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Jan
11
Bernanke is a Moron: Inflation Does Not Mean “Economic Recovery”
Oh look. The devil cries too.
If you can believe it, there are actually some people out there who still think the long end of the yield-curve can go lower. In fact, some people believe it can drop to new records — below those of the 1940s. But that’s just pure, unadulterated, old-fashioned nonsense.
Here are a few reasons why quantitative easing is never going to work, and won’t take us anywhere near historical lows:
1. In the 1940s, the U.S. was a creditor nation.
2. In the 1940s, the U.S. actually made things and exported them. Today, the United States wakes up at 2, smokes a joint, goes shopping for designer clothes (made in Italy), and yells at the cashier when he or she finds out the card’s limit has been exceeded.
3. In the 1940s. the dollar was backed by a yellow metal called gold. You may have heard of it.
4. In the 1940s, the Chinese and Japanese didn’t carry several trillion dollars of U.S. debt. If they had, the yield on the 10-year wouldn’t have gone to 1.6%. Chinese and Japanese people are way smarter than that. Way smarter.
5. In the 1940s, the Internet didn’t exist, which made it a whole lot easier to keep people from knowing that 10-year Treasuries were overvalued. Way overvalued.
6. In the 1940s — even adjusted for inflation, GDP, and population growth, the U.S. wasn’t printing money anywhere near current levels.
7. In the 1940s, triple-leveraged short Treasury ETFs didn’t exist. Ditto for futures contracts. If they had, I guarantee you that the 10-year yield wouldn’t have gone to 1.6%. See number 5, above.
Listen, if we go to 1.6% (or lower) on the 10-year Treasury, it will be because Jesus is back, and he’s buying the long end of the yield curve. And if that happens, you will find me in church. Because none of the rest of this will matter.
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Disclosures: Paco is long TBT, UCO, and gold. He also holds U.S. dollars by necessity, pending the advent of private gold-backed currencies.
You can buy his novel Discipline wherever books are sold.
3 Comments so far
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[...] From The Bottom Violation [...]
What a surprise to many when rates rise even if there is a deflationary event when another cave-in rocks our house-of-cards ponzi. I will bet the contest of Uncle Ben's instant money printing and Wall St's imploding hyper-leveraged financial products will be ultimately resolved in favor of the Fed's printing presses. But, with the largest bubble ever, Treasuries, mushrooming at exponentially higher issuance in search of the elusive green shoots and recovery, rates must rise.
The world will be safer if some monetary and fiscal discipline can be imposed on the FED and US administration (which US politicians seem not capable of), if not as the size of debts get bigger and bigger over the coming years and more money are printed, the gravity of problems will increase exponentially. Holders of Treasuries should consider boycotting a few auctions and let yields rise temporarily to check runaway socialistic handouts and QE in the US. When you over-eat for 15 years, some slimming is required before a heart seizure or attack.