There is little doubt that real (not BLS) inflation is above
6%. The average oil price increase has been 66% YOY since 2003.
That's hardly deflationary. This makes all real treasury yields
negative. Why, you ask, don't they respond to it? Derivatives.
Derivative interest rates market is about 300 Trillion dollars
NV, $6 Trillion real value. It dwarfs the underlying bond market,
it moves it. If delivery is requested, there is not enough bonds
to be delivered. ANY Fed printing has a huge multiples effect.
No need to sell bonds because the
rates are low, just short the short end, get long the long end,
and lever to the extreme, cause you know Greenspan Fed will
never, ever be tough. Money for nothing, chicks for free.
Pig men always win.
They don't call him easy Al for
nothing. He propelled moral hazard in the US to the extreme.
Raising rates to create an image of inflation fighting
Fed for the Asian bag holders, while passing billions of
dollars to the Pig men under the table, these amounts growing
with time. That's what is keeping the LT yields low.
Things are very different now. Derivatives market
dominate the trade, old wisdom no longer applies. Meanwhile,
real economy suffers because of high inflation and low income and
job growth.
There is only one punishment for unwise currency management.
It's called "hyperinflation". We are well on our way. No
need to listen to BLS. Just look at CRB. |
