What is Treasury Bills and how it affects the country’s economy?
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Treasury bills are short-term government debt. It’s a “bond” but for a length of months rather than years.
The banking system trades them around like money. The rate of return on them forms the basis for the rates on short-term bank loans.
They are in the news because the shortest term debt is the debt that will rollover next month when the debt ceiling issue will come to a head. Will the government be able to pay these bills when they mature?
Since banks trade these things around like money a lot of banks may go insolvent. This is going to be a big deal. I don’t know if all these banks will fail, but they may stop doing business until this is resolved. Markets don’t like abrupt stops or pauses.
Normally it’s the government that intervenes to inject “liquidity” or cash into the system to stabilize it and get things moving again but they won’t be able to. But will the banks really fail when nothing is really wrong they just aren’t allowed to redeem some of their assets? The debt ceiling is really dumb.
It is the government’s way of creating debt and paying for its services.
Outside of the obvious government/tax/spending parts that it affects, it also has one very notable effect in that when they increase the amount of t bills that exist, they decrease money supply. When people are buying t bills that money isn’t being spent elsewhere which has the same numerous effects as other money supply reduction methods.
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