The Fed Caused Bond Market Shakeup

Last Fri, two rumors, the RMB revalue and a big corporate bond deal (Sungard) , Tues, the FOMC omission, Thurs, GM & Ford debt downgraded to Junk. Friday, a large non farms payroll increase.

We neglected to include Wednesday's MONUMENTAL event for a reason, so we could issue this posting on Saturday....

On May 4, not the FED, but Assistant Treasury Secretary Timothy Bitsberger announced that it is weighing reintroducing the 30 year Treasury bond that was last issued in October 2001. Within minutes, the price of the pre 2001 30 year bonds still on the market had dropped by more than 4%.

The Clinton Administration had pulled the 30 year in an effort to get the Congress and Executive branch to have some FISCAL RESTRAINT; a phrase which is not in the vernacular of the current Bush Administration.

Currently, shorter term bills and notes (2, 5 and 10 year) put the U.S. Treasury in the same position as consumers who owe money on their houses, cars and credit cards. Increase's in inflation and interest rates immediately cost the government money and add to the deficit.

We are well aware of the Fed's duplicitous CPI fraud, which masks real inflation and benefits the governments debt situation. We also know logically, that the current national debt will never be paid off from the productive side of the economy.

Hmm, how could Alfred E. Greenspuns conundrum of longer term rates staying low suddenly go away and the government be allowed to continue its insane deficit spending? Sniff, Sniff...

Could it be that an increase in the yields at the longer end of the Treasury market may be part of the purpose here? Reintroducing the 30 year is guaranteed to lead to higher interest rates at the long end (10 & 30 year) of the Treasury market. Snort, Snort...

The soonest that 30 years bonds could be reintroduced would be February 2006. This would lock in 4.7% for 30 years and would not cost the government an extra penny in interest on a 30-year bond sold to investors in 2006, if inflation spiked to 4% or interest rates climbed to 7%. Root, Root...

So, you can take this to the bank... The only way out of our current budget and deficit problems is to inflate our way out of them, which requires HIGHER INTEREST RATES, INFLATION and its silent DEBAUCHING of THE CURRENCY.

If inflation runs at 6% a year, then each year the 83 trillion that we owe would be worth 6% less in real dollars, and government tax receipts and other revenues would climb 6%. All this without any real economic growth, making the repayment much easier. Oink, Oink...

In these pages, I have been warning people; the teething ring of low interest rates and easy money is going away; do not go short on the dollar, the herd is being spooked into a bond market that is being set up big time, and that interest rates are going to rise this year and next beyond anyones expectations. Take this to the bank baby...

When the Treasury officially announces in August that they are bringing back the 30 year, we are going to witness Uncle Al's Magical Fed Finger of Fate; giving the speculators (Buffet, Soros), hedge funds and the public; a painful prostate exam, by raising long end rates without doing a thing at the short end.