Federal Reserve Notes Are Not Dollars

Treasury Saves $647 Million of Interest in First Bond Sales After S&P Cut

The U.S. auctioned $72 billion of notes and bonds this week at the lowest average yield for a refunding on record, saving taxpayers $647 million in interest payments during the life of the securities less than a week after Standard & Poor’s removed the nation’s AAA rating.

The Treasury Department paid an average yield of 2.13 percent on the three-, 10- and 30-year securities, less than the previous refunding auctions in May of 3 percent and below the former record of 2.59 percent in February 2009, according to data compiled by Bloomberg. The government began selling 30-year bonds on a regular schedule in 1977 as part of its so-called quarterly refunding.

This week’s auction results show investors are repudiating S&P’s decision to lower its assessment of the U.S.’s creditworthiness to AA+, and are instead scooping up the debt on signs the economy and inflation are slowing and the near-zero chance the government will default. Moody’s Investors Service and Fitch Ratings have affirmed their AAA grades.

“One would be remiss to try and conclude that anyone is worried about that one-tick downgrade,” said Ian Lyngen , a government bond strategist at CRT Capital Group LLC in Stamford , Connecticut . “What is the yield differential in the market for that one tick? Apparently it’s nothing. If anything, it’s a bullish event for Treasuries.”

Demand for Treasuries is running at a level almost matching the record set last year when the government sold $2.249 trillion of notes and bonds, the most ever. Investors bid for 2.98 times the $1.317 trillion of securities sold in 2011, compared with 2.99 in 2010, Bloomberg data sold.

For all the conflict between Congress and President Barack Obama’s administration about the debt ceiling and deficits, bond investors say they are more influenced by interest rates , the economy and inflation. Because of the dollar’s pre-eminent place as the world’s reserve currency, the U.S. enjoys a “funding advantage,” S&P said in its Aug. 5 report.

The Federal Reserve boosted debt markets this week when it pledged to keep its target rate for overnight loans between banks at a record low of zero to 0.25 percent at least through mid-2013 to revive growth that it described as “considerably slower” than anticipated. Gross domestic product rose at a 1.3 percent annual rate in the second quarter, after expanding at a 0.4 percent pace in the prior three-month period, which was the weakest since the recovery began in June 2009.

What is Your Definition of Money? | Your Money and Debt

Whenever destroyers appear among men, they start by destroying money, for money is men’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’ -Ayn Rand

In these past two weeks, we have seen Congress place all attention on our deepening budget deficit and decide that, yes, we can tolerate just a little more debt. Never mind that we already have a $14.6 trillion national debt . Never mind that the S&P was already warning us back in April that our national credit rating would be downgraded if our politicians did not get a handle on their incessant spending. But seriously, why bother saving money to pay off our debts when we can always just “print more money”- right, Mr. Greenspan? Check out this video if you don’t believe that our esteemed former Federal Reserve chairman said such a thing (and check out the shocked look on his colleague’s face!):

There used to be a time not too long ago when money still had some measure of accountability. Until 1971, our dollars were still backed by gold or silver. A silver dollar, for example, included the statement “one silver dollar payable to the bearer on demand”.

Nowadays, though, there is no such accountability. One dollar today is actually termed a “Federal Reserve Note”. This note is not backed by gold or silver or even rice or corn. No, it is actually backed by debt that has been purchased by the Federal Reserve. And that debt is ever increasing, with no hope of ever being paid off.