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"Selling government debt is a gigantic confidence game. For decades, investors all over the globe have gobbled up massive amounts of U.S. debt at incredibly low interest rates because they believed that it was a certainly that they would be paid back and be able to make a little bit of profit on top of it. Unfortunately, things have changed. Confidence is U.S. Treasuries is dying, and if confidence in U.S. government debt completely collapses at some point we could literally be looking at financial Armageddon"
And I wonder if this statement really is true...... "Unfortunately, Americans have become so dumbed-down that they don't even realize that their leaders are incompetent. In fact, as sad as it is to say, most Americans you will meet on the street probably cannot even tell you what U.S. Treasuries are."
I almost feel bad for the genius behind the economic collapse blog, as the economy keeps improving he's got to be worried that there will be fewer and fewer tards viewing his ads.
The fact remains that interest rates are rising in the face of everything the FED has done. The FED has thrown everything and the kitchen sink at the economy in order to keep interest rates down and it is not working. The FED is clearly not in control.
With Ron Paul now being given oversight over FED operations, massive QE programs that we have seen in the past will be more difficult.
A significant rise in interest rates would drasticaly affect the government budget. A rise in interest rates of 2% would mean the entire income of the government would only cover interest on the debt.
While we still see interest in purchasing US debt, that interest is waning, and mostly a result of the US being of lesser evil than Europe and not a reflection of the strength of US finances. A run on bonds is by no means out of the question.
Like a previous poster stated, ignore the facts at your own peril.
Rates are rising because the fear of that double dip turn down and the need for that flight to safety is diminishing . things are looking better then they did and thats a good thing. was it because of the things the fed did? beats me but truthfully i only care about the end result no matter how we get better. .along with that go greater expectations for higher inflation down the road too...
ill take those slightly higher rates if things get better ......
People don't understand what has been happening for the past year or two. Tens of millions of people have been willing to accept what are negative real interest rates (nominal interest rate minus inflation) in order to keep their money in insured bank accounts or in Treasuries. The instability of other currencies have caused lots of money to flow into Treasuries for the same reason. The massive debt creation by the Fed has flooded the market with Treasury securities which have further depressed interest rates.
But now, the massive debt creation by the Fed is starting to ignite inflationary expectations and some people are no longer willing to accept negative interest rates--flights to other currencies or into precious metals is a sign of that. When the trickle out of bank accounts and Treasuries will become a torrent will occur when irrefutable signs of inflation--massively increasing commodity prices, further declines in the dollar, just to name two--make it clear that inflation and negative real interest rates are rapidly destroying people's savings and capital, then nominal rates will rise rapidly, probably into double-digits.
That will become a self-feeding event, as the federal debt and deficits will explode as the interest costs of financiing the debt soar, and the dollar crashes further. At that point, we will likely enter a full inflationary depression, and the government will essentially powerless to stop it. Welcome to the Wiemar Republic, United States version. Unfortunately, the inflationary depression in the US may well have the same political outcome as the inflationary depression in early 1930's Germany, the sheeple following off a despotic leader who promises to fix everything if he is just given complete power. So long, representative democracy.
Peter Drucker writes of this in a discussion of economic theory, specifically about John Maynard Keynes and Joseph A. Schumpeter. Schumpeter very accurately predicted what is happening in the US now, as paraphrased here by Drucker (the full text of this article may be read here: http://www.druckersociety.at/files/p...r_proph_en.pdf )
Quote:
Keynes came to the conclusion that the emergence of the symbol economy of money and credit made possible the "economist-king," the scientific economist, who by playing on a few simple monetary keys - government spending, the interest rate, the volume of credit, or the amount of money in circulation - would maintain permanent equilibrium with full employment, prosperity, and stability. But Schumpeter's conclusion was that the emergence of the symbol economy as the dominant economy opened the door to tyranny, and, in fact, invited tyranny. That the economist now proclaimed himself infallible, he considered pure hubris. But, above all, he saw that it was not going to be economists who would exercise the power, but politicians and generals.
And then, in the same year, just before World War I ended, Schumpeter published The Tax State ("The Fiscal State" would be a better translation). Again, the insight is the same Keynes reached fifteen years later (and, as he often acknowledged, thanks to Schumpeter): the modern state, through the mechanisms of taxation and borrowing, has acquired the power to shift income and, through "transfer payments," to control the distribution of the national product. To Keynes this power was a magic wand to achieve both social justice and economic progress, and both economic stability and fiscal responsibility. To Schumpeter - perhaps because he, unlike Keynes, was a student of both Marx and history - this power was an invitation to political irresponsibility, because it eliminated all economic safeguards against inflation. In the past the inability of the state to tax more than a very small proportion of the gross national product, or to borrow more than a very small part of the country's wealth, had made inflation self-limiting. Now the only safeguard against inflation would be political, that is, self-discipline. And Schumpeter was not very sanguine about the politician's capacity for self-discipline.
And this chilling statement:
Quote:
In 1942, when everyone was scared of a worldwide deflationary depression, Schumpeter published his best-known book, Capitalism, Socialism and Democracy, still, and deservedly, read widely. In this book he argued that capitalism would be destroyed by its own success. This would breed what we would now call the new class: bureaucrats, intellectuals, professors, lawyers, journalists, all of them beneficiaries of capitalism's economic fruits and, in fact, parasitical on them, and yet all of them opposed to the ethos of wealth production, of saving, and of allocating resources to economic productivity. The forty years since this book appeared have surely proved Schumpeter to be major prophet.
And then he proceeded to argue that capitalism would be destroyed by the very democracy it had helped to create and made possible. For in a democracy, to be popular, government would increasingly shift income from producer to no producer, would increasingly move income from where it would be saved and become capital for tomorrow to where it would be consumed. Government in a democracy would thus be under increasing inflationary pressure. Eventually, he prophesied, inflation would destroy both democracy and capitalism.
Rates are rising because the fear of that double dip turn down and the need for that flight to safety is diminishing . things are looking better then they did and thats a good thing. was it because of the things the fed did? beats me but truthfully i only care about the end result no matter how we get better. .along with that go greater expectations for higher inflation down the road too...
ill take those slightly higher rates if things get better ......
If things are good and the future is so rosy, why did the FED need to put the government into another 600 billion in debt? Why did the Congress and White House have to extend tax cuts, going back on promises that they know will cost them politically? Why is the Unemployment rate at its highest rate since this whole mess began? Why is the dollar going down and the cost of everything going up? Why are people more in debt now than they were in 2006? Because things are not going well. If they were interest rates would be going down as they did in QEI when people had some confidence it would work. The fact that some companies are making good profits from off shoring jobs and selling in the American market may be great for those particular companies and make the stock market look good but it does nothing for the economy.
Of course there is a solution to all of this. It is actually quite simple. We allow the FED to purchase all the Treasury Debt, using its computer keystrokes to make the purchases, and then instead of paying them off, we just eliminate the FED! Problem solved.
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