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

To: Skeeter Bug who wrote (100736)	1/17/2009 9:56:40 AM
From: Tommaso	5 Recommendations Read Replies (1) \| Respond to of 110194

To me, it looks as if the following things might happen: 1. The U.S. Treasury will have to issue huge amounts of notes and bonds to: a. Just refund the accumulated debt. b. Pay interest on the accumulated debt, and c. Fund the immense new borrowings for bailouts, etc. 2. Just as happened last week with the German bond issue (a very sound sovereign debt offering), the Treasury may have trouble selling bonds with the coupon rate offered. In that case, there are three possible outcomes: a. The United States renounces its debt and defaults on its obligations. b. The interest rate is raised until the bonds find takers. c. The Federal reserve buys the bonds, or at least a lot of them, creating bank balances to pay for them ("printing"). I think that the only politically acceptable thing is "c." 3. This monetizing of the debt will cause an accelerating decline in the dollar and will automatically bring on accelerating inflation. 4. The perception of dollar-value loss and subsequent accelerating inflation will force up interest rates no matter what the Fed does at this point. Indeed, this may have already happened with corporate bonds. 5. Gold and oil will soar in price. Bonds, including treasuries, will tip over into a bear market of enormous proportions. Equities will decline an additional 50%. I have no idea what the political and social consequences of all this may be in the United States. We already came close to getting an economic dictator when Paulson made his power grab last year.