A 50 Year US Treasury Bond?

Are you ready for a 50 year government bond?  It just might be coming your way soon. Bernanke who is basically out of bullets and knows Obama is only hurting the economy with his efforts is said to be considering putting a 50 year bond out there. I expect most of you think, "I have no interest in a 50 year bond", well this is not going to be your choice event.  The new bond will be a take it or leave it proposition as Bernanke's plan is to limit the shorter maturity bonds and add the longer maturities. The purpose here is to apply serious pressure on longer term rates. In effect he wants to force you into buying homes and investing in stocks and businesses to get the economy moving. This will also make your current investments in shorter term US bonds less valuable since there will less of those issued and the market place for them less liquid.  He has tried about everything else so why not this I suppose.

 

Now first off if you are interested in buying the 50 year bond or decide that since there are not any short term US bonds to buy take some 10 or 30 year bonds please call me.  If you are fool enough to buy some of these I got some lower swamp land in Duplin County to talk to you about now.  Buying a US government bond that yields 3% or less to own for 10 years or more is like lighting yourself on fire. Stupid at best, ignorant at the least. The inflation risk you are taking on is excessive, the payment risk you are taking on could ramp up as well.

 

The down side for the government is that the deficit cost will go up a good bit, but the long term benefit is that the payback of principal and interest when inflation heats up the government will be paying you back in worthless money since the buying power will be gone by the time you get it back. All this is intriguing to see what goes down.

 

I suppose this is what passes for QE3 now when you have no options left, but the effect on the economy will be minimal as most people will likely buy the longer maturity bonds as it is clear that most people do not care to buy into other investments now, just buy what they consider to be safe US Treasuries. The one thing that could be helped is this would drive down mortgage rates even lower than the now 4% 30 year mortgages.  Of course no one presently is buying homes at this rate so one has to wonder if 3% mortgages will make any difference.