People pay Treasury to hold their cash

by Frank James

I hate any link between 1929, the start of the Great Depression, to 2008. They scare the daylights out of me with the thought that a lot of us downwardly mobile, middle-class types could be reduced to whatever the 2008 equivalent is of selling apples on street corners.

So I hated to see this paragraph in a Bloomberg News story:

The Treasury sold $27 billion of three-month bills (Monday) at a discount rate of 0.005 percent, the lowest since it starting auctioning the securities in 1929. The U.S. also sold $30 billion of four-week bills today at zero percent for the first time since it began selling the debt in 2001.

Why did it have to be 1929? Why not 1959 or some other relatively benign year for the economy?

Anyway, what's truly important about this is that investors are so skittish about the global economy, they are actually paying the federal government to hold their money. That's right, they are paying the Treasury Department for the privilege of giving it their money for a while.

As the Bloomberg story goes on to explain:

If you invested $1 million in three-month bills at today's negative discount rate of 0.01 percent, for a price of 100.002556, at maturity you would receive the par value for a loss of $25.56.

In other words, you'd pay $25.56 for the federal government sitting on your $1 million. (Actually, they won't be sitting on it. With all the fiscal stimulus and bailouts, they'll most assuredly be spending it.)

So forget what your parents told you about not getting something for nothing. Not only is the Treasury getting something for nothing. It's getting billions of dollars which investors are paying it to keep. Talk about your silver linings.