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Why Not to Invest in Treasury Bills, Notes, Bonds
Avoid Treasury Bonds, Notes, Bills
With stocks going up and down so erratically, many people are putting their money into a safe place like bonds and treasury bills. But just because everyone else is doing it doesn't mean you should too. Following the herd may seem safe, but not if it is heading off a cliff.
First, lets review the common interest bearing investment securities. T-bills, T-notes, and T-bonds are similar in that they are issued by the government. However, they differ in their time to maturity. T-bills are usually 3 months to a year, T-notes are 2 to 10 years and bear interest every 6 months. T-bonds are for 30 years and pay interest every 6 months. You can also get TIPS ( treasury inflation protected security) that are adjusted for inflation by the CPI (consumer price index).
The U.S. government began issuing securities to cover major expenses like wars and great construction projects. Originally, these securities were bought by U.S. citizens. Today however, most of these securities are bought by foreigners.
The United States owes over $11.5 trillion dollars to it's creditors. These creditors include China for $800 billion and Japan for $677 billion, United Kingdom for $164 billion, and Brazil for $128 billion. During the Bush administration (2001 to 2009), federal debt almost doubled from $5.7 trillion to $10.6 trillion mainly due to fighting three wars (Iraq, Afghanistan, and the war on drugs) simultaneously.
Currently, the U.S. is paying very little interest on these securities. A 3-month T-bill earns only around 0.16% in interest and a 10-year T-note pays 3.65%. Even the 30-year bond is going for a measly 4.54%. This amount of interest does not even come close to the real inflation rate. Even TIPS do not keep up with inflation due to the mismatch between the CPI and the real rate of inflation. You can check out the real rate of inflation at shadowstats.com.
As the federal government tries to cover its debt with more money, the value of the dollar will depreciate and eventually interest rates will start to rise. When interest rates start to go back up, securities will rapidly drop in value. The longer the maturity, the greater the drop.
So what should you be investing in? Stocks with a lot of foreign sales will pick up with the loss in the value of the dollar. Mining stocks will take advantage of the gains that will be made in different metals. Oil companies with plenty of reserves to tap.
Another safe place to put your money is in precious metals like silver and gold. You can make sure you have a couple extra months of groceries to save money on food purchases before the next food price hikes take effect at the supermarket. Food commodity prices have already risen quite a bit in the last year and those price increases should be hitting the stores soon.