Zachary ScheidtZachary Scheidt submits:

What if I walked up to you this afternoon and asked you personally for a loan? I know, we probably haven’t met and already you are uncomfortable with my overt start to our conversation. But let’s run with this for a few minutes… Assuming you had the money to lend, and I appeared to be a legitimate borrower with every intention to repay the loan, you might actually consider the transaction. After all, loaning someone money can be a benefit to both the borrower and the lender – I would have the capital needed for whatever project I was undertaking, and you would negotiate a reasonable return for the capital you trust me with.

Treasury securities are not all that different. In fact, a good friend and colleague of mine likens treasury liabilities to Loans to Congress. Essentially, buyers of these securities are allowing the US government to borrow capital, and Congress is the body primarily responsible for spending that money. So let me pose my original question to you from a different standpoint. If your congressman walked up to you this afternoon and asked you personally for a loan – would you consider lending him money? Would your answer change if he offered the full faith and credit of the United States as a guarantee on your principal? Well, many investors today are saying “yes” to this request – possibly without fully understanding the risks involved.

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