Treasury Bonds and Beanie Babies

I can remember when my kids were small, Beanie Babies were all the rage.  Adults (who should have known better) were convinced that if they bought each new Beanie Baby, and kept it in a pristine condition, that somewhere down the road some future buyer would want to buy it from them at a huge price.

I used the Beanie Baby delusion many times as a parable with my kids.  It was how I taught my children about the stock market.  I said if you buy a Beanie Baby (or a stock), and other people think it is worth more, they will pay you more than what you paid.  But if you are wrong, and you buy something that no one ever wants to buy from you, then you have made a bad investment.

I am leading up to the subject of treasury bonds.  For my whole life, treasury bonds seemed like a sure thing.  I never questioned them, they seemed like a worthwhile investment for a person to make.

Suddenly, in the past six months or so, I am beginning to wonder if the old Beanie Baby delusion is in play here.  Pimco sold all of its treasury bonds a couple of months ago.

And I just read an article titled,  "Running For the Exits: Hedge Funds are Dumping Treasury Bonds.  Do They Know Something?"

http://www.nationalreview.com/articles/262688/running-exits-jim-lacey

In this article, Jim Lacey says:

So who is still buying U.S. debt? According to Bill Gross, the “old reliables” — China, Japan, and OPEC — are still in the market for 30 percent of all new debt. The rest, however, is being purchased by the Federal Reserve. There is no one in else in the market. For the first time ever, Americans are refusing to purchase their own country’s debt.

Here's another paragraph:

Researchers at Gross’s firm, PIMCO, estimate that in the last quarter, the Fed purchased 70 percent of all new Treasury debt. This is a disaster in the making. By printing new money to buy debt, the Fed is both holding interest rates artificially low and flooding the world with dollars.

Jim Lacey goes on to say that eventually the bondholders will see that the value of their assets has fallen, and everyone will stampede for the doors.


I can remember going to hundreds of yard sales in the 1990's and early 2000's, and seeing tables full of factory-condition Beanie Babies.  In the beginning, people were asking $10 per item, later $5 per toy, and now at any yard sale I can find Beanie Babies for 50 cents,  or even in the free bin.


How long before U.S. treasuries meet the same fate?  And when it happens, what will happen to the rest of the economy?