T-bills

[Blogger Robert Moore is a frequent contributor to the Rick’s Picks forum and the author of some of the more provocative guest commentaries we’ve published.  In the essay below, he deconstructs talk by high-level bankers about offering savers a negative rate of return on Treasury Bills.  Robert also explains why, for Baby Boomers in particular, this could have dire consequences. RA] Well, it’s official: The U.S. government is thinking about becoming a predatory lender. On February 1, the Treasury Borrowing Advisory Committee -- a symposium composed mainly of representatives of the cabal of large U.S. banks that are referred to as “Primary Dealers” in Treasury auction-speak -- tabled the following, seemingly innocuous, little tidbit: “The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions. [A Treasury employee] noted that there were operational issues associated with such a rule change, but that the hurdles were not insurmountable.” The Primary Dealers are asking the Treasury if there is a way to allow people to bid more for a Treasury Security than the cash value of the security at maturity. For example, bidding $105 for a Treasury Bill that you know will be redeemable for only $100 from the Treasury at maturity. Many financial newsletter writers and mainstream media analysts will probably infer from this development that the market expectation is for more future deflation (declining money supplies and therefore decreasing general price levels), while traders will salivate at the prospect of higher speculative gains to be made on T-Bills that can be unloaded later at higher prices when the “greater fool” comes along. But what would this development mean for the individual long-term investor (aka “the greater fool”)?  It would mean, very simply, that they would be agreeing