Bob, I think the environment we are in right now is very
new,
so it's rather tough to make any predictions. The reason for
long rates staying negative (below REAL, not BLS inflation)
is
the carry trade - the Fed fixes the short-term rates, says
it's forever - banks and hedge funds pile up on it borrowing
short and investing long. The size of interest rate
speculation is huge, and so is the leverage. If the 10-year
and 30-year rates start to rise, the leverage will work
against the market players, a lot of them will go bankrupt.
Which will produce even more rise in rates. Wise investors
are out of bonds already.
The biggest US banks, who are credit derivative market
makers, and also virtually own the Fed, could go belly up.
Of course, everything will be done by them to hault the
panic in LT treasuries, including direct purchase by the
Fed. But the market is more powerful than the Fed.
The BK was halted by the Fed in the summer of 2003. With
around 150 Trillion dollars in
interest rates derivatives, the leverage in that market is
huge, and the bomb is ticking. Tick-tock.
A rise in LT rates will crash the housing bubble, and the
credit bubble. J6P is buying this market by selling a part
of his home, and spending on credit cards. Once rates rise,
that money is gone to money heaven. Of course, the other
option the Fed has is to accelerate that printing press
to paper over all the bad debt and save the banks.
That's what was done many times before in history, and
was known as hyperinflation. The dollar will fall a billion
times in half a year THEN. |
