WOW!
Interesting week ahead of us with WELL over 200 BILLION dollars worth of Treasury notes being auctioned off. Remember that REAL money needs to be raised to pay for all the record breaking spending we have committed to. The interesting thing to note is that when these notes are "issued" they are only backed by the promise to pay those who invest in them a specific return. There is no product or service that they represent...so they are really like an "IOU" that earns interest for the holder of the "note."
The dangerous thing about simply "printing money" like this is that most of the "promises" are owned by foreigners. (Remember that 3/4 BILLION alone is owned by China.) With other nations so invested in the US...they really count on our domestic policies to keep the dollar strong and in a sense protect their investment. If the US dollar failed...the effects would be devastating worldwide. When they have more interest in our domestic policies and hold SO much of our debt...they have much more influence over things. Also when "more" dollars are added to the economy in the form of "printing money": the currency is diluted in a sense...or devalued. It is as simple as the supply vs. demand theory. "Devalued currency" is another way of saying "inflation". The only way to control the "supply vs. demand" for US dollars is to make them harder to get a hold of...or more expensive. They do this by "raising" the fed funds rates. "Raising the fed funds rates" makes growth harder because money is "more expensive". Hmmm...hopefully we don't get too far down that road. Inflation coupled with slow economic growth is not a good combo.
Today's treasury auction went pretty well...and the FNMA 4.5 actually held on to lose just 12 bps. Rates should hold in the lower 5% range on the 30 year fixed loan for now.
Oil surged higher on the news of the "money printing" above which weakened the US dollar.
HOME SALES ARE WAY UP for June. The numbers reported also show that inventory of new homes has been reduced again. The reduction in inventory is CRUCIAL to a home values recovery. Buyers are on the market with the incentives, bargains and low rates. This is HISTORY in the making.
Have a great week!
Chad
