It's The Stupid Economy

[unixronin]

So as widely reported, the US Government is planning to monetize debt to the tune of as much as a trillion dollars, funding it with bills still wet from the printing press.  The UK apparently has the same idea.

Except, it’s not working.

Brown’s government aims to sell a record 146.4 billion pounds of debt this fiscal year and as much as 147.9 billion pounds in 2010 as he tries to pull Europe’s second-largest economy out of its worst recession since 1980.

There’s just one problem.  Investors aren’t biting.  They bid on only £1.63 billion of the first £1.75 billion offering.  That doesn’t bode well for future offerings.

The DMO said as recently as December there was a possibility of a failed auction.  “We are in a very different world than we were six months or a year ago,” Robert Stheeman, chief executive officer for the agency, said in an interview.

No!  Really?

The UK Treasury has apparently authorized the Bank of England to print up to £150 billion to buy up debt.  Germany plans to sell €346 billion of bonds, while US bond issues will approach $2.5 trillion.

One wonders how many buyers there will be.  But I really have to wonder about this part:  When you issue bonds to secure funding, then print money to buy them from yourself with, have you actually accomplished anything at all in the real world except to dilute the money supply and end up with a larger slice of the diluted pie?  Or is that considered sufficient?

Comments

[hrrunka]

Brown is, of course, one of the main architects of this current crisis, so it's ironic (almost poetic) that he should also be seen to be one of the most prominent folks failing to fix it...

[ithildae.livejournal.com]

I heard a spokesman for Citi saying that if the offered price is not high enough for their toxic assets, they would not sell. Of course, Citi is one of those banks that has "assets" of significant value on their books, that have a market value of nothing. That is why they are in trouble.

The other side is going into a partnership with the government. If I were to buy toxic assets from a bank, at a price that I could make a profit from, commensurate with the risks involved, What will the government do when I MAKE those profits? If the AIG bonuses are any indication, I want nothing to do with it.

[unixronin.livejournal.com]

The thing that gets me is how on earth the government thinks it's ever going to sell these assets that are so worthless they sank the banks, after buying them at prices enough above their value to refloat said banks. Many of these instruments, like the multiply-leveraged credit default swaps, are worth literally NOTHING. They are pieces of paper backed by nothing whatsoever.

[ithildae.livejournal.com]

The CDS's are worthless. (They started because the regulators required anything counted as an asset to be insured.) The MBS's and CDO's actually have a value. The problem is that some, small part of those collected assets are poisoned. The poisoned part needs to be pried loose, and then they are worth something. (Potentially lots.) The best computers the banks have available to them cannot identify the poisoned parts. It is a risk (and a big one) to have them. The only reliable way to find out if it is poisoned, it to taste it, i.e. hold it when it matures.