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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jan-23-04 04:57 PM
Original message
U.S. Treasury reneges on '79 bond purchases


By: Ed Henry

The U.S. Treasury will default on contracts with investors, mostly individuals, who loaned the government money in 1979 on the agreement that they would receive 9.125 percent interest every year until their bonds mature in the year 2009.

No longer will politicians and appointed bureaucrats be able to brag that the United States has never failed to live up to its obligation as the safest investment in the world. Investment is no longer guaranteed.

The Bureau of Public Debt announcement claims that this recall applies to about $4.6 billion in 30 year bonds issued on May 15, 1979 and calls for their redemption by May 15, 2004. Of course, investors holding these bonds are not forced to cash them in and can hold them until 2009 if they want, but they will no longer receive the interest promised, the main reason for investing their money in the first place.
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Frodo Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jan-23-04 05:01 PM
Response to Original message
1. This is a crock. The guy is either ignorant or a liar.
Edited on Fri Jan-23-04 05:07 PM by Frodo
The US Treasury did NOT "default" on anything... the US will NOT lose it's ability "to brag that the United States has never failed to live up to its obligation as the safest investment in the world". Nobody "renege(d)" on anything.

Calling "callable" bonds happens almost every six months and this EXACT PROCESS has been going on for years. The Treasury did it during the previous administration as well. THERE IS NOTHING NEW OR EVEN VAGUELY WRONG HERE. And, contrary to what he implies, the bulk of the people holding these securities are wealthy inividuals, foreign governments/banks and financial institutions (and they KNOW IN ADVANCE that this is likely to happen - it's part of the pricing of the security).

To NOT call a 9% bond when you can re-issue it at 4% would be negligent.

BTW - "Ignorant" and "liar" are meant to refer to Ed Henry. Not the good wet dog. no offense intended.
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RainDog Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jan-23-04 07:28 PM
Response to Reply #1
3. you can call me ignorant too.
the liar part doesn't fit because of the ignorant part... (cringe)

I confess, and apologize for not realizing my own ignorance. I'm trying to learn...

I tried to go to the link t the gov site, but it wouldn't load for me.

so, from what I read, that Clinton had tried to get them to do this voluntarily then backed down...that's also a lie?

the sad thing is that I could actually see Bush something to wreck our credit/credibility...because of other actions.

I have no illusions that the people buying the bonds are not wealthy, but I would assume that some larger pension funds are also part of the buyer/seller package.

I did not know that you could recall the bonds. I thought that once someone locked in a rate, they got to keep that rate.

So bond buyers are assured a rate for x amount of years? --after which that rate can be renegotiated?

On a lower-scale of this, does the same apply to savings bonds?

again, mea culpa and d'uh.

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rapier Donating Member (997 posts) Send PM | Profile | Ignore Fri Jan-23-04 08:58 PM
Response to Reply #3
4. notes
Edited on Fri Jan-23-04 09:01 PM by rapier
Frodo is right, these were callable bonds. Not many Treasuries are but these were, so no big deal.

On a related note, new hero Paul Oneil said back in his day that the SS trust fund bonds won't be paid. He had to retract that a few days latter because as a legal matter he was on thin ice.

Admittedly this is a sort of black hole as the SS 'trust fund' 'bonds' are not normal Treasury Bonds but it was still stunning for the Sec. of the Treasury to announce their probable default. As he and his ilk so blithly put it, it's only "money we owe ourselves", so evidently no harm done. That this sort of thing is passe in a democracy is beyond conprehension.

Never tested in court, Social Security is issued an IOU, a special intergovernmental 'bond', when they give the Treasury their excess cash. As a matter of practice, policy and expectation these IOU's also carry the full "faith and credit of the US government".

Let's jump ahead to say 2017. The Social Security administration announces that they will have a 10% shortfall in tax receipts to cover expenses and the congress won't give the Treasury the authorization to gve SS the money owed them, but they will continue to pay off the 6 trillion dollars in principal and interest on bonds owned by China. So the Chinese central bank will get paid but SS receipeints will get a 10% cut, which will be further reduced every year in future.

Mr Oneil et al may now say this is only money owed to ourselves so it doesn't count but then they will be dead in 2017. I suggest that perhaps lots of Americans will end up dead as well as the powers that be have to clamp down on a citizenry in revolt against the above situation. I suspect this is exactly what the GOP wants.

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slappypan Donating Member (1000+ posts) Send PM | Profile | Ignore Fri Jan-23-04 05:03 PM
Response to Original message
2. callable bonds
Isn't this a perfectly normal occurrance? Callable bonds w/ a high interest rate called early?
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