Socio-Economics History Blog

Socio-Economics & History Commentary

US Bond Market Fall: Effects Will Be Felt Worldwide

  • The treasury bond market is collapsing. The USD is also being sold off. This is the beginning of the crisis and not the end. When the US treasury bond prices fall precipitously, it will affect almost all countries worldwide. Almost all countries have USD and almost every major country hold US bonds.
     
  • The Guild Investment Management advises :
      
    Last week, the U.S. bond market fell substantially and yields rose as investors finally began to see the obvious: Quantitative Easing (the purchase of U.S. Treasury bonds by the Federal Reserve) and its potential inflationary pressures are weakening the U.S. dollar.
     
    As most economists will tell you, the U.S. economy is in a depression.  Statistically speaking, most depressions are deflationary and therefore accompanied by a fall in interest rates.  However, the bond market’s recent behavior provides evidence that the current depression is not deflationary.  On the contrary, inflationary pressures are building and interest rates are rising.  Bond investors, looking ahead and seeing a light, are realizing that it is the headlight of an oncoming train…and this oncoming train is the trillions of dollars of U.S. bonds which must be floated by the Federal Reserve in the next few years.  The consequences of this flotation will include a weakening of the dollar and an increase in interest rates.  Investors are finally awakening to this trend which we believe will continue for some time.
     
    Certainly, the last two weeks have rewarded our long held global investment strategies.  In our view, this is not the end, but rather the beginning of the decline in the U.S. dollar…and the rise in many other investment areas.  Accordingly, we continue to believe that the wise investor will not hold U.S. dollars, but rather invest their portfolio in oil shares, gold shares, better-managed non U.S. currencies, and stocks in countries where corporate profits will grow rapidly, such as China, India, and Brazil and selected other countries.
     
    For several years, our commentary has brought attention to the looming deficits and the questionable methods of financing them that have become so prevalent.  The current situation of the U.S. economy thus comes as no surprise to our readers. [Please see our archived commentaries at
    www.guildinvestment.com  for more details].  What may be a surprise to our readers is how long the U.S. dollar will decline, and how high many alternative areas of investment, including the areas mentioned above, will rise. 
       …..  
    U.S.
    NATIONAL DEBT
    The U.S. national debt is currently about $11 trillion, which is about $100,000 for every household and about $36,000 for every American resident.  We are paying about 4% interest on this debt, but rates will be rising and we will be paying much more as Quantitative Easing and an ugly U.S. balance sheet cause our creditors to demand much more interest on the money that they lend to us.  When interest rates get to 8%, as they soon will, the cost of servicing this debt will escalate even more rapidly.  Disconcertingly, none of this realism is found in the Congressional Budget Office’s estimates, where they expect the U.S. to enjoy continued low interest rates.
     
    The Congressional Budget Office, which always estimates much too low (we assume due to political pressure), states that the budget deficit for this fiscal year is $1.8 trillion.  Looking ahead they estimate next year’s deficit to be about $1 trillion, and state that it will stay in the high ranges (above $0.5 trillion) for at least the next few years.  In our view, these numbers underestimate the severe deficits we will be facing.
     
    UNFORTUNATELY, THE U.S. HAS NO CHOICE.  IT MUST CONTINUE TO PRINT MONEY AND DEBASE THE DOLLAR
    China is positioning itself using a panoply of agreements that include allowing Chinese Yuan bond financing by Hong Kong banks, arranging trade related currency swap agreements with Brazil and six other countries, and working with countries and companies all over to world to lock up assets that it will need to run its production machine.  China’s purchases include oil, coal, iron ore, nickel, and zinc to name a few.  In short, China is buying assets worldwide –including an ever increasing share of the world’s gold supply — to stoke its economic machine in coming years.
     
    China’s lust for gold is significant and deserves note.  The fact is that China has been buying much more gold than it is producing.  China is buying gold in the open market, willing to take gold off of the hands of the poorly managed IMF and central banks like Britain, who sold most of their gold at about $250 per ounce.  Britain, the IMF, and others who have been, or will be, gold sellers appear to us to be operating with an excess of pompous verbiage and a shortage of common sense.
     
    Gold will be an instrumental part of any new monetary system that is created in the world to succeed the current Breton Woods system.  When the U.S. turns over power as the world’s reserve currency to China, it will be China’s large holdings of gold and large cash hoard which will make them a new monetary superpower.  When that transition takes place, the old cliché about the golden rule, “Whoever holds the gold makes the rules” will be remembered for its wisdom. 

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June 5, 2009 Posted by | Economics | , , , , , , | 2 Comments

Jim Rogers: Bear Market Rally and Currency Crisis Ahead!

  • Jim Rogers is a very very smart man. According to him there is a possibility that the DJIA can rocket upwards because of the amount of Quantitative Easing (printing money out of thin air). This is the reason he is not shorting the US stock market even though he does not see the economy improving. All the  ‘phoney’ money printed will have to go some where. It can lead to excess money chasing up stock prices in another major bubble.
     
  • Rogers see a currency crisis brewing (a global monetary collapse?) and does not have confidence in the USD. Rogers prefers buying commodities and precious metals.

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June 5, 2009 Posted by | Economics | , , , , , | Comments Off on Jim Rogers: Bear Market Rally and Currency Crisis Ahead!

Obama Admits US Involvement in Iran Coup in 1953

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June 5, 2009 Posted by | GeoPolitics, History | , , , | Comments Off on Obama Admits US Involvement in Iran Coup in 1953