Message Font: Serif | Sans-Serif
 
No. of Recommendations: 1
What I cannot see is why anyone with capital to invest would invest in an instrument whose interest rate seems to be falling to 0% or into 'negative territory.'

Well the short answer is security -- today many people "fear" that General Electric, P&G, Johnson & Johnson, etc. may not be able to pay off on the short term notes (the basis for Money Market Funds at brokers), so these people are removing funds by the boatload and buying treasuries.

The extent of this is significant. Last week US banks borrowed an average of 45 billion a day, this week as of Thursday it was an average over 90 billion a day. Most of that money was being loaned to the likes of Merrill Lynch, Fidelity, Vanguard, Schwab, etc. -- to make up for the Money Market Funds people have withdrawn.

In previous months and years (i.e. normal times), the funds people had in Money Markets were loaned to the commercial paper market - used by the likes of GE, PG, JNJ, etc. as working capital.

We are in a situation where logic and rationality are not present. It is just plain fear and an demand of "no risk" -- I only hope people get a little greed and want some returns before we face the situation where major companies, cities or states do not have the money to meet a payroll. That may sound silly, but if a bank won't/can't loan money and the property taxes will not be paid for some months, municipal governments must borrow for working capital.

Gordon
Atlanta
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.