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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Vosilla who wrote (54879)	2/28/2006 1:42:41 PM
From: GST	Read Replies (1) \| Respond to of 110194

I don't think the fed controls the long rate. I don't think they can do much to push it up now -- although I believe they would like to. And I don't think they can do much when the long rates soar higher in coming years. What most people miss in this discussion is the impact of existing outstanding debt on interest rates as well as the structual nature of our annual deficits. Right now, the world is awash in cheap credit that carries an ultra low risk premium. An economic slowdown creates far more pressure to price in real default risks, and the risks of default will be in turn driven higher by the repricing process. This is a vicious circle of rate repricing and higher default risks spurring more rate repricing. Add to this the drying up of savings in parts of the world that are now more in need of funding their own growth. Our borrowing needs will not shrivel with the economy. Rather, our borrowing needs will stay high and could go much higher as the underlying weakness in our collective balance sheet and our collectiev income statements shows us up for what we are: a money losing entity without the income we need to service our existing debts. If we were a firm, we would be bankrupt. As a sovereign nation and a key figure in the global economy, we will simply have our lifestyle repossessed.