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Dec 10, 2008 -- U.S. treasuries paying negative returns for first time ever

CLARKONOMICS: In an unprecedented occurrence, interest rates on U.S. treasuries have fallen into negative territory for the first time ever.

U.S. treasuries are like CDs for the rich. They're usually bought by large institutions in batches of $100,000 or more. In essence, when you buy a U.S. treasury, you're lending money to the federal government for a certain period of time.

The negative interest rates -- which dictate that you get back less than you originally put in -- have some people in financial circles freaking out. But Clark doesn't share their fears. In fact, he takes the opposite point of view and sees it all as a very healthy sign.

Before we get to that, why would anyone be willing to earn a negative return? Clark suspects it's so that the purchasing institutions can dress up their books at the end of the year. It looks very solid on paper when you have U.S. treasuries in your portfolio.

The professional investors making the decisions to buy the U.S. treasuries are panicking and making a choice based on emotion. But when there's blood on the streets, as they say on Wall Street, it can actually be a very good thing.

When the professionals lose confidence and faith in the future, that usually signals that we're heading to better times when it comes to the typical kind of investing most people do each pay period or each month. This is not a guarantee, but Clark does see it as a positive sign.

Unfortunately, Clark won't be able to answer any questions submitted via commenting. If you have a question, please try posting it to our message boards.

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What others are saying

  • Negative interest rates on T-bills
    Clark is typical of the perma bulls on Wall Street. Darkness is light, down is up and bad is good. They never say how LONG it will take to get to the better times ahead. It's like a broken record. Did you ever hear a Wall Street promoter recommend to sell in a falling or rising market? They always say now is the time to buy stocks.
  • A good sign - LOL - sure it is!
    Treasuries are now in a bubble, just like dotcom stocks, housing, and commodities. And just as with the other bubbles, when this one pops it's going to be very ugly.
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