Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Your Country Needs You to Buy Government Bonds

Interest-Rates / US Bonds Jan 07, 2009 - 03:12 PM GMT

By: Adrian_Ash

Interest-Rates

Best Financial Markets Analysis Article"Are you 100% American? Prove it! Buy US government bonds..." - Poster from the US Treasury promoting the Third Liberty Loan, 1918

THE BRITISH PRIME MINISTER, David Lloyd George, joked in 1915 that it was Britain's political and financial stability which would always enable it to raise "the last million".


It was a nice play on words, notes James MacDonald in his excellent book A Free Nation Deep in Debt , sparring off the "last million men" promised by Lord Kitchener, London's secretary of state for war. Endless money forms the sinews of war, as Cicero spotted 2,000 years ago. Next to cash, endless bodies are just a second-rate worry.

The hero of imperial legend, however – and butcher of those fuzzy-wuzzies unlucky enough to stumble in front of the Maxim guns he commanded – Kitchener had already set the model for raising millions both of money and men. Because the man who invented concentration camps during the Boer War of 1899-1902...starving thousands of woman, children and the old to death...also lent his stern face and jabbing finger to the world's first ever "He wants YOU!" recruitment poster.

It worked a treat! So well, in fact, that Kitchener's pose was soon adopted by John Bull (in his top-hat and waistcoat), Uncle Sam (with his little white goatee), a daughter of Zion (recruiting for the Jewish regiment) and the Russian White Army during the First World War. Repeated by the Basque government during the Spanish Civil War, the same marketing trick was then applied by the Soviets during the next "war to end all wars". It was even used by Germany's Waffen-SS to recruit death-squad collaborators in occupied France!

And just recently, amid the vicious retail recession of Christmas 2008, the old war-lord himself was wheeled out again...this time by a desperately hip art shop in London's desperately ironic Farringdon district.

Only this time (tee-hee!), the bony finger says " Shop, Damn You, Shop! "

How long before Kitchener's well-oiled moustache is replaced by Barack Obama's audacious grin? The great hope of 2009 has yet to take office, but Washington already needs to sell some $2 trillion-worth of Treasury bonds this year according to one guess-timate, simply to plug its current funding deficit.

Yes, fighting debt-deflation with yet more debt may seem a crazy proposal. But it's so universally felt to be the only tactic worth trying today, investors everywhere might want to start putting money aside today.

How else will you be able to do your patriotic duty when the bond drives begin?

"The failure of a single issue of government bonds would be worse...than a disaster upon the field of battle..." said a handbook for speakers and speech-writers issued by the US Treasury to support the Fourth Liberty Loan of 1918.

"Fight or buy bonds...Enlist or invest," screamed another US bond poster. "You who are not called upon to die – subscribe!"

Put another way, "A man who can't lend his government $1.25 at the rate of 4% is not entitled to be an American citizen," as Treasury secretary William McAdoo said. He famously closed the New York Stock Exchange for four months when war broke out in Europe in August 1914.

His aim? Three years before the US joined in the fun, McAdoo wanted to stop European investors from dumping their US securities and demanding Gold as cash payment – then the only sure form of wealth. Whereas today, of course, such nationalist politics could never interfere with your choice of investments, right?

Those two trillion dollars needed to fund Uncle Sam's deficit spending in fiscal 2009 – even before the full bail-out package and Obama's plans need funding – will surely come from somebody else. Your country will never need you to finance its political programs, not as a bond buyer at least, and matter how crass or crazy. Foreign investors will step up, even as governments worldwide also race to the bond market, starting with $350 billion-worth from European sovereigns alone during the first 3 months of this year.

And if you do choose to buy government debt as a play on deflation, a collapse in government bond prices simply cannot occur. Because even with the new US issuance set to reach perhaps 10% of America's GDP "indefinitely" on Martin Wolf's math at the Financial Times , there will always be money – from somewhere, perhaps down the back of the sofa – to keep buying up bonds.

Either that, or your central bank will simply print the notes needed to finance the debt. And that can only be good for the country – and bonds. Right?

By Adrian Ash
BullionVault.com

Gold price chart, no delay | Free Report: 5 Myths of the Gold Market
City correspondent for The Daily Reckoning in London and a regular contributor to MoneyWeek magazine, Adrian Ash is the editor of Gold News and head of research at www.BullionVault.com , giving you direct access to investment gold, vaulted in Zurich , on $3 spreads and 0.8% dealing fees.

(c) BullionVault 2009

Please Note: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

Adrian Ash Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in