masses moving into bonds, before aniticipated rate cut
this is both good and bad
good to seek the safety from stock wreckage upcoming
but it is building the Treasury bubble higher
we are likely to see more TBond gains, lower rates
bad news is that THIS IS PRECISELY HOW THE JAPAN LIQUIDITY TRAP OCCURRED
rates move gradually from deflation all the way to zero
then nowhere to go, PERIOD, END OF STORY, CASE CLOSED
DEAD ECONOMY
Greenspasm will likely cave into the pressures to lower rates, which will force the long end of maturity down
i.e. 10-yr TNote yield will soon be under 4%
this will encourage another round of mortgage refi's
and will allow another 3-6 months of consumer spending
but it will not fix the problem
THIS CONTINUES UNTIL RATES ARE DOWN TOWARD ZERO
WELCOME JAPAN, WE ARE SOON JAPAN
the politically easy choice is not the right choice
the hard choice will be to reflate and leave rates constant
that would hurt the Treasury market
but would allow a recession
by not allowing a recession, we will earn a cave-in for asset prices with near zero rates
the longer he waits to end the rate race downhill, the more painful the next bubble bust will be in Treasurys
my main sincere HOPE is that the Foreign Exchange markets will pre-empt this insanity, and drop the dollar, FAST
this would force the Fed to raise rates, or at least stop lowering rates
there is no future in endlessly lowering rates
there is no sense investing in a currency heading down Japan's path
the FOREX threat of veto will prevent this insanity from continuing
but maybe not for a while
THIS POINTS OUT THE MAJOR DIFFERENCE BETWEEN USA AND JAPAN
the Japanese Govt officials actively sought a lower JYen
and the FOREX gave it to them
the Bank of Japan assisted in the process
they run an export-based economy, unlike the USA import-based economy
the FOREX can veto the USA declining rate deflation path
the FOREX sent the Japanese economy into a deadzone
the key difference is US imports, trade gaps, and heavy reliance upon foreign capital
the FOREX will punish the USdollar, stopping the madness
then comes the real pain...
INFLATIONARY RECESSION, OR WORSE !!!
from a chronically declining dollar, and rising rates, and rising import prices, with rising inflation
not right away, but eventually with certainty
thus, the Catch-22
Japanized Liquidity Trap Deadzone ???
... or ...
Inflationary Recession ???
/ jim |
