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Re: Fed termites to infest bond market - Eric Janszen
This is my first post. So thanks first to all contributers. I find it most stimulating. My understanding and position is that should the Fed move into monetizing long term debt (buying debt issued by the Treasury themselves with money created out of thin air) they will not only put the dollar under pressure but the existing bonds held by foreigners will likely hit the market as foreigners dump those bonds along with the dollar.
To engineer low interest rates in both short and long term debt the Fed will need to mop up some amount of the $11 Trillion out there at present. It is anyone’s guess as to how much of that paper hits the market however I believe that people (in the form of pension funds, government central banks etc) always act in their own self interest. I think it therefore reasonable to expect that those bond holders will not continue to be happy to finance the US Government and its bloated bureaucracy as they send a tidal wave of new paper onto the market thereby diluting the value of existing holdings of those holding US Government bonds.
Looking at the US governments reactions thus far to the crises as it unfolds they have, like any bureaucracy been slow to react. They have been unable to stop the collapsing credit markets and I suspect that they will not be able to stop the coming collapsing bond markets. Even if they are successful they can't be so without simultaneously destroying the currency.
Consider for a moment some numbers as a comparison.
Total Federal debt in 1933 at the height of the Great depression: $360 billion in 2008 dollars. Total federal debt in 1933 as a % of GDP: 40%
Total Federal debt in 2008 Just under $11 Trillion dollars. Total federal debt as a % of GDP: 70%
Now add to that additional debt to be issued in 2009 of just under $3 Trillion dollars bringing total federal debt to around $14 Trillion dollars.
This is not even taking into account current Social Security and Medicare programs now estimated at $53 Trillion.
Long Gold, short bonds. Somethings gotta give.....
This is my first post. So thanks first to all contributers. I find it most stimulating. My understanding and position is that should the Fed move into monetizing long term debt (buying debt issued by the Treasury themselves with money created out of thin air) they will not only put the dollar under pressure but the existing bonds held by foreigners will likely hit the market as foreigners dump those bonds along with the dollar.
To engineer low interest rates in both short and long term debt the Fed will need to mop up some amount of the $11 Trillion out there at present. It is anyone’s guess as to how much of that paper hits the market however I believe that people (in the form of pension funds, government central banks etc) always act in their own self interest. I think it therefore reasonable to expect that those bond holders will not continue to be happy to finance the US Government and its bloated bureaucracy as they send a tidal wave of new paper onto the market thereby diluting the value of existing holdings of those holding US Government bonds.
Looking at the US governments reactions thus far to the crises as it unfolds they have, like any bureaucracy been slow to react. They have been unable to stop the collapsing credit markets and I suspect that they will not be able to stop the coming collapsing bond markets. Even if they are successful they can't be so without simultaneously destroying the currency.
Consider for a moment some numbers as a comparison.
Total Federal debt in 1933 at the height of the Great depression: $360 billion in 2008 dollars. Total federal debt in 1933 as a % of GDP: 40%
Total Federal debt in 2008 Just under $11 Trillion dollars. Total federal debt as a % of GDP: 70%
Now add to that additional debt to be issued in 2009 of just under $3 Trillion dollars bringing total federal debt to around $14 Trillion dollars.
This is not even taking into account current Social Security and Medicare programs now estimated at $53 Trillion.
Long Gold, short bonds. Somethings gotta give.....
, asia, even africa and less to the US, this will be the result when a bull in treasuries no longer exist and the US therefore no longer "suck up" the worlds savings. In his book he says the US might face runaway inflation. I think it's possible a number of chain reactions is on it's way as the fed prints more money. The currency cross, USDNOK, seems like to be heading into freefall. I think it's the old commodity bubble that got a hit when bear sterns collapsed, and then got the death knell when Lehman brothers went bankrupt, that's coming back to life.
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