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Strategies & Market Trends : The Residential Real Estate Crash Index
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To: GraceZ who wrote (88563)9/8/2007 11:21:49 PM
From: HawkmoonRead Replies (1) of 306849
 
Who sez the TBond or even the TBill rate is right?

The markets? Personally speaking, I know Angel's name, that he was a former Fed governor, and I've seen him appear from time to time on CNBC. However, I'm not well versed with his positions (will have to study up on his analytical prowess).

But again.. the problem we see is that people are more willing to place their trust in governmental bonds than they are in (even AAA rated) corporate paper. Governmental bonds represent public debt (deficit spending). That's what Keynes would refer to as "animal spirits" and it's indicative that the Fed has really found itself in a position where it has drastically misread the fear in the public markets and placed itself in a position where it's more about the Fed "credibility" than acting on market related data in the debt markets.

Now either the Fed has to resolve the inverted yield curve by dropping rates, or the Government has to flood the market with new issuances of debt in order to absorb that sudden increase in demand.

But to say that permitting a bubble to appear in the bond markets as yields collapse from the sudden influx of frightened investor capital is a healthy thing strikes me as odd. Why is a bond bubble any better than a stock market bubble?

Of course, the other possibility is that the Fed is INTENTIONALLY ENGINEERING a recession, not so much to stifle US economic growth, but to deal a blow to China's inflated economy. Without the American consumer to drive China's economy and markets, it's markets will collapse. And given that China represents a potentially nasty stock market bubble of its own, could it be that the Fed is focused more on popping THAT bubble, no matter what the cost to the US economy? The results would certainly be deflationary with regard to global commodity prices. Of course, this is one of my more conspiratorial perspectives. But there's no doubt that China's rapid demand for commodities has drastically inflated global commodity prices.

Hawk
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