The Treasury Department said Tuesday it had sold $30 billion in four-week bills at an interest rate of zero percent, the first time that's happened since the government began issuing the notes in 2001.
There's good news in all this for taxpayers: Low interest rates on government debt mean the United States is financing its $700 billion bailout of the financial system very cheaply. The Treasury has sold mountains of debt to pay for it. But the trend also underlines stubborn anxiety in the financial market that could keep the economy sluggish for years to come, and it translates into stagnant returns for people who have their money in places like money market funds.
Earning zero percent on an investment for a short while may not seem that dire for the average person. But a zero percent rate will have serious consequences for the complex credit markets. Those markets have been dysfunctional since Lehman Brothers Holdings Inc. went bankrupt in September, scaring away investors who normally buy bonds from seemingly creditworthy borrowers. Lending, the lifeblood of the economy, has frozen up. And high demand for government debt rather than corporate debt could stifle economic growth.
Corporate bond rates have been surging to record levels compared with Treasury's, which makes it more expensive for companies to raise money. And when companies can't raise money, they often have to cut costs, sometimes through layoffs. Many worry that the government will become the most attractive lender and borrower in the market -- crowding out others in the private sector.
1 comment:
The government is selling T-Bills at 0% interest rate! This shows that consumers have absolutely no confidence in the market as well as the banks. Consumers believe that the only safe place for their money is in the Government. I have never heard of anything like this.
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