vincecate wrote:
John wrote:
> > Long-time readers are well aware of the Generational Dynamics
> > prediction that the world is headed for a major global
> > financial panic and crisis, causing all bubbles to implode,
> > including the stock market, commodity and gold
> > bubbles.
> The central banks have been printing trillions to buy up bonds and
> drive up bond prices. No other asset class has so clearly been
> artificially bubbled up. Even though Japanese government debt and
> deficits are totally out of control, and they will be doubling the
> monetary base in Japan over the next 2 years, and they are
> targeting 2% inflation, the interest rate on 30 year bonds is only
> 1.5%. I am sure that history will show this is an insane bubble.
> Shouldn't sovereign bonds be first on your list of
> bubbles?
I guess you're right, and a lot of people say the same thing. But I
have a hard time getting my head around a Treasury bubble, since the
price is set by the Fed rather than by the market.
But on the other hand (continuing to debate this with myself in my
head), sovereign bonds in Europe have certainly crashed, and that
happens when the central bank can no longer control the price of bonds
because the market doesn't want them any more.
But on the other hand, that's only because the countries in which
bonds have crashed are countries which don't have their own
currencies. But even for those countries, Europe has been somewhat
successful in keeping the prices of sovereign bonds up by the simple
means of having the ECB purchase them. The Fed can certainly do the
same thing at lot more easily, by continuing to "print" money, and in
the case of a global financial crisis, that's exactly what it would
do. So, the Treasury bond bubble would, in fact, not crash, since the
Fed would still be able to control the price.
And so (continuing the mental debate), it could be argued either way.
Yes, there's a bond bubble, because the Fed has been keeping the
prices of bonds artificially high, but it's not a bubble in the sense
that it won't implode, even if nobody except the Fed wants
U.S. Treasuries any more. So, bonds are in a bubble, but it's really
not the same kind of bubble. So should I have included bonds on
the list? I still really don't have an answer.