Treasury Bond Quotes

But men are cutting down the trees without replacing them. For every tree that’s felled, we must plant two. Otherwise, one day there’ll be no forests at all, and the world will become one great desert.

Municipalities that foster thriving business ecosystems can issue more investable bonds.

Municipalities that have Permaculture Economies can issue more investable bonds.

When other countries run sustained trade deficits, they must finance these by selling off domestic assets or running into debt — debt which they actually are obliged to pay. It seems that only the Americans are so bold as to say “Screw the world. We’re going to do whatever we want.” Other countries simply cannot afford the chaos from which the U.S. economy is positioned to withstand as a result of the fact that foreign trade plays a smaller role in its economy than in those of nearly all other nations in today’s interdependent world. Using debtor leverage to set the terms on which it will refrain from causing monetary chaos, America has turned seeming financial weakness into strength. U.S. Government debt has reached so large a magnitude that any attempt to replace it will entail an interregnum of financial chaos and political instability. American diplomats have learned that they are well positioned to come out on top in such grab-bags.

When asked what he thought the average trader did wrong, Tom Baldwin, who in the days before electronic trading was the largest individual trader in the Treasury bond pit, replied, “They trade too much. They don’t pick their spots selectively enough.

When foreign military spending [bombing Korea and Vietnam] forced the U.S. balance of payments into deficit and drove the United States off gold in 1971, central banks were left without the traditional asset used to settle payments imbalances. The alternative by default was to invest their subsequent payments inflows in U.S. Treasury bonds, as if these still were “as good as gold.” Central banks have been holding some $4 trillion of these bonds in their international reserves for the past few years — and these loans have financed most of the U.S. Government’s domestic budget deficits for over three decades. Given the fact that about half of U.S. Government discretionary spending is for military operations — including more than 750 foreign military bases and increasingly expensive operations in the oil-producing and transporting countries — the international financial system is organized in a way that finances the Pentagon, along with U.S. buyouts of foreign assets expected to yield much more than the Treasury bonds that foreign central banks hold.

Connections, like treasury bonds, are issued to every rich white person upon exiting the womb. Whenever one of them gets high and crashes their parents’ car, whenever they get busted for buying coke from an undercover, whenever they get caught messing with the wrong gangsters on vacation, they make a call, send a text, or whip out their AMEX.

Did anyone of those bullish investors ever think what would happen to the Treasury market if the Fed ever became a net seller of bonds?

Woodman, spare that tree! Touch not a single bough! In youth it sheltered me, And I’ll protect it now. ‘One day the trees will move again,’ said Grandfather. ‘They’ve been standing still for thousands of years, but one day they’ll move again. There was a time when trees could walk about like people, but along came the Devil and cast a spell over them, rooting them to one place. But they’re always trying to move—see how they reach out with their arms!—and some of them, like the banyan tree with its travelling roots, manage to get quite far!

From an asset-allocation perspective, when we talk about diversification, we're talking about investing in multiple asset classes. There are six that I think are really important and they are US stocks, US Treasury bonds, US Treasure inflation-protected securities [TIPS], foreign developed equities, foreign emerging-market equities and real estate investment trusts [REITS]. p473

On September 20, the New York Stock Exchange halted trading for ten days. Grant received emergency pleas for purchases of Treasury bonds to add liquidity to national banks, while Thomas Murphy, the former New York customs collector, wired: “Relief must come immediately or hundreds if not thousands of our best men will be ruined.” Not since 1837 had such a spasm of fear flashed through Wall Street.

A year earlier, no company had been accorded more faith than Enron; by late November, none was trusted less. And so, a gasping gurgle, a desperate SOS: Enron, the emblem of free markets, the champion of deregulation, reached into its depleted treasury and forked over $100,000 to each of the major political parties' campaign war chests. Then, it shuttered its online trading unit - its erstwhile gem. On November 28, Standard & Poor's downgraded Enron to junk-bond level - which triggered provisions in Enron's debt requiring it to immediately repay billions of its obligations. This it could not do. Its stock was seventy cents and falling, and, now, no gatekeepers and no credit remained. Accordingly, in the first week of December, Enron, the archetype of shareholder value, availed itself of the time-honored protection for those who have lost their credit: bankruptcy.

1838: On January 8th President Jackson pays off the final instalment of the national debt, which had been created by allowing the banks to issue currency for government bonds, rather than simply issuing treasury notes without such debt. He becomes the only President to ever pay off the debt.

Another view of the Constitution was put forward early in the twentieth century by the historian Charles Beard (arousing anger and indignation, including a denunciatory editorial in the New York Times). He wrote in his book An Economic Interpretation of the Constitution: Inasmuch as the primary object of a government, beyond the mere repression of physical violence, is the making of the rules which determine the property relations of members of society, the dominant classes whose rights are thus to be determined must perforce obtain from the government such rules as are consonant with the larger interests necessary to the continuance of their economic processes, or they must themselves control the organs of government. In short, Beard said, the rich must, in their own interest, either control the government directly or control the laws by which government operates. Beard applied this general idea to the Constitution, by studying the economic backgrounds and political ideas of the fifty-five men who gathered in Philadelphia in 1787 to draw up the Constitution. He found that a majority of them were lawyers by profession, that most of them were men of wealth, in land, slaves, manufacturing, or shipping, that half of them had money loaned out at interest, and that forty of the fifty-five held government bonds, according to the records of the Treasury Department. Thus, Beard found that most of the makers of the Constitution had some direct economic interest in establishing a strong federal government: the manufacturers needed protective tariffs; the moneylenders wanted to stop the use of paper money to pay off debts; the land speculators wanted protection as they invaded Indian lands; slaveowners needed federal security against slave revolts and runaways; bondholders wanted a government able to raise money by nationwide taxation, to pay off those bonds. Four groups, Beard noted, were not represented in the Constitutional Convention: slaves, indentured servants, women, men without property. And so the Constitution did not reflect the interests of those groups. He wanted to make it clear that he did not think the Constitution was written merely to benefit the Founding Fathers personally, although one could not ignore the $150,000 fortune of Benjamin Franklin, the connections of Alexander Hamilton to wealthy interests through his father-in-law and brother-in-law, the great slave plantations of James Madison, the enormous landholdings of George Washington. Rather, it was to benefit the groups the Founders represented, the “economic interests they understood and felt in concrete, definite form through their own personal experience.

A black boy brought Wilson's gin and he sipped it very slowly because he had nothing else to do except to return to his hot and squalid room and read a novel - or a poem. Wilson liked poetry, but he absorbed it secretly, like a drug. The Golden Treasury accompanied him wherever he went, but it was taken at night in small doses - a finger of Longfellow, Macaulay, Mangan: 'Go on to tell how, with genius wasted, Betrayed in friendship, befooled in love...' His taste was romantic. For public exhibition he has his Wallace. He wanted passionately to be indistinguishable on the surface from other men: he wore his moustache like a club tie - it was his highest common factor, but his eyes betrayed him - brown dog's eyes, a setter's eyes, pointing mournfully towards Bond Street.

In 1887, with a huge surplus in the treasury, Cleveland vetoed a bill appropriating $100,000 to give relief to Texas farmers to help them buy seed grain during a drought. He said: “Federal aid in such cases … encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character.” But that same year, Cleveland used his gold surplus to pay off wealthy bondholders at $28 above the $100 value of each bond—a gift of $45 million

With the simple suspension of gold redeemability, governments’ war efforts were no longer limited to the money that they had in their own treasuries, but extended virtually to the entire wealth of the population. For as long as the government could print more money and have that money accepted by its citizens and foreigners, it could keep financing the war. Previously, under a monetary system where gold as money was in the hands of the people, government only had its own treasuries to sustain its war effort, along with any taxation or bond issues to finance the war. This made conflict limited, and lay at the heart of the relatively long periods of peace experienced around the world before the twentieth century.

So tell me, Ray, what are the percentages you would put in stocks? What percentage in gold? and so on."... "First, he said, we need 30% in stocks (for instance, the S&P 500 or other indexes for further diversification in this basket)... "Then you need long-term government bonds. Fifteen percent in intermediate term [seven- to ten-year Treasuries] and forty percent in long-term bonds [20- to 25-year Treasuries]."... He rounded out the portfolio with 7.5% in gold and 7.5% in commodities... Lastly, the portfolio must be rebalanced. Meaning, when one segment does well, you must sell a portion and reallocate back to the original allocation. This should be done at least annually, and, if done properly, can actually increase tax efficiency. p390

The world is in the midst of a war, but it is not the kind of war you may be imagining. It is a currency war in which nations compete to lower the value of their currency in order to help their industries gain greater profits from exports. The currency disputes have arisen from a conflict of interest between the United States and China. The U.S. has been struggling against a massive fiscal deficit and foreign debt in recent years, especially since the global financial crisis. With so much at stake, the era of U.S. dollar hegemony seems to be ending. China has been raking in profits from its biggest export market, the U.S., by keeping its yuan, also known as the renminbi, undervalued. China has also been purchasing U.S. treasury bonds to add to its foreign reserves, worth more than $2 trillion. In September, the U.S. House of Representatives passed the Currency Reform for Fair Trade Act with a vote of 348 to 79. Under the bill, the U.S. is allowed to slap tariffs on goods from China and other countries with currencies that are perceived to be undervalued. Basically, the U.S. is pushing China to allow the yuan to appreciate. “For so many years, we have watched the China-U.S. trade deficit grow and grow and grow,” House Speaker Nancy Pelosi said on the day of the vote, which was on Sept. 29 local time. “Today, we are finally doing something about it by recognizing that China’s manipulation of the currency represents a subsidy for Chinese exports coming to the United States and elsewhere.” But China does not want the value of its currency to increase because a stronger yuan will hurt Chinese exporters who will see a decline in exports to the U.S. once the currency’s value rises.

In November 1914, the British government issued the first war bond, aiming to raise £350 million from private investors at an interest rate of 4.1% and a maturity of ten years. Surprisingly, the bond issue was undersubscribed, and the British public purchased less than a third of the targeted sum. To avoid publicizing this failure, the Bank of England granted funds to its chief cashier and his deputy to purchase the bonds under their own names. The Financial Times, ever the bank’s faithful mouthpiece, published an article proclaiming the loan was oversubscribed. John Maynard Keynes worked at the Treasury at the time, and in a secret memo to the bank, he praised them for what he called their “masterly manipulation.” Keynes’s fondness for surreptitious monetary arrangements would go on to inspire thousands of economic textbooks published worldwide. The Bank of England had set the tone for a century of central bank and government collusion behind the public’s back. The Financial Times would only issue a correction 103 years later,7 when this matter was finally uncovered after some sleuthing in the bank’s archives by some enterprising staff members and published on the bank’s blog.8

Hamilton argued that the security of liberty and property were inseparable and that governments should honor their debts because contracts formed the basis of public and private morality: “States, like individuals, who observe their engagements are respected and trusted, while the reverse is the fate of those who pursue an opposite conduct.”The proper handling of government debt would permit America to borrow at affordable interest rates and would also act as a tonic to the economy. Used as loan collateral, government bonds could function as money—and it was the scarcity of money, Hamilton observed, that had crippled the economy and resulted in severe deflation in the value of land. America was a young country rich in opportunity. It lacked only liquid capital, and government debt could supply that gaping deficiency. The secret of managing government debt was to fund it properly by setting aside revenues at regular intervals to service interest and pay off principal. Hamilton refuted charges that his funding scheme would feed speculation. Quite the contrary: if investors knew for sure that government bonds would be paid off, the prices would not fluctuate wildly, depriving speculators of opportunities to exploit. What mattered was that people trusted the government to make good on repayment: “In nothing are appearances of greater moment than in whatever regards credit. Opinion is the soul of it and this is affected by appearances as well as realities.” Hamilton intuited that public relations and confidence building were to be the special burdens of every future treasury secretary.

Beauty Void lay the world, in nothingness concealed, Without a trace of light or life revealed, Save one existence which second knew- Unknown the pleasant words of We and You. Then Beauty shone, from stranger glances free, Seen of herself, with naught beside to see, With garments pure of stain, the fairest flower Of virgin loveliness in bridal bower. No combing hand had smoothed a flowing tress, No mirror shown her eyes their loveliness No surma dust those cloudless orbs had known, To the bright rose her cheek no bulbul flown. No heightening hand had decked the rose with green, No patch or spot upon that cheek was seen. No zephyr from her brow had fliched a hair, No eye in thought had seen the splendour there. Her witching snares in solitude she laid, And love's sweet game without a partner played. But when bright Beauty reigns and knows her power She springs indignant from her curtained bower. She scorns seclusion and eludes the guard, And from the window looks if doors be barred. See how the tulip on the mountain grown Soon as the breath of genial Spring has blown, Bursts from the rock, impatient to display Her nascent beauty to the eye of day. When sudden to thy soul reflection brings The precious meaning of mysterious things, Thou canst not drive the thought from out thy brain; Speak, hear thou must, for silence is such pain. So beauty ne'er will quit the urgent claim Whose motive first from heavenly beauty came When from her blessed bower she fondly strayed, And to the world and man her charms displayed. In every mirror then her face was shown, Her praise in every place was heard and known. Touched by her light, the hearts of angels burned, And, like the circling spheres, their heads were turned, While saintly bands, whom purest at the sight of her, And those who bathe them in the ocean sky Cries out enraptured, "Laud to God on high!" Rays of her splendour lit the rose's breast And stirred the bulbul's heart with sweet unrest. From her bright glow its cheek the flambeau fired, And myriad moths around the flame expired. Her glory lent the very sun the ray Which wakes the lotus on the flood to-day. Her loveliness made Laila's face look fair To Majnún, fettered by her every hair. She opened Shírín's sugared lips, and stole From Parvíz' breast and brave Farhád's the soul. Through her his head the Moon of Canaan raised, And fond Zulaikha perished as she gazed. Yes, though she shrinks from earthly lovers' call, Eternal Beauty is the queen of all; In every curtained bower the screen she holds, About each captured heart her bonds enfolds. Through her sweet love the heart its life retains, The soul through love of her its object gains. The heart which maidens' gentle witcheries stir Is, though unconscious, fired with love of her. Refrain from idle speech; mistake no more: She brings her chains and we, her slaves, adore. Fair and approved of Love, thou still must own That gift of beauty comes from her alone. Thou art concealed: she meets all lifted eyes; Thou art the mirror which she beautifies. She is that mirror, if we closely view The truth- the treasure and the treasury too. But thou and I- our serious work is naught; We waste our days unmoved by earnest thought. Cease, or my task will never end, for her Sweet beauties lack a meet interpreter. Then let us still the slaves of love remain For without love we live in vain, in vain. Jámí, "Yúsuf and Zulaikha". trans. Ralph T. H. Griffith. Ballantyne Press 1882. London. p.19-22

The Federal Reserve The Federal Reserve Bank was founded in 1913. Most people think that this bank is an American Federal Company. That is just as wrong as the conviction that the Bank of England belongs to the British Crown or to the whole of England. The Federal Reserve is in the hands of the Rothschilds and company. In his speech before the Senate, on December 15, 1987, Senator Jesse Helms said: “The principal instrument of the control over the American economy and money is the Federal Reserve System.” The Federal Reserve has a monopoly over the expenditure of the dollar as a world currency and determining the interest rate, and it disposes of a lot more monopolies. How does the Federal Reserve Bank operate? Suppose the United States government needs a couple of billion dollars for its expenses that cannot be paid with taxes income. At that moment it addresses the Federal Reserve Board. Then government bonds for the needed billion dollars are printed in the Bureau of Printing and Engraving. After these bonds are handed over to the bankers of the Federal Reserve, the board grants a loan to the government in the amount of the bond issue. The Federal Reserve draws interest from the government from the day the bonds are delivered. From that day on the government is allowed to draw checks against the Federal Reserve for the amount of the bonds. What are the consequences of this incredible transaction? The government simply saddles the people with a billion dollar debt to the Federal Reserve Bank, apart from the interest on interest that also has to be paid by “ordinary people”. What does the Federal Reserve have to say about “their” money? “Neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries.”[76] When the Federal Reserve needs new, or more, currency to transact its business, it takes the bonds over to the United States Treasury for safekeeping and asks the Treasury Department for the billions of dollars of new currency it needs. The Bank is accommodated on condition that it will pay the printing bill. It only pays for the expenditure costs of the banknotes, which are no more than a mere 500 dollars for ink and paper!

During his time working for the head of strategy at the bank in the early 1990s, Musk had been asked to take a look at the company’s third-world debt portfolio. This pool of money went by the depressing name of “less-developed country debt,” and Bank of Nova Scotia had billions of dollars of it. Countries throughout South America and elsewhere had defaulted in the years prior, forcing the bank to write down some of its debt value. Musk’s boss wanted him to dig into the bank’s holdings as a learning experiment and try to determine how much the debt was actually worth. While pursuing this project, Musk stumbled upon what seemed like an obvious business opportunity. The United States had tried to help reduce the debt burden of a number of developing countries through so-called Brady bonds, in which the U.S. government basically backstopped the debt of countries like Brazil and Argentina. Musk noticed an arbitrage play. “I calculated the backstop value, and it was something like fifty cents on the dollar, while the actual debt was trading at twenty-five cents,” Musk said. “This was like the biggest opportunity ever, and nobody seemed to realize it.” Musk tried to remain cool and calm as he rang Goldman Sachs, one of the main traders in this market, and probed around about what he had seen. He inquired as to how much Brazilian debt might be available at the 25-cents price. “The guy said, ‘How much do you want?’ and I came up with some ridiculous number like ten billion dollars,” Musk said. When the trader confirmed that was doable, Musk hung up the phone. “I was thinking that they had to be fucking crazy because you could double your money. Everything was backed by Uncle Sam. It was a no-brainer.” Musk had spent the summer earning about fourteen dollars an hour and getting chewed out for using the executive coffee machine, among other status infractions, and figured his moment to shine and make a big bonus had arrived. He sprinted up to his boss’s office and pitched the opportunity of a lifetime. “You can make billions of dollars for free,” he said. His boss told Musk to write up a report, which soon got passed up to the bank’s CEO, who promptly rejected the proposal, saying the bank had been burned on Brazilian and Argentinian debt before and didn’t want to mess with it again. “I tried to tell them that’s not the point,” Musk said. “The point is that it’s fucking backed by Uncle Sam. It doesn’t matter what the South Americans do. You cannot lose unless you think the U.S. Treasury is going to default. But they still didn’t do it, and I was stunned. Later in life, as I competed against the banks, I would think back to this moment, and it gave me confidence. All the bankers did was copy what everyone else did. If everyone else ran off a bloody cliff, they’d run right off a cliff with them. If there was a giant pile of gold sitting in the middle of the room and nobody was picking it up, they wouldn’t pick it up, either.” In

The performance of the American stock market is perhaps best measured by comparing the total returns on stocks, assuming the reinvestment of all dividends, with the total returns on other financial assets such as government bonds and commercial or Treasury bills, the last of which can be taken as a proxy for any short-term instrument like a money market fund or a demand deposit at a bank. The start date, 1964, is the year of the author’s birth. It will immediately be apparent that if my parents had been able to invest even a modest sum in the US stock market at that date, and to continue reinvesting the dividends they earned each year, they would have been able to increase their initial investment by a factor of nearly seventy by 2007. For example, $10,000 would have become $700,000. The alternatives of bonds or bills would have done less well. A US bond fund would have gone up by a factor of under 23; a portfolio of bills by a factor of just 12. Needless to say, such figures must be adjusted downwards to take account of the cost of living, which has risen by a factor of nearly seven in my lifetime. In real terms, stocks increased by a factor of 10.3; bonds by a factor of 3.4; bills by a factor of 1.8.

Heck, if the Chinese, who own about a quarter of all foreign-owned Treasury bonds, tried to dump them, the Japanese, who own almost as much as the Chinese, would buy those bonds up just to spite the Chinese. If the Japanese were to start dumping, the Koreans would buy them up just to anger the Japanese. And if the Canadians were to start dumping, eh? Canadians are way too polite and would never do such a thing. We should worry more about other economic issues, such as why those medical and college bills are so astronomical, than we should the exportation of our national debt.

Treasury securities issued with a maturity of one year or less are called “bills”; from one to 10 years, “notes”; and over 10 years, “bonds.” Notes and bonds yield an interest coupon every six months. Bills do not—rather, they are issued at a discount and redeemed at par; the difference is their “yield.”)

Mixed thoughts of business and pleasure, 100 million dollar meetings is a success of true measure. Privately bonded to the treasury of secrecy, it's secrets that give keys to open sesame, look to the Bible for it's a sweet recipe of Supremacy. Find the knowledge to it all and never sell it for loose lips sink ships.

30 percent—Domestic equities: US stock funds, including small-, mid-, and large-cap stocks 15 percent—Developed-world international equities: funds from developed foreign countries, including the United Kingdom, Germany, and France 5 percent—Emerging-market equities: funds from developing foreign countries, such as China, India, and Brazil. These are riskier than developed-world equities, so don’t go off buying these to fill 95 percent of your portfolio. 20 percent—Real estate investment trusts: also known as REITs. REITs invest in mortgages and residential and commercial real estate, both domestically and internationally. 15 percent—Government bonds: fixed-interest US securities, which provide predictable income and balance risk in your portfolio. As an asset class, bonds generally return less than stocks. 15 percent—Treasury inflation-protected securities: also known as TIPS, these treasury notes protect against inflation. Eventually you’ll want to own these, but they’d be the last ones I’d get after investing in all the better-returning options first.

This story is not being told as much as it should be. In the late ’70s, the spread [or difference in interest rates] between mortgages at the consumer level and the 10-year US Treasury bond was about 450 basis points, or four and a half percent. Through securitization, we brought down that spread to about 150 basis points, or one and a half percent. When you think about the savings of America and the mechanism for home ownership, securitization was a foundational reason why more Americans were able to buy homes.III Changes to government-influenced underwriting characteristics, which first occurred in 2004, focused on having more people have home ownership and on reducing down payments. The result was that individuals with lower-quality credit would be able to get mortgages that previously would not have been available to them. These were typically called “subprime mortgages.” That led to the financial crisis. The structure of mortgage-backed securities remained strong and good and helpful for society. All good things, if not properly governed, can lead to bad outcomes. That’s what really happened.

In the current system, to manage the laborious process of cross-firm reconciliation, middlemen ledger-keepers have been created—clearinghouses, settlement agencies, and correspondent banks, custodial banks, and others. Those intermediaries solve some of the trust problems but they also add cost, time, and risk. In the United States, the final settlement of a trade takes two days for U.S. Treasury bonds and up to thirty days for instruments such as syndicated loans. Not only do massive errors and omissions still occur, but the time lag paralyzes literally trillions of dollars of potentially useful capital, which must wait in escrow accounts or collateral agreements until all parties have cleared their books and the trade is settled. A more efficient, real-time system would unlock those funds, sending a wall of money into the world’s markets—yes, to make bankers richer, but also to provide more credit to businesses and households. In theory, R3’s distributed ledger could achieve all that. It could unleash a tidal wave of money.

Overall, it was a pretty good trading strategy. He made money in two out of three possible scenarios. If bond prices went down, he made a lot of money. If the market stayed the same, he earned free interest on the cash. If the Treasury market rallied, he risked a pretty big loss. And guess what? Between February 1982 and May 1982, the Treasury market reversed its decline and started to rally. This was the one chance in three that he wasn’t hoping for. When the May 15, 1982, coupon interest payments were due on a Monday, Drysdale was wiped out and didn’t have enough money to make the payments. That Sunday evening, Heuwetter called Drysdale's clearing bank, Chase Manhattan, and informed them that "we may have a problem" meeting the $160 million interest payment due the next day. Could Chase possibly lend Drysdale $200 million to tide them over? What he didn’t tell them was that, yes, the market rally had wiped them out, but the problem was even worse than that. Drysdale had conducted its Repo trading mostly through Chase's Securities Lending Department.

It’s importance, however, is bigger than that. Treasury securities are the risk-free yield curve for all of the financial markets. That’s right, the yields of Treasury Bills, Notes, and Bonds from overnight to 30 years make up a yield curve that is used to price all other fixed-income securities. The Treasury market is the reference rate for interest rates. Treasurys are a tool for pricing corporate bonds, municipal bonds, emerging market bonds, federal agencies, mortgage-backed securities, and other dollar assets. On top of that, they’re also a tool for speculation and hedging risk.

Treasury Bills are the shortest securities, and they’re discount securities[8]. The Treasury regularly issues 1 Month, 2 Month, 3 Month, 6 Month, and Year Bills. Treasury Notes are securities that were originally issued with maturities between 2 years and 10 years. Currently, the Treasury issues 2 Year Notes, 3 Year Notes, 5 Year Notes, 7 Year Notes, and 10 Year Notes. In the past, there was a 4 Year Note, but it was discontinued. Treasury Bonds[9] are securities originally issued with maturities of either 20 or 30 years. Treasury securities are issued on a very regular schedule. Auction schedules are announced by the Treasury and don’t change very often. Keeping Treasury securities regular and predictable helps keeps the market liquid, and therefore reduces funding costs, in theory, for the government. On top of that, large liquid Treasury issues are good for the financial markets. Just remember, large and liquid is certainly better than small and illiquid! Small issues can experience price distortions, so the Treasury will make adjustments in their debt sales to keep the market liquid, running smoothly and predictably.

Treasury issues can be reopened. Most reopenings are a part of the regular auction cycle, but there are times when issues are reopened due to market stress. Regular reopenings occur in the Bill market, the 10 Year Note and 30 Year Bond. There are also occasional reopenings when a new issue ends up with the same coupon and maturity date as an existing, older Treasury issue.

The book doesn't have to be all about U.S. Treasurys, but that's mostly what it’s about. U.S. Treasuries are the foundation of the Repo market. However, these days there are Repo transactions in just about any financial instrument: federal agencies, municipal bonds, corporate bonds, foreign government bonds, emerging markets bonds, mortgage loans, etc.

David Heuwetter was the head trader at Drysdale Government Securities and had a great trading idea. It was really more of a scheme to take advantage of the difference in the market convention between outright Treasury purchases and Repo trades. Still at this time, when someone bought and sold a U.S. Treasury outright, the securities settled with the coupon accrued interest added to the purchase price. That is, when you bought a U.S. Treasury, you had to pay for the amount of interest which had already accrued on the security since the last coupon payment date. When interest rates were low, the accrued interest was small, even negligible. However, in the early 1980s, interest rates shot up above 10%, which meant there was a lot of interest accruing on bonds each day.  Heuwetter realized he could short-sell U.S. Treasurys outright and deliver the securities to the buyer and receive the price plus the accrued interest. Then, when he borrowed the securities in the Repo market, he only had to pay the purchase price. He was getting the full use of the accrued interest on the bonds at no cost.

The securities lending business boils down to one concept: exchanging a security that someone needs for a different security or cash. The business is driven by the need of the dealer community to cover short positions, be it in stocks, Treasurys, agencies, corporate bonds, ADRs, or even ETFs. When a dealer is looking to cover a short position, they first check what are colloquially known as the “sec lenders.” The securities lending group will pull the security out of the end-user portfolio and lend it into the Repo market. When a securities lending group loans a security, they either receive cash or bonds in return. If they receive cash, they reinvest the cash. If they receive a bond, they earn a fee on the spread between where they loan the bond and borrow the other. In the case of cash, they need to invest it. They need an investment that generates a sufficient return to make the business viable, yet, at the same time, without taking too much risk. The safest and easiest way to invest is in overnight Treasury repo. The problem is that there’s very little profit lending a Treasury and reinvesting in a Treasury. In order to enhance returns, the securities lending groups take some risk. It’s not necessarily a lot of risk, but increasing returns involves increasing risk. It can be either interest rate risk, credit risk, or liquidity risk. Technically a combination of all three is possible, too, but that’s pretty dangerous. The yield curve is upward sloping most of the time, so investing for a longer period of time generally generates a higher yield. Let’s say the overnight rate is 2.00%, the one-month rate is 2.05%, and the three-month rate is at 2.15%. Instead of reinvesting cash overnight, there’s an extra 15 basis points for investing for three months. Since the end-investor clients usually hold their bonds to maturity, there’s only a small chance they will sell a bond during that three-month period. On top of that, the securities lending groups run multi-billion dollar portfolios, so they can ladder their investments.

In the end, the proceeds that actually went to Girls Inc. amounted to $2.2 million, thanks to a timely switch of the bet’s collateral from US Treasury bonds into Berkshire stock—highlighting how human discretion can still play a valuable role. The money helped finance a Girls Inc. program for vulnerable young women at a converted convent on the outskirts of Omaha, now appropriately renamed Protégé House.

credit spread. This is a measurement between the yield of U.S. Treasury bonds, which carry the smallest possible risk, and the yield of a publicly traded corporate bond.

The credit spread refers to the difference between Treasuries, which were paying around 4.5 percent, and the yields of corporate bonds and the mortgage-backed securities, which were probably around 7 to 8 percent.

Corporate bonds, Treasury bonds, and municipal bonds all represent nothing more than a loan—or, if you wish, debt—for which the lender will be paid an interest rate,

Buffett’s thinking was simple: He bought the stock because it sold for less than its net cash. Union Street Railway was a tiny company, selling for a $643,000 market capitalization and an enterprise value of negative $327,000. Discussing his rationale, he said: It had a hundred sixteen buses and a little amusement park at one time. I started buying the stock because they had eight hundred thousand dollars in treasury bonds, a couple of hundred thousand in cash, and outstanding bus tickets of ninety-six thousand dollars. Call it a million dollars, about sixty bucks a share. When I started buying it, the stock was selling around thirty or thirty-five bucks a share.128

The unprecedented bull market in Treasury bonds, supported by the belief that Treasury bonds are “insurance policies” in the case of financial collapse, could end as badly as the bull market in technology stocks did at the turn of the century. When economic growth increases, Treasury bondholders will receive the double blow of rising interest rates and loss of safe-haven status. One of the prime lessons learned from long-term analysis is that no asset class can stay permanently detached from fundamentals. Stocks had their comeuppance when the technology bubble burst and the financial system crashed. It is quite likely that bondholders will suffer a similar fate as the liquidity created by the world’s central banks turns into stronger economic growth and higher inflation.

Churchill made a point about the power of government: A National or Municipal Beef Trust, with the United States Treasury at its back, might indeed give more regular employment at higher wages to its servants, and might sell cleaner food to its customers—at a price. But if evil systems corrupt good men, it is no less true that base men will dishonor any system, and while no bond of duty more exacting than that of material recompense regulates the relations of man and man, while no motion more lofty than that of self-interest animates the exertions of every class, and no hope beyond the limits of this fleeting world lights the struggles of humanity, the most admirable systems will merely succeed in transferring, under different forms and pretexts, the burden of toil, misery, and injustice from one set of human shoulders to another.

He didn’t buy U.S. Treasury bonds, or stock in companies outside of Silicon Valley, or for that matter stock in anything outside the outrageously volatile Internet sector.

Then you need long-term government bonds. Fifteen percent in intermediate term [seven- to ten-year Treasuries] and forty percent in long-term bonds [20- to 25-year Treasuries].

Mortgage securities. Pooled together from thousands of mortgages around the United States, these bonds are issued by agencies like the Federal National Mortgage Association (“Fannie Mae”) or the Government National Mortgage Association (“Ginnie Mae”). However, they are not backed by the U.S. Treasury, so they sell at higher yields to reflect their greater risk. Mortgage bonds generally underperform when interest rates fall and bomb when rates rise. (Over the long run, those swings tend to even out and the higher average yields pay off.) Good mortgage-bond funds are available from Vanguard, Fidelity, and Pimco. But if a broker ever tries to sell you an individual mortgage bond or “CMO,” tell him you are late for an appointment with your proctologist.

would readily

could they get to the river in time?

If your 401(k) is lucky enough to have Vanguard funds, look for, respectively, the (U.S.) Total Stock Market Index Fund, Total International Stock Index Fund, and either the Short-Term Bond Index or Total Bond Market Index Fund. As already mentioned, the Fidelity Spartan series is also excellent: the Total Market Index, International Index, and U.S. Bond Index (or Short-Term Treasury Bond Index) funds.

Grandfather was about sixty, a lean active man who still rode his bicycle at great speed.

As we explore later in this chapter, virtually no asset, except for long-term U.S. Treasury bonds, served as an effective hedge against the sudden and sharp decline in asset values that took place during the financial crisis.

To understand what that means in commonsense terms, consider a person who plans to live off the income from $1 million invested in T-bills. Suppose he retires in a given year and converts his investments into an inflation-protected annuity with a return of 4% to 5%. He will receive an annual income of $40,000 to $50,000. But now suppose he retires a few years later, when the return on the annuity has dropped to 0.5%. His annual income will now be only $5,000. Yes, the $1 million principal amount was fully insured and protected, but you can see that he cannot possibly live on the amount he will now receive. T-bills preserve principal at all times, but the income received on them can vary enormously as return on the annuity goes up or down. Had the retiree bought instead a long-maturity U.S. Treasury bond with his $1 million, his spendable income would be secure for the life of the bond, even though the price of that bond would fluctuate substantially from day to day. The same holds true for annuities: Although their market value varies from day to day, the income from an annuity is secure throughout the retiree’s life.

Bond market investors are a downbeat lot. They live in an asymmetric world because bonds can go down much more than they can go up. And investors in Treasury securities are the most downbeat and risk averse of all since they prize safety above all else.

At first, the American war effort faced financial difficulties. In 1842, the government, in an effort to protect growing American industries and, as Southerners would say, to force them to buy eastern goods, set a high tariff on imports. While the tariff was successful in stifling foreign competition, it also drastically reduced government revenues and put severe limitations on the extension of international credit to American entrepreneurs. Coupled with currency inflation and a slowing of the business cycle, the United States Treasury was hard put to finance a war. At the beginning of hostilities, the treasury held only a small surplus of $7 million. When Polk recommended that the Congress place additional taxes on coffee and tea, the House of Representatives indignantly refused. Polk, however, was able to have passed a new bill lowering tariffs, and by the beginning of 1847 revenues began to increase. The Congress also voted to issue $10 million in new Treasury notes and bonds. Technical

Unlike common stocks, whose dividends and earnings fluctuate with the ups and downs of the company’s business, bonds pay a fixed dollar amount of interest. If the U.S. Treasury offers a $1,000 20-year, 5 percent bond, that bond will pay $50 per year until it matures, when the principal will be repaid. Corporate bonds are less safe, but widely diversified bond portfolios have provided reasonably stable interest returns over time.

There are six that I think are really important and they are US stocks, US Treasury bonds, US Treasury inflation-protected securities [TIPS], foreign developed equities, foreign emerging-market equities, and real estate investment trusts [REITs].

* Fear causes failure, even defeat. * Corruption results in the treasury collapse, even economic slavery. * Injustice obliterates judicial concepts, even context. * Greediness turns into a crime, even treason. * Lie breaks trust, even every bond.

In July 2023, the risk-free rate was set to the 10-year Treasury bond rate of 3.80 percent, the equity risk premium (ERP) was 5.67 percent, reflecting KHC’s revenue weighted geographic exposure, and the beta for KHC was estimated by looking at the business it operated in, which is food processing, as shown in Table 3.6. Table 3.6 Estimating a Beta for KHC Business Estimated value Proportion of firm Sector beta Food processing $30,146 100.00% 0.69 KHC as a firm $30,146 100.00% 0.69

For most investors, bond funds beat individual bonds hands down (the main exceptions are Treasury securities and some municipal bonds). Major firms like Vanguard, Fidelity, Schwab, and T. Rowe Price offer a broad menu of bond funds at low cost.9

Fifteen percent in intermediate term [seven- to ten-year Treasuries] and forty percent in long-term bonds [20- to 25-year Treasuries].

In 1982, his biggest investment was Treasury bonds; right after that, he made Chrysler his top holding, even though most experts expected the automaker to go bankrupt; then, in 1986, Lynch put almost 20% of Fidelity Magellan in foreign stocks like Honda, Norsk Hydro, and Volvo. So, before you buy a U.S. stock fund, compare the holdings listed in its latest report against the roster of the S & P 500 index; if they look like Tweedledee and Tweedledum, shop for another fund.7

The three main players in the MBS market are: • Government National Mortgage Association, or GNMA (pronounced “Ginnie Mae”), is backed by a federal agency and guarantees mortgage payments on loans issued through federal loan programs (like the VA and the FHA). Unlike other MBS, bonds guaranteed by GNMA are backed by the full faith and credit of the US government, just like Treasury bonds. • Federal National Mortgage Association, or FNMA (“Fannie Mae”), is a private corporation that buys mortgages from large commercial banks, repackages them into bonds, and sells those bonds to investors. FNMA is not backed by the federal government (even though the government created it), so these bonds carry higher credit risk (the risk that you won’t get your money back). • Federal Home Loan Mortgage Corporation, or FHLMC (commonly called “Freddie Mac”), works almost the same way as FNMA. It buys up mortgages from smaller lenders, like savings and loan banks or credit unions, then packages them to create MBS. Freddie Mac bonds are not backed by the US government.

The highest-risk investments include: Futures Commodities Limited partnerships Collectibles Rental real estate Penny stocks (stocks that cost less than $5 per share) Speculative stocks (such as stock in new companies) Foreign stocks from volatile nations “Junk” (or high-yield corporate) bonds Moderate-risk investments include: Growth stocks (companies that reinvest most of their profits to grow the business) Corporate bonds with lower (but still investment-grade) ratings Mutual funds or exchange-traded funds (ETFs) Real estate investment trusts (REITs) Blue chip stocks Limited-risk investments include: Top-rated investment-grade corporate and municipal bonds The lowest-risk investments include: Treasury bills and bonds FDIC-insured bank CDs (certificates of deposit) Money market funds Practicing

Morgan Stanley offered two key concessions that persuaded S&P to give the new bonds a AA-rating. First, the company would issue two classes of bonds, and S&P would rate only the much safer of the two. Banamex would keep the riskier unrated class of bonds, to serve as a cushion to protect the safer bonds, providing greater assurance that the rated bonds would be repaid in full. The company would also purchase some U.S. Treasury bonds, as additional protection. The safer, rated bonds were the bonds actually called PLUS Notes. Second, Morgan Stanley also agreed that the company would commit in advance to execute a foreign currency transaction in which Morgan Stanley would convert the peso payments on the Ajustabonos into U.S. dollars. S&P must have been suspicious that Morgan Stanley would try to market these new bonds as denominated in U.S. dollars, not pesos. As a compromise, S&P required that Morgan Stanley advertise the new bonds with a caveat. The Offering Memorandum for the bonds had to include a disclaimer: “This rating does not reflect the risk associated with fluctuations in the currency exchange rate between Dollars and New Pesos.” With this warning, and a huge fee, S&P finally was satisfied and agreed to rate the new bonds AA-.

Nobody, except for one firm: Salomon Brothers. In 1991, just as Maxwell had generated a huge scandal in Britain, Salomon Bothers had done the same in the United States. In the previous autumn, the Securities and Exchange Commission (SEC) caught some top Salomon traders trying to manipulate the US Treasury bond market.

Beginning in 2001, there was another shift in the Repo market. The CFTC changed their margin investment rules, allowing for FCMs (Futures Commission Merchants) to invest their cash in federal agencies, municipal bonds, and corporate bonds, instead of just Treasurys. The premium that U.S. Treasury collateral enjoyed narrowed. Before the rule change in 2000, GC was averaging around 7 basis points below fed funds. Beginning in 2001, GC was averaging almost flat to fed funds. When there’s less demand for Treasurys, there’s a smaller premium.

When cash moves in and out of money market funds (MMF), it affects Repo rates. Yes, these funds invest a majority of their funds in bank CDs, commercial paper, U.S. Treasurys, corporate bonds, and discount notes, but their uninvested cash goes directly into the Repo market. Large funds like Fidelity, Vanguard, Federated, PIMCO, and Blackrock invest hundreds of billions of dollars in the Repo market each day. When individual inventors put money in these funds, a percentage of that cash filters into the Repo market.

When interest rates decline, local governments will often refinance their debt, just as an individual might refinance their home mortgage. The municipality will issue new municipal bonds at lower interest rates. At the same time, they buy Treasurys and place them in a trust to pay the outstanding bond issue. The municipality matches the cash flows of the outstanding municipal bond issue with cash flows of the Treasurys.

Rehypothecation is not risky in large Repo markets like U.S. Treasurys, but it becomes a potential problem in small securities markets. Think of small corporate or municipal bond issues. What happens if one of the counterparties defaults? Think of it like a break in the collateral chain. When one party defaults, the two counterparties on either side must liquidate their securities. One counterparty sells the collateral and the other one buys the collateral, but not necessarily to each other. For highly liquid and large issue securities, like U.S. Treasurys, this is easy. Problems arise when the collateral is non-fungible, a private-label issuer, or a small issue size. In these cases, when the entity in the middle goes bust, it’s hard for the original seller to get back their securities.

When playing a bear market, the same rules hold: You want to diversify your risks, especially knowing that collapses move even faster than rallies. You need to decide how much safe cash or near cash you want to hold to sleep at night and to handle financial emergencies, like the loss of your job or your house. Then decide how much to put into longer-term high-quality bonds, like those 30-year Treasuries and AAA corporates, but I think it’s still premature to make this move at the time of this writing, in August 2017. Then decide how much you want to put into a dollar bull fund or the ETF UUP, which tracks the U.S. dollar versus its six major trading partners. If you’re willing to risk part of your wealth, you can also bet on financial assets going down—from stocks to gold. Stocks are the one type of financial asset that goes down in either a deflationary crisis, like the 1930s, or an inflationary one, like the 1970s. So shorting stocks is the best way to prosper in the downturn, either way. But don’t leverage this bet. The markets are simply too volatile. You can short the stock market with no leverage by simply buying an ETF (exchange-traded fund) like the ProShares Short S&P 500 (NYSEArca: SH). It’s an inverse fund on the S&P 500, so if the index goes down 50 percent, you make 50 percent. The ProShares Ultrashort (NYSEArca: QID) is double short the NASDAQ 100, which is likely to get hit the worst. If you make this play, just do a half share, to avoid that two-times leverage (hold the other half in cash or short-term bonds). Direxion Daily Small Cap Bear 3X ETF (NYSEArca: TZA) is triple short the Russell 2000, which is also likely to lead on the way down. So buy only a one-third share of this one, to remain without leverage. (That means the money you allocate here should be one-third in TZA and two-thirds in cash, to offset the leverage.) And unlike the gold bugs, I see gold collapsing. It’s an inflation hedge, not a deflation hedge. If gold rallies back as high as $1,425—on my predicted bear-market rally—then it could easily drop to around $700 within a year. Your last decision is whether to risk some of your funds betting on gold’s downside, for the greatest potential returns. You can buy DB Gold Double Short ETN (NYSEArca: DZZ)—double short gold—at a half share, to offset the leverage, or just simply short GLD, the ETF that follows gold. There you have it. How to handle the coming crash.

In the Airmada audiences were people who had come from all over the world to chase the good life in the United States of America. They had found a country more to their liking than the ones they had left, but they bridled at the barriers they had found to their advancement: their religions and ethnicities. The U.S. Treasury Department made sure the members of all ethnic groups equated buying bonds with proving their loyalty.

High-yield bonds—which Graham calls “second-grade” or “lower-grade” and today are called “junk bonds”—get a brisk thumbs-down from Graham. In his day, it was too costly and cumbersome for an individual investor to diversify away the risks of default.;1 (To learn how bad a default can be, and how carelessly even “sophisticated” professional bond investors can buy into one, see the sidebar on p. 146.) Today, however, more than 130 mutual funds specialize in junk bonds. These funds buy junk by the cartload; they hold dozens of different bonds. That mitigates Graham’s complaints about the difficulty of diversifying. (However, his bias against high-yield preferred stock remains valid, since there remains no cheap and widely available way to spread their risks.) Since 1978, an annual average of 4.4% of the junk-bond market has gone into default—but, even after those defaults, junk bonds have still produced an annualized return of 10.5%, versus 8.6% for 10-year U.S. Treasury bonds.2 Unfortunately, most junk-bond funds charge high fees and do a poor job of preserving the original principal amount of your investment. A junk fund could be appropriate if you are retired, are looking for extra monthly income to supplement your pension, and can tolerate temporary tumbles in value. If you work at a bank or other financial company, a sharp rise in interest rates could limit your raise or even threaten your job security—so a junk fund, which tends to outper-forms most other bond funds when interest rates rise, might make sense as a counterweight in your 401(k). A junk-bond fund, though, is only a minor option—not an obligation—for the intelligent investor.

U.S. foreign debt, though, takes the form of treasury bonds held by institutional investors in countries (Germany, Japan, South Korea, Taiwan, Thailand, the Gulf States) that are in most cases, effectively, U.S. military protectorates, most covered in U.S. bases full of arms and equipment paid for with that very deficit spending. This has changed a little now that China has gotten in on the game (China is a special case, for reasons that will be explained later), but not very much—even China finds that the fact it holds so many U.S. treasury bonds makes it to some degree beholden to U.S. interests, rather than the other way around. So what is the status of all this money continually being funneled into the U.S. treasury? Are these loans? Or is it tribute? In the past, military powers that maintained hundreds of military bases outside their own home territory were ordinarily referred to as “empires,” and empires regularly demanded tribute from subject peoples. The U.S. government, of course, insists that it is not an empire—but one could easily make a case that the only reason it insists on treating these payments as “loans” and not as “tribute” is precisely to deny the reality of what’s going on.

First, he said, we need 30% in stocks (for instance, the S&P 500 or other indexes for further diversification in this basket). Initially that sounded low to me, but remember, stocks are three times more risky than bonds. And who am I to second-guess the Yoda of asset allocation!? “Then you need long-term government bonds. Fifteen percent in intermediate term [seven- to ten-year Treasuries] and forty percent in long-term bonds [20- to 25-year Treasuries].” “Why such a large percentage?” I asked. “Because this counters the volatility of the stocks.” I remembered quickly it’s about balancing risk, not the dollar amounts. And by going out to longer-term (duration) bonds, this allocation will bring a potential for higher returns. He rounded out the portfolio with 7.5% in gold and 7.5% in commodities. “You need to have a piece of that portfolio that will do well with accelerated inflation, so you would want a percentage in gold and commodities. These have high volatility. Because there are environments where rapid inflation can hurt both stocks and bonds.” Lastly, the portfolio must be rebalanced. Meaning, when one segment does well, you must sell a portion and reallocate back to the original allocation. This should be done at least annually, and, if done properly, it can actually increase the tax efficiency. This is part of the reason why I recommend having a fiduciary implement and manage this crucial, ongoing process.

way. I monitor the action by following the TLT, the iShares 20+ Year Treasury Bond ETF. This security goes down when interest rates go up, and vice versa. When the TLT goes down, you can expect the stock index futures to go down soon after,

Ranji had a one-rupee coin. He'd had it since morning, and now it was afternoon - and that was far too long to keep a rupee. It was time he spend the money, or some of it, or most of it.

REITs. Real Estate Investment Trusts, or REITs (pronounced “reets”), are companies that own and collect rent from commercial and residential properties.10 Bundled into real-estate mutual funds, REITs do a decent job of combating inflation. The best choice is Vanguard REIT Index Fund; other relatively low-cost choices include Cohen & Steers Realty Shares, Columbia Real Estate Equity Fund, and Fidelity Real Estate Investment Fund.11 While a REIT fund is unlikely to be a foolproof inflation-fighter, in the long run it should give you some defense against the erosion of purchasing power without hampering your overall returns. TIPS. Treasury Inflation-Protected Securities, or TIPS, are U.S. government bonds, first issued in 1997, that automatically go up in value when inflation rises. Because the full faith and credit of the United States

Strange as it may seem — and irrational as it would be in a more logical system of world diplomacy — the dollar glut is what finances America’s global military build-up. It forces foreign central banks to bear the costs of America’s expanding military empire. The result is a new form of taxation without representation. Keeping international reserves in dollars means recycling dollar inflows to buy U.S. Treasury bills — U.S. government debt issued largely to finance the military spending that has been a driving force in the U.S. balance-of-payments deficit since the Korean War broke out in 1950. [...] “China National Offshore Oil Corporation go home” is the motto when foreign governments try to use their sovereign wealth funds (central bank departments trying to figure out what to do with their dollar glut) to make direct investments in American industry, as happened when China’s national oil company sought to buy Unocal in 2005.[...] So Europeans and Asians see U.S. companies pumping more dollars into their economies not only to buy their exports (in excess of providing them with goods and services in return), not only to buy their companies and commanding heights of privatized public enterprises (without giving them reciprocal rights to buy important U.S. companies), and not only to buy foreign stocks, bonds and real estate. The U.S. media neglect to mention that the U.S. Government spends hundreds of billions of dollars abroad — not only in the Near East for direct combat, but to build military bases to encircle the rest of the world, and to install radar systems, guided missile systems and other forms of military coercion, including the “color revolutions” that have been funded all around the former Soviet Union.

Large-cap U.S. Stock S&P 500 Index Midcap U.S. Stock S&P Midcap 400 Index Small-cap U.S. Value stock Russell 2000 Value Index Non-U.S. Developed stock MSCI EAFE Index Non-U.S. Emerging stock MSCI Emerging Markets Index Real Estate Dow Jones U.S. Select REIT Index Natural Resources Goldman Sachs Natural Resources Index Commodities Deutsche Bank Liquid Commodity Index U.S. Bonds Barclays Capital Aggregate Bond Index Inflation Protected Bonds Barclays Capital U.S. Treasury Inflation Note Index Non-U.S. Bonds Citibank WGBI Non-U.S. Dollar Index Cash 3-Month Treasury Bill

Next, Cohn repeated what everyone was saying: Interest rates were going to go up over the foreseeable future. I agree, Trump said. “We should just go borrow a lot of money right now, hold it, and then sell it and make money.” Cohn was astounded at Trump’s lack of basic understanding. He tried to explain. If you as the federal government borrow money through issuing bonds, you are increasing the U.S. deficit. What do you mean? Trump asked. Just run the presses—print money. You don’t get to do it that way, Cohn said. We have huge deficits and they matter. The government doesn’t keep a balance sheet like that. “If you want to do something that would be smart—and you actually do control this—I would add a 50-year and a 100-year bond from the U.S. Treasury.

A young Jewish man escapes the Holocaust and makes his way to England, where he manages, through sheer entrepreneurial genius, to make a fortune. His old widower father remains behind in the Warsaw ghetto and the young man is able to pay for an incredible, daring, and expensive airlift to rescue him. Once his father is safe in England, the young man tells him he must think of himself as an Englishman. “That is what I am now, Papa,” he explains to the old man. “This land has given me refuge and a haven and I have succeeded here. I am, by God, an Englishman and you must think of yourself as one from now on, too.” He takes his father to Bond Street and has him fitted for and dressed in a brand-new expensive suit in a haberdashery there. Then he takes him to a fancy tonsorial place where the old man is put in the barber chair and the hair cutter begins cutting the old man’s payos, the locks of hair worn by religious Hasidim. The father is suddenly sobbing convulsively and his son, with deep compassion as he watches his father’s hair locks tumble to the floor, sympathetically asks: “What, Papa? Are you crying because you feel you are losing your Jewish identity?” The old man shakes his head, sniffs, and, with another convulsive sob, says: “No, son. I’m crying because we lost India.

From 1942 until 1947, the Federal Reserve—at the behest of the Treasury Department—actively managed the government’s borrowing costs. Even as spending to fight World War II drove the federal deficit to more than 25 percent of GDP in 1943, interest rates trended lower. That’s because the Fed pegged the T-bill rate at 0.375 percent and held the rate on twenty-five-year bonds at 2.5 percent. As MMT economist L. Randall Wray put it, “the government can ‘borrow’ (issue bonds to the public) at any interest rate the central bank chooses to enforce. It is relatively easy for the central bank to peg the interest rate on short-term government debt instruments by standing ready to purchase it at a fixed price in unlimited quantities. This is precisely what the Fed did in the United States until 1951—providing banks with an interest-earning alternative to excess reserves, but at a very low rate of interest.

In fact, some investment advisors say the only completely safe bond is one backed by the full faith and credit of the United States. And you can actually buy US bonds called Treasury inflation-protected securities, or TIPS, that rise in value to keep up with inflation through the consumer price index.

From 1981 to 1991, the average return on ten-year Treasury bills was 10.4 per cent; the Dow Jones Industrial Average was 12.9 per cent; and the average return on so-called junk bonds was 14.1 per cent.

Money is almost useless to any buyer/investor until it purchases what you have. Oh sure, the investor's money can earn a few bucks in Treasury bills or corporate bonds. But that's not what money wants to do. It wants to go to work by investing in deals and buying products. How does this work in the real world? This can seem a little abstract until you fully internalize the following fact: Money cannot do anything without you. The money needs YOU.

An inverse relationship exists between efficiency in asset pricing and appropriate degree of active management. Passive management strategies suit highly efficient markets, such as U.S. Treasury bonds, where market returns drive results and active management adds little or nothing. Active management strategies fit inefficient markets, such as private equity, where market returns contribute very little to ultimate results and investment selection provides the fundamental source of return.

Table 4.1 Equities Generate Superior Returns in the Long Run Wealth Multiples for U.S. Asset Classes and Inflation December 1925–December 2005 Asset Class Multiple Inflation 11 times Treasury bills 18 times Treasury bonds 71 times Corporate bonds 100 times Large-capitalization stocks 2,658 times Small-capitalization stocks 13,706 times Source: Ibbotson Associates, Stocks, Bonds, Bills and Inflation, 2006 Year Book.

Investors would buy shares in their fund. The fund would then take investors’ money and lend it out—to the government, in the form of Treasury bills, and to banks, in the form of big savings accounts. These were short-term, ultra-safe investments. So safe, in fact, that the price of the mutual fund shares didn’t need to fluctuate every day like funds that owned stocks or riskier bonds.

Ibbotson Associates, founded by Yale scholar Roger Ibbotson, produces a widely used survey of returns covering the past seventy-eight years. Over the nearly eight-decade period from 1926 to 2003, U.S. stocks produced an annual compound return of 10.4 percent, U.S. government bonds returned 5.4 percent, and U.S. Treasury bills generated 3.7 percent. The 5.0 percentage point difference between stock and bond returns represents the historical risk premium, defined as the return to equity holders for accepting risk above the level inherent in bond investments.

But instead of U.S. citizens and companies being taxed or U.S. capital markets being obliged to finance the rising federal deficit, foreign economies were obliged to buy the new Treasury bonds being issued. America’s Cold War spending thus became a tax on foreigners. It was their central banks who financed the costs of the war in Southeast Asia.