The Pause That Refreshes?

As Barry Ritholtz sez, keep repeating after me, the price of everything is going up, but there is no inflation...

Inflation is anything but tame. "Real" inflation is probably at or above 11.5%, the dollar has already been devalued by 45% against the Euro over 5 years.

The Feds own loose money policy at 1% has led to explosive M3 supply. That easy money is chasing yield, which has resulted in overspeculation and hyperinflation in all asset classes including energy and commodities.

This in turn has led to the current situation we have. Each quarter we have to borrow enough money to pay back the money we previously borrowed plus finance the current deficits.

Close to 70% of all federal debt matures by the first quarter of 2007.

That means we will have to borrow two-thirds of our current debt outstanding, plus the current federal deficits, plus the additional costs to finance the war in Iraq and Afghanistan, not to mention the money spent on Hurricane Katrina.

So far, alot of older bonds are getting dumped on the market and the dollar is pulling back.

Who is buying these bonds? Outside of central banks, emerging markets and private Asian investors, there is no secondary market that I know of.

And no one in their right mind would go near these older bonds, unless they were severely discounted and the buyer thought that interest rates would actually go way down.

A Fed pause or halt will weaken the dollar further, but in effect the resulting bond market selloff would raise rates much farther than the Fed ever could.

But the Fed already knows that, and perhaps the Fed wants to weaken the dollar further.

If you weaken the dollar and in effect the bond market, could you not retire alot of older debt for pennies on the dollar with freshly printed and further devalued dollars? Rather than having to sell more bonds that would pay a higher yield?

With a lack of secondary market, and major reluctance in the primary market, one can only speculate that these bonds are getting sopped up by the issuer either directly or indirectly through market proxies.

And congress wants to label China as a currency manipulator?? Hell, we wrote the damm book and are still the best at this game.

And quite frankly, as long as the other players at the table continue to use our Monopoly money, and we continue to control the demand or consumption end of the equation, we will have
the upper hand , regardless of appearances.

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