Yep. It's one of the key reasons I invest with Gundlach's DBLTX. He's one smart as hell cookie when it comes to the bond market. I've been saying this for awhile. We are becoming Japan. Japan did all the things we are doing now. 20 Years later, they have a 300% debt to GDP ratio and an abysmal economy, where the young people are either depressed and unemployed or looking for a way to get out of the country. Oh and btw, I have a family member who is married to a Japanese lady who still travels back to Japan a lot, so I'm not guessing at my statements above. I'm just relaying them.
And then, in this country, we've decided to implement the Japanese playbook of low interest rates through 2014, is what the Fed tells us. But the reality is that they KNOW they are in the catch-22 that I've been talking about this entire time.
If they raise rates, it will crash the economy almost immediately, because this economy is in the shitter and getting worse. It has literally been living on the fumes from the Fed. Increasing rates will immediately shine the spotlight on how unaffordable our debt is. For every 1% they raise rates, it increases interest payments by $150B. They need to raise rates to 3% just to get slightly ahead of the current PUBLISHED inflation rate. That's $450B extra interest per year, which would take our deficit from $1.5T to $2T per year.
If they keep rates low, then we won't crash, but it will be a slow grind with unemployment as far as the eye can see, mounting levels of debt that we'll never pay off, and a stagnant stock market that will lose 75% of its value over the next 20 years, just as Japan's did.
Welcome to the consequences of Keynesianism and QE. It was never going to be pretty. It's time to address the deficit, bring back mark to market accounting for banks, force the bad TBTFs into recapitalizing from private sources or into bankruptcy, and saying goodbye to the days of money printing and never ending deficits and wars. In short, it's time for the US to stop taking drugs and start acting more like an adult who is fiscally responsible. |
