"The government on Monday is set to ramp up the sale of bonds that provide protection against inflation, known as TIPS, with its biggest offering in five years. ... With this auction, the total market value of TIPS will top $600 billion for the first time since the government started selling the debt in 1997, said Michael Pond, an interest-rate strategist at Barclays Capital in New York. ... Demand for TIPS have been robust, even as inflation data have shown continued price pressures. As inflation fears persist amid federal stimulus spending, and the prospect of continued untra-low interest rate, TIPS have handed investors a return of 12.8% over the past 12 months through Thursday, according to data from Barclays. ... US officials reassured China in late July that the Treasury remained committted to its TIPS program and would take investors' views into account when drawing up its issuance plans. ... By increasing the amount of TIPS outstanding, the US government boosts its credibility as an inflation fighter. If inflation rises strongly, it becomes cheaper for the government to pay off Treasury's, but that wouldn't be the case with TIPS", my emphasis, Min Zeng at the WSJ, 11 January 2010, link:
How does selling TIPS enhance Uncle Sam's "credibility as an inflation fighter"? He has $1 trillion-a-year deficits as far as the eye can see.
3 comments:
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We might start calling all this debt "Kafka bonds"...
The people can't understand the particulars but they sense the danger in the general situation...
Printing presses running at high speed can spin out of control...
TIPs get taxed on the "inflation gain" each year. This can require an external source of funds to cover the taxes if it exceeds the interest payments.
This problem is in addition to using the phony CPI inflation measure.
And also ignores that the US will not be in any position to pay off the TIPs in anything worth anything if there is a serious problem with the dollar.
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