The Fed and the banks (along with their "affiliates") are playing musical chairs (or poker if you prefer) with the debts. The debts have been repackaged and moved around. Debt by any other name (such as money) is still debt. And debt has been repackaged and moved around and renamed as money instead of an asset. And so on. To think of it another way, if all the debt can be put into a big blender and rehomogenized so that it is all equally crappy again then in some sense it might all end up being good (that process has already been done once--it was called securitization, derivatives, MBS, CDO, etc.). Or it might all collapse at once. Can that be done and will it be done? Well, to my way of thinking they aren't very far along in the process and some of the debt already stinks, so nobody wants it except the Fed and, as we can see from recent headlines, that stench is spreading. But if they can do it, then yes, US Treasury Bonds just fall to the level of the whole homogenized mess, with minimal stratification. But that's what we already had at the top of the bubble, so the economy has to be "rebubbleized" too in order to pull that off. In other words, brain implants might be required to get everyone into the proper psychological state. If they can keep all of these debts afloat and create even more new ones, then Schiff will be right and there will be inflation or hyperinflation. I'd like to see mannfm11 weigh in on this one, but if he doesn't it seems like his old posts say essentially the same thing.browner55 wrote:I have been scratching my head to the point of making it bleed with respect to the bond market and the Fed's recent involvement in same. I am a deflationist but this guy's analysis is interesting:
The Fed's Bubble Trouble
Peter Schiff
Jan 10, 2009
You know, the "experts" on the markets have to sell something if they can't make their living trading the markets. A lot of them sell newsletters. Many become brokers. If you have inflation hedges to broker, then you want to convince yourself that there will be inflation. Not too many people can make a living selling government debt when it is sold directly through treasury direct commission free. So there's not much of an industry out there convincing people there will be deflation because there's no money to be made in it. You can ask John how rich and famous he got saying there would be deflation and he will probably tell you. That's maybe an illustration of why the first chapter of The Fourth Turning is called "Winter Comes Again."
