- Posted October 9, 2013 by
How Afraid Are US Banks?
As you listen to the President and others commenting about the potential dangers of the government having its credit card max out, do you ever wonder how true it really is? You know that the debt expense is only 7% of the national budget and that the government will simply pay vendors like Boeing, Northrup Grumman and Halliburton when this is all over.
The ones that would understand the real dangers of all this and able to realistically asses it are the too big to fail banks.
In order to understand the level of apprehension at the banks, which are the largest private purchasers of US government paper, all you really need to do is look at the discount rate of Tbill auctions.
On the chart above, you can quickly see that the discount rate of the shorter term paper is always lower than the longer term paper. This is the standard.
However this week things were different at the TBill Auction. The discount rate for the shortest term paper shot up and far exceeded any discount rate in a very very long time.
In addition the short term discount rate is much higher than the longer term discount rate. This indicates that the banks that were purchasing the Tbills believed the problem would be over in 2014.
This indicates that the bankers are very afraid. The discount rate of very short term paper is TEN FOLD of the next time period.