Those Amazing U.S. Markets, Part II: the bond market
Written by Jeff Nielson Sunday, 28 March 2010 12:29
Articles & Blogs - US Commentary
In Part I of this series, I pointed out that U.S. bond prices remain near their maximum, theoretical price – while U.S. equity markets continue their largest/fastest “rally” in history. This contradicts more than a century of market behavior, not to mention basic economic fundamentals – since the drivers of high bond prices and high equity prices are diametrically opposed. I equated this to a thermometer, which simultaneously gives a reading of the “hottest” and “coldest” temperature on record.
“Part I” focused on the Federal Reserve: Wall Street's primary accomplice in creating asset-bubbles, and the leveraged scams which have allowed the Oligarchs to plunder trillions from the rest of the world. Indeed, if not for Bernanke's relentless propaganda of a U.S. “Goldilocks economy” - a fantasy-world where U.S. markets and house prices would just keep going up forever – it would have been impossible for Wall Street to have manipulated cities, states and institutions all over the world into all being on the wrong side of the derivatives-bets known as “interest rate swaps”. Criminal investigations have now begun.
The Federal Reserve plays primarily an indirect role in pumping-up U.S. equity markets – through their permanent 0% interest rates, and malicious propaganda aimed to deceive investors. It should be noted that even after the U.S. housing bubble burst – exposing Bernanke's naked propaganda of a “Goldilocks economy” - this amoral shill compounded his deceit by assuring the world that the U.S. economy would have a “soft landing”. What immediately followed were the worst “crashes” in U.S. real estate and equity markets in history.
The only possible defense of Bernanke's shameless support of Wall Street's scams was that he was merely grossly incompetent: making the two, worst “calls” in the history of markets – less than six months apart. That defense was negated by Bernanke's reappointment. In that farcical process, not only was no mention made of Bernanke's “Goldilocks economy” or his “soft landing”, but Bernanke was praised for doing a great job.
However, the Fed has now assumed an even more important role than simply being Wall Street's chief “facilitator”. It is single-handedly keeping the fraudulent, U.S. bond market propped-up, through directly “buying” trillions of dollars of corporate bonds and U.S. Treasuries. By “buying”, what I mean is printing-up trillions of dollars of worthless, un-backed paper – and then exchanging that paper for U.S. Treasuries, and the equally worthless paper being issued by Fannie Mae and Freddie Mac.
With no one else in the world willing to touch these “securitized mortgages”, without the Fed 'cornering the market' on this trash, U.S. interest rates would soar higher – as foreign investors would demand hundreds of basis points in risk-premiums in order to justify holding such debt. This is compounded by the fact that the U.S. government is dumping more trillions of debt onto the market than all the rest of the world, combined.
It is another elementary principle of economics that when you increase the supply of a good that its price declines. Thus, the fact that U.S. bonds continue to hover near their absolute, maximum price while the greatest glut in history is dumped onto the market is prima facie evidence of the rampant manipulation of this market.
The propagandists will argue that this is a “flight to quality”. Such an argument has not a scintilla of merit. To begin with, the U.S. is hopelessly insolvent. It is burdened with $60 trillion in total public/private debt. It is carrying another $70 trillion in “unfunded liabilities”. Set against debts and liabilities which both exceed the size of total, global GDP is a mere $50 trillion in assets – leaving the U.S. with a negative balance of debts and liabilities of about $80 trillion (see “Fiscal Follies: Greece versus the U.S.”).
Stacked against this vast, mountain of debts and liabilities, total U.S. GDP is completely insignificant. It's not a question of “if” the U.S. will default on its debts, merely “how” and “when”. The value of a “bond” issued by someone with no possible way of repaying that debt is zero. The fact that the U.S. can still temporarily pay interest on those debts only raises the value of these bonds only slightly above zero.
However, as I have pointed-out in several previous commentaries, with $60 trillion in total public/private debt, raising U.S. interest rates by even 1% would suck $600 billion per year out of the U.S. economy – in additional interest payments alone. Withdrawing this enormous amount of capital out of the U.S. economy is equivalent to a 5% drop in GDP, even before factoring-in the “multiplier effect” of removing all that capital.
Thus, anyone who takes the rhetoric of Bernanke and Fed seriously: that they will soon begin their “exit strategy” should be bailing out of U.S. bonds as fast as possible – since any rise in interest rates will not only torpedo the crippled, U.S. economy, but “crash” its bond market. Indeed, the cost to insure U.S. government debt (through credit default swaps) has already risen to a higher level than the cost to insure Euro-zone debt. This literally equates to U.S. debt being “riskier” than Euro-zone debt.
This will likely come as an enormous shock to all the sheep, who have been soaking-up months of around-the-clock U.S. (and UK) propaganda – where the U.S. media has tried to terrify investors about Euro-debt, in general, and Greece's debt-problems, in particular. In the real world, the U.S. is perceived as being obviously “riskier” than Europe, thus by definition, buying U.S. Treasuries cannot be a “flight to quality”. Rather, this is just another totally-manipulated U.S. market – where high prices are proof of “fraud”, not “quality”.
Those loyal, foot soldiers who continue to try to defend the legitimacy of U.S. debt-markets face another obstacle, above and beyond the obviously fraudulent prices for U.S. debt: the elimination of all “transparency” in the U.S. bond market. While any possibility of tracing who is actually “buying” this U.S. debt is now impossible, it is also unnecessary.
We need only look at the “circumstantial evidence”:
U.S. bond prices and bond supply are at (by far) their highest levels in history. This is a fundamental contradiction of the most basic principles of supply and demand
U.S. debt-prices remain near their absolute maximum, despite the fact that U.S. equity markets are soaring and the market has been steadily raising the premiums attached to U.S. debt – which are two more fundamental contradictions
Global “surpluses” have collapsed, meaning other countries have no excess funds which they would want to use to soak-up U.S. debt, thus there is no demand for U.S. debt – yet another fundamental contradiction of these inflated prices
No transparency: at precisely the same time we would expect the U.S. bond market to collapse, due to over-supply, increased risk, and no demand, the U.S. government began to cover-up who was buying its bonds
Given that the U.S. government routinely executes people based upon circumstantial evidence less-compelling than this, any American protests that this is “insufficient proof” of the rampant manipulation of its bond market could only be considered blatant hypocrisy.
The fact is that the U.S. Federal Reserve has already committed the U.S. economy to a hyperinflationary death-spiral of exponential increases in money-printing and debt-creation – along with the inevitable “collapse in confidence” which always occurs when a government pretends to “pay its debts” by simply printing money and “monetizing” that debt. The only reason why there have not been stronger inflationary indicators of this economic-suicide is because Wall Street and the Fed have hoarded all the trillions of dollars which the Fed has been printing.
Printing a quadrillion dollars would not be “inflationary” if all that money remained sequestered from the broader economy. However, the “price” which the U.S. economy is paying in order to hide the Fed's hyperinflationary policies is that (apart from Wall Street) it is being starved of capital – with bank-lending falling at the fastest rate in history.
Those with some semblance of a memory will recall that then Wall Street and the Fed walked up to the U.S. Congress, hand in hand, to demand $10 trillion in immediate hand-outs, loans, and guarantees; it was accompanied by the specific promise that Wall Street would immediately use this money to start increasing lending to U.S. citizens and businesses.
Instead, Wall Street lending has fallen every month since that time. Meanwhile, the Wall Street Oligarchs use billions from those hand-outs to pay themselves “performance bonuses”: presumably rewarding themselves for how skillfully they lied to the American government and the American people.
It goes without saying that with U.S. bond prices at their highest level ever, while supply is already at its highest level ever – and rapidly increasing – that the U.S. bond market is one of the largest “bubbles” yet created by the scheming Oligarchs and the servile Fed. Meanwhile, all the morally- and intellectually-bankrupt U.S. media can talk about are “bubbles in China”.
With U.S. interest rates at 0%, there is literally only one direction in which this asset-bubble can go: down. For those living in the “real world”, of defaulting debt and debauched currencies, there is only one “flight to quality”: precious metals. However, since this would directly contradict the propaganda of the U.S. media, media talking-heads naturally claim that gold is “in a bubble”, as well.
Meanwhile, John Williams of Shadowstats.com is busy calculating honest U.S. statistics, using precisely the same methodology as was used a generation ago: before all U.S. statistical calculations were perverted with propaganda. Mr. Williams tells us that using real numbers for inflation that the 1980-high for gold would translate to $7494/oz today. Gold closed Friday at just over $1100/oz.
I'll leave it up to readers to decide where the real bubbles are. In Part III, I'll turn my attention to those “amazing” U.S. equity markets.
TrackBack URI for this entry
Subscribe to this comment's feed
written by Jeff Nielson, October 25, 2010
-
- +0
-
-
written by Rupesh Pawani, October 25, 2010
Thanks
U.S bond market
-
- +0
-
-
written by Jeff Nielson, April 01, 2010
Given the desperate, despicable things which the banksters (and their servants) have done so far, counterfeiting their own currency would hardly be a "stretch" for people who would destroy the economies of other nations for PROFIT.
As for why others haven't suggested it, most aren't even willing to believe that the U.S. government is fabricating "statistics". Willful blindness is a powerful force.
-
- +1
-
-
written by realist, April 01, 2010
I've been waiting for someone to write an article telling about how the Federal Reserve is monetizing U. S. Government debt by creating money out of thin air. This is a good explanation. I'm surprised that one hasn't seen more about this in the media and I'm even more surprised that the bond market hasn't detected it. I do fear, however, that if the bond market does discover what is going on it will have serious financial consequences for the U. S. economy.
-
- +1
-
-
written by mikem54321, March 31, 2010
Jeff it is fear you see. Lots of fear, but trying to pretend he knows what he is doing.
We saw the fear in Paulson's face September 2008. He looked white as a ghost when he went on the air to beg for $700 billion with no strings attached.
Bernake's fear is not quite the same, but it is still fear.
To get an idea of how close we were to the destruction of our economy, here is a clip that is an eye opener for those that believe the US dollar is sound and America can never collapse.
http://www.youtube.com/watch?v=-xKPcyvlfnc&NR=1
I think Representative Kanjorski forgot to consult with The Plunge Protection Team so Kanjorski accidently told us the plain truth about September 15, 2008.
The beginning is quite sad. The real truth comes out at the 2 min 8 sec mark.
It really woke me up and made me realize how fragile our economic fantasy land is.
At the end of the clip Kanjorski accidently tells the truth again. --Mike
-
- +0
-
-
written by Jeff Nielson, March 30, 2010
You just have to continually "shake your head" at the stupidity of market sheep - who swallow all this "bubbles in China" propaganda - but are too brain-dead to understand with U.S. bonds at their MAXIMUM price AND record-supply coming onto the market, that this OBVIOUS "bubble" dwarfs anything going on China.
-
- +0
-
-
written by BUZZER, March 29, 2010
As a result creditors claims are diminished as are debtors liabilities.
For banks it will be no different; their claims to mortgage, loan, HELOC's
repayment will be reduced as will their liabilities to depositors' cash, CD's repayments, money market funds redemptions.
For governments who hold no financial assets there is no downside.
The national debt will be vastly reduced, the deficits will shrink, bond repayments will be grossly diminished, pension payments are a lot smaller, public service salaries can be paid in funny money as can Medicare and Medicaid.
It's almost perfect if it wasn't so amoral, corrupt, condescending, contemptuous, and criminal.
-
- +0
-
-
written by Jeff Nielson, March 29, 2010
While I may be able to provide a perspective that is different from the norm, because people are used to all the micro-analysis, it can be difficult to cultivate an audience. So hopefully that dynamic will be enough to "keep my ego in check" (lol).
As for Bernanke, when I look into his eyes, I see something I've only seen in a couple of other human beings. I'm not sure whether I'm seeing "pure evil" or someone whose eyes simply look "dead", because he has no soul. Whatever it is, when I look at Bernanke now, my skin crawls.
-
- +0
-
-
written by Marcocruces, March 29, 2010
Could anyone have ever remotely imagined that we'd be in the desperate financial straights we find ourselves in today, in our great and wonderful United States of America for heaven's sake! It's truly staggering and as you again so clearly present in this article, Bernanke and company have beyond question doomed this nation to an inflationary dollar collapse of colossal and world-shattering proportions.
Writing this I can see Bernanke in my mind in his many canned appearances speaking and defending Fed actions before groups of senators and congressmen. I suppose one could say Ben is a very cool customer under fire, but there could be no greater fool. If I'm not mistaken didn't the North Koreans just recently execute their financial head for, what shall I say, job inadequacies?
I believe our fate is sealed. Too many dedicated people have worked too hard and long for this not to happen. Those that realize and understand the situation are taking what measures they can, as quickly as they can. Those that have no clue or choose not to care, which is likely over a quarter billion people, well, God bless them and good luck.
-
- +1
-
-
| < Prev | Next > |
|---|
Latest Commentary
-
The U.S. Energy-Independence Fantasty, Part II: Supply In Part I, readers were confronted with some of the mythology surrounding...
-
The U.S. Energy-Independence Fantasy, Part I: Demand In the 21st century Corporate Media, where “black is white” and...
-
The World Paper Council Once upon a time, an entity called the “World Gold Council” was...
-
U.S Retail Depression is ‘Good News’ Perverse reporting of economic data by the Corporate Media is nothing...
-
Insanity Cubed Definition of insanity: performing the same act again and again, but...
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- 11
- 12