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Strategist says

smaulgld says

Strategist says

The country just hits an all time high in the S&P 500, and you guys think the country is collapsing.

Sick sick sick.

the "country" hit an all time high-that is like saying casino profits are up so the country is doing well- there is a severe disconnect between the health of the economy and the stock market

The stock market is forward thinking. It generally precedes the state of the economy 9 months in advance. What the stock market is telling us today is that good times are ahead.

Corporation buybacks, Ya Boy we're really cooking!

bgamall4 says

Treasuries are the backing for our currency, making our currency less fiat than some people think.

Correct they create a collateral and I believe the Fed's willingness to print dollars to buy more actually provides further backing, when they stop the backing is gone

Since this conversation is somewhat morphed into a forecast.

Does this graph say recession at the end of this year?

http://online.wsj.com/mdc/public/npage/2_3050.html?symb=&sid=1224040&page=bond&sQuote=0&symbChange=aaaaa~0&time=10yr&freq=1mo&DrawChart.x=13&DrawChart.y=8&startdate=&enddate=&type=64&compidx=aaaaa~0&comp=Enter+a+symbol&ma=1&maval=100&lf=1&lf2=4&lf3=1024

Who will buy the bonds?

Did you guys notice that the gov borrows a LOT less than it was in 2009?

Did you guys notice that the debt to GDP may well shrink this year, since less debt is emitted than the nominal growth of the economy.

Did you guys notice that the more the fed buy bonds, the more money there is in the economy, chasing yields, even as low as bonds?

Not only that, but the bonds held by the fed are part of the base money. This money can multiplied by bank lending, and chase more bonds.

China and Russia sell things for dollars? This means they essentially give them away for free.

You're thinking about this debt like something that has to be paid back. When did the gov EVER paid back the bonds held by the fed?

You should think of the fed as a black hole where debt disappears.

This is not the government going bankrupt, this is in fact cleaning the gov balance sheet.

Heraclitusstudent says

Did you guys notice that the gov borrows a LOT less than it was in 2009?

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Perhaps less than 2009 when the nearly one trillion was pumped in for the stimulus, but more than 2008 and before. The cumulative debt has grown to about 17 trillion from 11 trillion or so and the unfunded liabilities continue to grow.

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Did you guys notice that the debt to GDP may well shrink this year, since less debt is emitted than the nominal growth of the economy.

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Since there is no GDP growth so far this year the debt to GDP is a meaningless measure. Over the past five years the gdp growth has been about a trillion and the QE 4 Trillion so GDP growth unfortunately has been paid for with printing money

Heraclitusstudent says

You should think of the fed as a black hole where debt disappears.

This is not the government going bankrupt, this is in fact cleaning the gov balance sheet.

a good way of looking at it. But it is a non productive dilutive process.

indigenous says

Since this conversation is somewhat morphed into a forecast.

Does this graph say recession at the end of this year?

http://online.wsj.com/mdc/public/npage/2_3050.html?symb=&sid=1224040&page=bond&sQuote=0&symbChange=aaaaa~0&time=10yr&freq=1mo&DrawChart.x=13&DrawChart.y=8&startdate=&enddate=&type=64&compidx=aaaaa~0&comp=Enter+a+symbol&ma=1&maval=100&lf=1&lf2=4&lf3=1024

No it does not.
The 10 year has been dropping for more then 30 years a reflection of inflation.

http://online.wsj.com/mdc/public/npage/2_3050.html?symb=&sid=1224040&page=bond&sQuote=0&symbChange=aaaaa~0&time=all&freq=1mo&DrawChart.x=76&DrawChart.y=8&startdate=&enddate=&type=64&compidx=aaaaa~0&comp=Enter+a+symbol&ma=1&maval=100&lf=1&lf2=4&lf3=1024

Strategist says

The 10 year has been dropping for more then 30 years a reflection of inflation.

the ten year has been more of a function of Fed "policy" than the market but then again by now they are the same thing

Strategist says

No it does not.

The 10 year has been dropping for more then 30 years a reflection of inflation.

I was referring to the fact that the 10 year had gone up at the end of 13 this might indicate a recession a year later i.e. the end of 14

The Professor says

There is a difference between worried, and aware and prepared.

and you can't be prepared unless you analyze what is going on!
Worrying and cheerleading aren't analysis and are not a substitute for preparation.

indigenous says

Strategist says

No it does not.

The 10 year has been dropping for more then 30 years a reflection of inflation.

I was referring to the fact that the 10 year had gone up at the end of 13 this might indicate a recession a year later i.e. the end of 14

It was probably indicating the end of recession fears and the prospects of growth. The stock market seconded that.

Strategist says

It was probably indicating the end of recession fears and the prospects of growth.

Last year the stock market was up huge-but the first quarter this year the GDP was flat

The Professor says

Strategist says

"Belgium" has bought 200 billion in four months!

You guys worry too much about everything.

If I worried so much I would want to get paid for it.

There is a difference between worried, and aware and prepared.

Anyone that has looked at the history of fiat currencies knows that the printer prints more and more until ultimately the fiat paper is worthless. As dollars approach infinity value of dollar approaches zero. Confidence will be lost before infinity.

Right now the record high stock market indicates the markets are confident that will not happen. They are still concerned about deflation. Not saying it could not happen in the distant future, but there is no sign of it on the horizon.

Strategist says

Right now the record high stock market indicates the markets are confident that will not happen

Markets were confident during most of 1929 too- the stock market especially a manipulated one is not a good predictor of the future of the economy

Strategist says

It was probably indicating the end of recession fears and the prospects of growth. The stock market seconded that.

Bond prices are a known and acceptd indicator of the future economy.

indigenous says

ond prices are a known and acceptd indicator of the future economy.

used to be you could look at bond prices, the price of gold and make assessments, today prices are as the Fed dictates them

smaulgld says

today prices are as the Fed dictates them

that has been the case since the FED controls interest rates. Does that make the graph less prescient?

indigenous says

smaulgld says

today prices are as the Fed dictates them

that has been the case since the FED controls interest rates. Does that make the graph less prescient?

yes, before QE, the Fed controlled the fed funds rate which set the tone for market driven interest rates.
Since they have poured into the bond market buying MBS's and T-Bonds by the trillions they have become in effect THE market for those securities and therefore are setting and ensuring the rates they set rather than influencing interest rates.

Are China and Russia the fabled bond vigilantes? I don't think China can run a massive trade surplus with the USA and not hold Treasuries.

The Professor says

Heraclitusstudent says

This is not the government going bankrupt, this is in fact cleaning the gov balance sheet.

Interesting analysis.

Does the bankruptcy of the Federal Reserve mean all of our, and the worlds', Federal Reserve Notes will be worthless?

What is needed is to open the Fed up to competition. Right now, we have a corrupt monopoly.

Blurtman says

I don't think China can run a massive trade surplus with the USA and not hold Treasuries.

China also needs to protect the value of the $1.2 trillion T-bonds they own as well as their trading relationship with the US.

They are moving to increase their gold reserves at the lower prices now I suppose to offset any drop in the value of their T bonds should the dollar plummet.

They are also trying to trade more with Europe and Asia and even to consumer more of their production at home to lessen the blow of reduced exports to the US as the demand for T-bonds drops taking with it a portion of the dollar's value making imports from China for the US too expensive.

Blurtman says

What is needed is to open the Fed up to competition. Right now, we have a corrupt monopoly.

no one with a monopoly gives it up voluntarily, indeed they try to protect it any way they can and expand it

The Professor says

Heraclitusstudent says

This is not the government going bankrupt, this is in fact cleaning the gov balance sheet.

Interesting analysis.

Does the bankruptcy of the Federal Reserve mean all of our, and the worlds', Federal Reserve Notes will be worthless?

Yes. Totally worthless. The $17 trillion debt would also be worthless.
Ha ha ha - take that you rich Asians.

Strategist says

Yes. Totally worthless. The $17 trillion debt would also be worthless.

Ha ha ha - take that you rich Asians.

If you look at the charts in the original post china has 1.2 trillion and the fed itself $2.4 trillion. Stiffing the Fed would be interesting.

smaulgld says

used to be you could look at bond prices, the price of gold and make assessments, today prices are as the Fed dictates them

The simplicity of it is that when bond rates go up business has to pay more for money. This means business investment slows to some degree. This shows up in less economic activity. Irregardless of FED meddling.

indigenous says

The simplicity of it is that when bond rates go up business has to pay more for money. This means business investment slows to some degree. This shows up in less economic activity. Irregardless of FED meddling.

yes but when bonds yeilds are artificially low, business investment becomes less "investment" and more speculation because if the underlying economy can't support a business, there is less incentive to invest in it irrespective of how low rates may be as there is less chance of a return

Ok maybe, im betting a mild recession at the end of this year.

So China and Russia sell US treasuries, slow down buying them, and the Fed does as well. Rates go up until a new equilibrium is reached, e.g., a 7% 30 year or a 5% 10 year. One reason to be in UST's is for US trading partners to store dollars, and for purposes of commerce conducted with the reserve currency.

What does China care if they lose a bit of money on UST's as long as Americans keep buying Chinese goods and the Chinese people are employed and enjoying a rising standard of living?

Blurtman says

So China and Russia sell US treasuries, slow down buying them, and the Fed does as well. Rates go up until a new equilibrium is reached, e.g., a 7% 30 year or a 5% 10 year. One reason to be in UST's is for US trading partners to store dollars, and for purposes of commerce conducted with the reserve currency.

What does China care if they lose a bit of money on UST's as long as Americans keep buying Chinese goods and the Chinese people are employed and enjoying a rising standard of living?

The problem with rates going up is the US government can't afford higher interest rates and the economy and stock markets would crash. The us has not cut spending so it will need to continue to issue treasuries at low interest rates to continue to operate.

Since the Fed has been the primary buyer the past few years they may have to continue buying us debt and also to find a way to keep rates low which will mean printing more money to buy not just t bonds but mortgage backed securities

If the dollar drops china won't be able to sell much to the us as imports from china would be too expensive.
So china is also in a bind

While everyone who holds UST's would demand to be paid, why would the Fed? Can't the Fed disappear the UST's like it is likely doing with toxic MBS'? Profits from the Fed, after their members get their share of the grift, go to Treasury. BFD if they don't.

Blurtman says

While everyone who holds UST's would demand to be paid, why would the Fed? Can't the Fed disappear the UST's like it is likely doing with toxic MBS'? Profits from the Fed, after their members get their share of the grift, go to Treasury. BFD if they don't.

That could be a proposal- stiff the fed and not pay the fed as the fed can treat the $2 trillion plus as a gift - they printed the money out of thin air anyway to buy them

smaulgld says

Blurtman says

While everyone who holds UST's would demand to be paid, why would the Fed? Can't the Fed disappear the UST's like it is likely doing with toxic MBS'? Profits from the Fed, after their members get their share of the grift, go to Treasury. BFD if they don't.

That could be a proposal- stiff the fed and not pay the fed as the fed can treat the $2 trillion plus as a gift - they printed the money out of thin air anyway to buy them

The Fed can go along with getting stiffed. What does it care, it's not like it earned the money. No one audits the Fed really, and it is all make believe anyway. The Fed's accumulation of Treasuries is not being done for investment purposes, but for the purpose of interest rate control.

The whole system is absolute bullshit, and yet the little people are made to dance on the hot griddle while others have access to the bogus mainline, free money conjured from thin air.

smaulgld says

a good way of looking at it. But it is a non productive dilutive process.

What does it mean a "non-productive" process?
More is produced under this process than otherwise.

Staying stuck with a non-functional monetary system would be extremely non-productive.

smaulgld says

Since there is no GDP growth so far this year the debt to GDP is a meaningless measure. Over the past five years the gdp growth has been about a trillion and the QE 4 Trillion so GDP growth unfortunately has been paid for with printing money

Paid with printing money means no debt was added.
Why do you persist in seeing printed money as debt? No one is going to pay back that money.

smaulgld says

That could be a proposal- stiff the fed and not pay the fed as the fed can treat the $2 trillion plus as a gift - they printed the money out of thin air anyway to buy them

It is effectively what they have done.

This money is 'accounted' for as debt but it doesn't work as debt. This is the base money. It is not paid back, it is rolled over. It gathers no interests, interests are returned to the treasury.

Why can't the Fed buy excess auto inventory?

They were able to jack it up adequately thought the bailout of GM and Chrysler.

Their more concerned with the banking industry and the farming industry.

Blurtman says

The Fed can go along with getting stiffed. What does it care, it's not like it earned the money. No one audits the Fed really, and it is all make believe anyway. The Fed's accumulation of Treasuries is not being done for investment purposes, but for the purpose of interest rate control.

The whole system is absolute bullshit, and yet the little people are made to dance on the hot griddle while others have access to the bogus mainline, free money conjured from thin air.

That is a good argument because they ALREADY printed the money so would the other bond holders care if the Fed didn't get paid? It would however high light the absolute BS that the system is but haven't they already shown that?

Heraclitusstudent says

This money is 'accounted' for as debt but it doesn't work as debt. This is the base money. It is not paid back, it is rolled over. It gathers no interests, interests are returned to the treasury.

True- QE is even bigger than they say it is as they have rolled over every last penny of interest back into more bonds-Operation twist accomplished this and they made sure they reinvested the interest in longer term bonds to push the can further down the road

Blurtman says

Why can't the Fed buy excess auto inventory?

They can buy what ever they like- How about student loans that aren't getting repaid?