The Little Room Where The Government Borrows Billions
Filed by KOSU News in Politics.
August 10, 2011
Today, the U.S. government sold 10-year Treasury notes at the lowest interest rate ever — 2.14 percent.
Despite the downgrade, there’s more demand for U.S. debt than ever before. People around the world are so fearful about the economy that they are rushing into what’s still perceived as one of the safest investments out there: lending money to the U.S. government.
The U.S. government sells new Treasuries in auctions almost every day. The auctions are held out of a little room — “like the average size of a living room,” says Dara Seaman, with the Bureau of Public Debt. “Not large.”
I talked with Seaman today, just a minute before an auction of $24 billion in Treasury notes.
I have to say, the auction was not what I hoped for. There was no fast-talking guy trying to get investors pumped up to buy Treasuries.
“We’re not as exciting as that,” Seaman says. “Everything happens electronically.” Still, what is about to happen is perhaps the single most important financial transaction in the world: A U.S. Treasury auction. In this final minute, giant investment firms around the world are sending in their bids. And this directly affects every one of us. Every bank, every insurance company, every retirement plan directly or indirectly needs these Treasuries. Its safe to say that just about every American has a stake in today’s auction. But Dara Seaman’s job is to make this moment as predictable and boring as possible. “That’s how we like it,” she says. “When it’s boring, we’re happy with that.”
While Seaman is talking to me, she’s watching history on her computer screen. The auction is happening. And she’s so good at being calm, she doesn’t even let on. The computer is calculating the interest from the auction. People around the world are so desperate for these 10-year Treasury notes, they are willing to accept the lowest interest rate ever: 2.14 percent. That’s less than inflation. In inflation-adjusted terms, Investors are paying the U.S. government to hold their money. So is there any reaction in the auction room? Any whoops or cheers? “There’s definitely smiling going on,” Seaman says. “When we have a good auction, everybody’s happy.” The lower the interest rate, the less the government has to spend on interest. And the interest rate that came out of the auction today becomes a new benchmark for the world. It lenders figure out how much interest to charge on everything from mortgages to student loans. And right now, those rates are very, very low. [Copyright 2011 National Public Radio]