I Loaned $999.78 To The Federal Government* | WAMU 88.5 - American University Radio
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I Loaned $999.78 To The Federal Government*

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Earlier this week, I bought a Treasury bill.

Everybody calls Treasury bills T-bills, and they work like this: The government promises to pay holders of T-bills a specific amount on a specific day in the near future. For the T-bill I bought, the government promised to pay $1,000 on Oct. 31.

I bought the T-bill on Tuesday, before Congress had made the debt-ceiling deal, so it was unclear whether I would get paid back on time.

If people are worried about a bond, the price tends to fall. But, despite all the news about about possible default, my T-bill — which promises to pay a total of $1,000 --was selling for $999.78 on Tuesday. I stood to make exactly 22 cents on my big investment.

The immediate default danger has now passed, of course. But one of the fears was that the mere fact that the U.S. was flirting with default would drive up the interest rates the government had to pay to borrow money.

Default fears did drive up interest rates a little — and those higher rates probably cost the government somewhere around $50 million, and possibly as much as $100 million, according to Francis Longstaff, a finance professor at UCLA. In the context of the U.S. debt, that's a small number, Longstaff says.

Since Congress passed the debt-ceiling deal, investors' small fear of default seems to have gone away. That boring T-bill I bought has become even more boring. At the end of the day Thursday, it was selling for $999.99. If you bought it at that price, your profit in two weeks would be one penny.

*Technically, I didn't lend money directly to the government. I bought the T-bill from someone else. The person who bought the T-bill when it was first issued was the one who actually loaned the money to the government.

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