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| Precious Metals Investors Know Laws Of Supply & Demand Apply To US Treasuries Causing Soaring YieldsCan the Fed unwind its balance sheet prior to inflation ravages the country? And, if the Fed isn’t able to raise rates substantially, what will quit the dollar from collapsing? Read why silver and gold is the place to be now!
By: John Bear This past week’s Flow of Funds statement issued by the Federal Reserve clearly underlines the reality that we, as a country, haven't just avoided deleveraging, but rather continue to accumulate debt. At the end of the last fiscal year, total non-financial debt (household, company, state, local, and federal) reached an all-time record high of $36.2 trillion. Not just will be the nominal level of debt at a record, but also debt-to-GDP - a far much more worrying statistic. In Q4:07, total non-financial debt registered 222% of GDP. In 2008 and 2009, it was 238% and 243% respectively. As of Q4:10, that figure had risen to 244% of GDP, For some perspective, look back to the turn of the millennium, when total debt-to-GDP was just 182%. Even that level points to a sick economy, but todays make you wonder how the patient is still breathing. Visit http://silver- It's clear to me that the overleveraged condition, which brought the economy down in 2008, still exists these days - only worse. For all of the suffering and displacement that has gone on, all we have accomplished is an unprecedented transfer private debt onto the Treasury’s balance sheet. Now that the Fed is hopefully just months away from taking the printing presses off overtime, the paramount question is how quick interest rates will climb. The Fed has been able to maintain yields this low via relentless devaluation along with a propaganda campaign that convinced the majority of investors that deflation was a credible threat. But Washington’s capability to continue that ruse is coming to an end. The unrelenting growth of the Fed’s balance sheet, growing monetary aggregates, surging gold and commodity costs, $100/barrel oil, soaring food costs, and trillions of dollars of new debt projected for the near future have served to vanquish the deflationists. Any echoes of those as soon as prominent voices can barely be heard amid the thunderous roar of oncoming inflation. So therein lies the issue for the Fed. Any further debt monetization by the central bank now becomes counterproductive. That’s simply because as inflation rates climb, bond investors demand greater interest rates. The lower real interest rates turn out to be, the much less participation there will probably be within the bond marketplace from private sources. In the event you do not think me, ask Bill Gross. The Fed is now damned if it does and damned if it doesn’t. Interest rates have been artificially suppressed for such a lengthy time that regardless of what Bernanke does come June, interest rates will rise. If it enacts an additional iteration of Quantitative Easing, the Fed might discover itself the only player within the bond marketplace. Obviously, the Fed could potentially purchase all the auctioned Treasury debt to be able to maintain rates low-as uncomfortable a position as that might be-but still all other interest rates, from bank loans to municipal debt, would skyrocket. Unless the Fed decided to purchase all that debt too. Visit http://silver- That scenario is still farfetched, but Bernanke's logic ultimately leads there. The truth is that only a central banker could afford to own bonds which are yielding rates well below inflation, and growing even much more so. Even if Bernanke ceases firing dollars into the bond marketplace, yields will still need to rise to the level at which they offer a real return. Just how much greater would rates go, you ask? Well, Mr. Gross has some thoughts on that: "Treasury yields are perhaps 150 basis points or 1½% too low when viewed on a historical context and when compared with expected nominal GDP growth of 5%. This conclusion can be validated with numerous examples: (1) 10-year Treasury yields, while volatile, typically mimic nominal GDP growth and, by that standard, are 150 basis points too low; (2) real 5-year Treasury interest rates over a century’s time have averaged 1½%, and now rest at a negative 0.15%!; (3) Fed funds policy rates for the past 40 years have averaged 75 basis points less than nominal GDP, and now rest at 475 basis points under that historical waterline." To the above I say: not a poor begin, Mr. Gross, but these aren’t precisely average times. We have by no means had a Fed balance sheet anywhere near the $2.6 trillion that it's these days. The nation has by no means faced the prospect of $1 trillion deficits as far as the eye can see. Nor have we ever had our total debt as a percentage of GDP reach 244%. The bottom line is that a massive improve within the supply of debt coupled having a rising rate of inflation will usually location upward pressure on interest rates. As soon as the Fed actions aside from purchasing 70% of the Treasury’s present auctioned output, it'll leave a gaping hole. And for those Pollyannas who claim we're in an economic recovery, I would ask them the following questions: Who will supplant the Fed’s purchases of Treasuries at present yields? Because the level of debt within the economy has grown because the recession began, why will not rising rates location us back into an economic funk? Can the Fed unwind its balance sheet prior to inflation ravages the country? And, if the Fed isn’t able to raise rates substantially, what will quit the dollar from collapsing? Then once more, I guess it all comes down to 1 easy question: do you think the laws of supply and demand apply to US Treasuries? In the event you do, then watch out for soaring yields. My suggestion for a secure haven asset would be to purchase gold and silver coins now. I personally prefer silver dollar values to put away for safekeeping. # # # Silver Dollar Values is the premier coin price guide website for information on old coin values and silver dollar values, as well as gold prices, silver prices, silver bullion, gold bullion, gold coins and much more. End
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