Wednesday, March 25, 2009

Credit scores and spending

One of the factors in your FICO score is your credit utilization. That is, how much money you have borrowed. Well, today the Treasury had a bond auction, and the lenders were not biting.

Investors gave an unexpectedly cool response to a $24 billion auction of 5-year Treasury notes Wednesday, which also sent prices for Treasurys lower...Bond prices fell after the auction. The yield on the benchmark 10-year Treasury note, which moves opposite its price, jumped to 2.78 percent from 2.71 percent late Tuesday. The yield on the three-month T-bill rose to 0.19 percent from 0.17 percent Tuesday.

I guess this means that the Nation's FICO score just took a hit. Investors are starting to shy away from loaning money to Uncle Sam. The government has to respond in the only way available: raise yields. We are on a rapid accelerating slide towards becoming a sub-prime borrower. As the yields climb, interest will take a larger cut of the budget, meaning that the deficit will climb. This will increase the debt, causeing the deficit to climb further. I wonder what the breaking point is...

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