Hi doma,
Far as I know, the Treasury doesn't issue and has never issued its instruments at a negative coupon (the interest rate on the bill, note or bond).
This appears to me to be about buyers being prepared to pay a premium for Treasury bills which, at par, pay a rate of interest above zero. This advisory group is saying that the Treasury should let them do so.
No idea why banks would buy at these prices. Perhaps it has something to do with their liquidity needs. Or the fact they operate overseas and are trying to escape the risks of their own currency (eg the euro). Otherwise, they would be buying mattresses and stuffing them with cash. At any rate, this seems to be about the buy side (the bidding bankers) and not the sell side (the Treasury) and to reflect the fact of real interest rates in a deflationary economy.
I agree that real interest rates can end up being negative. But that's a different thing from what I was saying. Indeed, it's the heart of the issue. QE also contributes to the devaluation of money. This helps the economy combat the issues of deflation. And these issues are partly caused by the existence of the zero lower bound.
Mattress stuffing makes more sense than investing when real interest rates are below zero. So a deflationary environment can create its own spiral of catastrophe. But if the value of saving money also declines, investing makes better sense. Perhaps this helps explain the improved jobs numbers.
"He also noted that bid-to-cover ratios remained at healthy levels for all Treasury securities, with particularly high demand for 4-week bills. The elevated bid-to-cover ratios in 4-week bill auctions in late December were related to the rule that bounds bill auction stop-out rates at zero. The question was asked if it made sense for Treasury to permit bids and awards at negative interest rates in marketable Treasury bill auctions. DAS Rutherford noted that there were operational issues associated with such a rule change, but that the hurdles were not insurmountable. It was the unanimous view of the committee that Treasury should modify auction regulations to permit negative rate bidding and awards in Treasury bill auctions as soon as feasible. Rutherford noted that any decision on this policy change would likely be made at the May refunding."
Re FBI and gold bugs: can you cite the FBI source?
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