patrick.net

Sheila Bair, Brooksley Born, and Paul Volcker are among few federal voices of reason. Unfortunately, power resides in the hands of Timmy Geithner and Bubbles Ben, both of whom work for the same mega-bankers.

She is right, a bond bubble is brewing. The government will eventually pay a few trillion dollars....No big deal.
It's only money.

Raw says

The government will eventually pay a few trillion dollars

The Fed is paying in advance, now buying both Treasuries and mortgage-backed securities. So, there will be no need to approve another politically unpopular bailout, because when the bubble bursts the public will already be the owners of the toxic assets.

curious2 says

Raw says

The government will eventually pay a few trillion dollars

The Fed is paying in advance, now buying both Treasuries and mortgage-backed securities. So, there will be no need to approve another politically unpopular bailout, because when the bubble bursts the public will already be the owners of the toxic assets.

Eventually the Fed will have to resell the bonds, and it will be at a huge loss.

Raw says

Eventually the Fed will have to resell the bonds, and it will be at a huge loss.

If they sell, it will almost certainly be at a huge loss, but I wonder why they would "have to" sell? Maybe in the context of runaway inflation, they could say "we're doing all we can" by selling at a loss? Otherwise it seems they will continue current policy as long as they can, since it funnels so much $ into the mega-banks.

I don't think you can call the bond market a bubble.

Home prices were in a bubble because people bet on rising prices forever.

People are not betting on rising bond prices forever. The Government and the Fed are price fixing the bond market .

Question that should be on everyone's minds is what will happen when they let the market price the bonds?

I tend to think the bond prices could tank for a few reasons:

1. politicians are complete idiots.
2. Markets sense that foreign demand for treasuries is waning. Japan and China are the largest buyers. Both countries have their own problems to deal with.

But there are reasons why the bond prices could go higher even in the absence of the Fed.

1. Euro crisis
2. Any other untoward events (e.g., earthquake in Japan)

Here's the deal about monetization: Japan is currently monetizing their bonds up to 15% of their GDP but there is no bond crisis there. This is because Japan's debts are internal. US is at 5% of GDP, but we have lesser room to manuever because our debts are predominantly external.

We are also not very good at enforcing the rule of law.

The outlook for future is uncertain and dark.

No wonder the gold price is on ascendancy.

uomo_senza_nome says

politicians are complete idiots.

Many people say that, but it isn't usually true. Both Obama and Romney have degrees from Harvard Law School. Obama graduated with high honors, Romney graduated with honors and an MBA from the B-School. Voters might be idiots, but more likely are hopelessly divided and misruled along sectarian lines; politicians are simply pursuing their own interests in a deeply flawed system.

uomo_senza_nome says

Japan is currently monetizing their bonds up to 15% of their GDP but there is no bond crisis there. This is because Japan's debts are internal.

That's because they have a high savings rate, which they can maintain because they aren't wasting 20% of their GDP on American medical "care," which will increase to 21% of GDP with ObamneyCare. The Japanese spend around half as much on medical care, and have the longest life expectancy in the world (despite earthquakes, atomic bombs, and leaky nuclear plants). They can save and lend money to their government, we can't.

@Patrick, is there a way to undo clicking Like/Dislike? I edited a comment to add another paragraph, then saw someone had Liked the original comment. (Thanks to that person!) Thinking the edit might be unfair to the person who liked the original version, I cut the second paragraph and pasted it into a new comment. It occurs to me though that someone less scrupulous could post any comment ("Apple pie tastes good"), maybe get a Like or two, then change it to something else entirely ("Internet users are terrorists"), while keeping the Likes. That probably happens on Facebook all the time.

curious2 says

politicians are simply pursuing their own interests in a deeply flawed system.

Agreed, totally true.

curious2 says

That's because they have a high savings rate, which they can maintain because they aren't wasting 20% of their GDP on American medical "care," which will increase to 21% of GDP with ObamneyCare.

They are also not the world police.

curious2 says

Patrick, is there a way to undo clicking Like/Dislike?

No, but I suppose it wouldn't be hard to add. Just clicking it again could undo it. Or you could just click dislike to cancel out a like and vice versa.

Nobody gets notified of dislikes, just the likes.

you could just click dislike to cancel out a like and vice versa.

That would probably be the best solution.

Nobody gets notified of dislikes, just the likes.

Very prudent.