During the Second World War the FED drove the 10-year bond to yield 2.25%. It helped America win the war but it ended in teas for bondholders as inflation in 1946 jumped to 18%. Are we observing the same thing now?
Difficult to tell.
Fresh data suggest that economies all over the world are imploding. Japan’s economy seems to be contracted in the 4th quarter with 12% on an annual basis, the US, France and Germany shrank with 6% and Britain is following suit.
Difficult to tell.
Fresh data suggest that economies all over the world are imploding. Japan’s economy seems to be contracted in the 4th quarter with 12% on an annual basis, the US, France and Germany shrank with 6% and Britain is following suit.
The BRIC countries - and others – are bleeding as exports collapse. Russia has lost 27% of their 600 USD bln reserves since august and had to devalue their currency two times in two days. Capital flight is looming for these countries. And China’s 1.9 trln USD holdings of foreign bonds in order to hold down the yuan to boost exports are not longer necessary as the currency is weakening. Beijing needs to bring the money home to prop up their local economy. This will result ultimately in a sell-off of their holdings.
No wonder that the FED has to ‘monetize’ their debt in order to keep USD rates low. Printing money looks easy, but maybe it isn’t that simple: if these actions lose traction you have a big problem.
But that is for later.
On this very moment the FED started to buy 600 bln of mortgage bonds in order to force home loans down to 4.5%. US mortgage rates dropped 150 basis points in 2 months.
In expanding the FED’s balance sheet from 800 bln USD to 3 trln USD, the bank will find themselves with an overhang of bonds that must be sold again.
To whom?
That’s exactly the meaning of the phrase: ‘stealing wealth from the future’.
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