The awards from the Treasury Direct program I believe is based on a derivative of the rates the successful Dealers bid... so even in "Treasury Direct" it is not really "Direct"...
For short term securities, to me it seems that the Dealers shouldnt have a problem with buying at 0% as these securities are quickly redeemed by Treasury and Dealers get their balances back.... even if you cant get rid of inventory of 30-day or 90-day securities, you only have to wait a few weeks to "get your money back" if you are a dealer...
They make the bid/ask spread anyway.
Based on these spreads, current short term UST rates are ALREADY NEGATIVE out to about 60-75 days maturity:
So if you buy newly issued short term USTs from Dealers, looks like you are paying the Dealers a subsidy as you are paying the Dealers a fee that is higher than the interest you will receive from the Treasury...
2 comments:
I didn't get this part:
This is a good point, which is the reason setting transaction tax rates based on a T-bll rates (as opnposed to, say, the Fed Funds rate) lends itself to a certain encouragement for traders to step into to the T-bill auction every week with 0% bids, which would makes their transaction tax, one-tenth of 0%.
What incentive do I have for buying a T-bill at 0%, no matter how low the transaction tax is. Isn't buying a T-bill with 0% yield and 0% transaction tax rate always equivalent to simply holding the dollars?
Unmanly/cowardly fear of the so-called "bond vigilantes" is Rubinomics 101.
This goes back 20 years now to the early part of the first Clinton administration... and was covered in detail in Bob Woodward's (moron) book from back then...
Woodward has been a BIG problem in promoting this falsehood and is still at it in even his latest book on the 1st Obama admin... Woodward is a card-carrying member of the Debt Doomsday Crowd and looks like lords it over even some of the younger people there at the WaPo like Klein who may otherwise be open to a new perspective...
Dan,
I think the only entities allowed to actually participate in a Treasury auction are the Dealers Dan...
You have to be a Primary Dealer.
The awards from the Treasury Direct program I believe is based on a derivative of the rates the successful Dealers bid... so even in "Treasury Direct" it is not really "Direct"...
For short term securities, to me it seems that the Dealers shouldnt have a problem with buying at 0% as these securities are quickly redeemed by Treasury and Dealers get their balances back.... even if you cant get rid of inventory of 30-day or 90-day securities, you only have to wait a few weeks to "get your money back" if you are a dealer...
They make the bid/ask spread anyway.
Based on these spreads, current short term UST rates are ALREADY NEGATIVE out to about 60-75 days maturity:
http://online.wsj.com/mdc/public/page/2_3020-treasury.html
So if you buy newly issued short term USTs from Dealers, looks like you are paying the Dealers a subsidy as you are paying the Dealers a fee that is higher than the interest you will receive from the Treasury...
rsp,
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