On December 9th, 2008, the US federal government issues US federal treasuries (bonds) for sale. The bidding was so fierce for US bonds, that the return rate (ok not interest rate, net boils down to same thing) the US paid for issuing short-term bonds was negative. That's right, the people who bought US bonds had to "pay" for the privilege of buying US debt.How absolutely amazing is that? And here I was concerned over the US increasing the government's debt from 5.5 trillion to over 12 trillion. If this keeps up the us creating debt could generate income!
How is this possible? The rest of countries excluding the US & China are looking at each other and realizing many of them are way way way worse than the US. Money is fleeing to us bonds as a safe haven to store wealth. Here is an example of how bad some countries are.
Iceland's top 3 banks have a combined DEBT greater than TWELVE times Iceland's GDP!
That means if Iceland stopped all debt spending, and dedicated the entire countries output to just paying the debt of only 3 of their banks, it would take decades to complete! Iceland, is obviously insolvent, and their population is starting to realize their own government has screwed them for generations to come.
Russia is yet another example, as oil depreciates, and the Russian economy gets pinched, their credit rating is depreciated, sparked in exodus from the ruble.
The bond event that occurred today is a sign we are in a DEFLATION collapse, not inflation. What I believe will eventually result is an odd hybrid between the two. A cost/material inflation, with wages and asset prices deflation. Hence why I am still in gold miners in a deflationary collapse. In any event a short read for history perspective is Japan's 10+ year economic depression with zero percent interest rate by clicking here.
Basically if you have no savings, you will get pinched by this fiscal crunch in the next two years. If you have tons-o-cash lying around, you can buy assets around the world for pennies on the dollar. And in my opinion, this deflation collapse just finished it's first act, and there is two more to go.
As for today's market action, resource stocks were strong even though the market pulled back. The long term view has not changed, DOW 10K is in the works, and then the deflation monster pulls the market into the depths of hell, DOW 6K or lower over the next two years.
Layoff conga line continues
Total layoffs for December hit 50K today and it's only December 9th!
Total job loss is over 2 million this year.
A video in honor of the panic mode some people have entered.
So I guess the scare that no one will buy our debt has been averted by the fact that we took the world down with us. Go US! How's the prospect of a bond sell-off look to you now? Is the dollar still at risk of sinking like a rock?
ReplyDeleteThe dollar is declining now. That isn't to say that Obama may cause the dollar to rally in Jan/-Feb as people believe he can somehow defy the laws of economics.
ReplyDeleteLong term, (1-2 years) I can't see how the USA dollar holds up, we are the largest debtor nation in the world, that HAS to catch up with us.
Hence why I liked GDX, if I was wrong (so far right) I figure long term, it would eventually pay off.
And ur right, the US dollar was strong because we took down the world. But that "reward" will eventually come back and bite back hard.