Quietly the 10 year bond yield has risen to and above 2.8%. This is significant and something that very few are talking about. Those in the mainstream that do mention it are pointing to the “strength” in the economy as the reason. This is pure hogwash. Interest rates are rising for one reason and one reason alone, foreigners are selling treasury bonds.
As you know, the Fed is and has been the “buyer of last resort.” They now own 1/3rd of the Treasury market and have purchased over 70% of all issuance for over a year now. In effect, the Fed “IS the Treasury market.” A 2.8% 10 yr. rate is almost a perfect double from where they were just 17 months ago. Another more startling way of saying this is that interest rates have moved up 100% during a flat economy and yet the sheeple sleep.
I mention the above because we have a Fed meeting that concludes on Wednesday. The debate again is whether the Fed will taper or not. As I’ve said all along, the Fed can never really taper because they are THE ONLY buyer left. A genuine taper would blow rates to and through the 3% level. A complete halt to QE done cold turkey would be a disaster which could see interest rates hit “round numbers” like 4, 5, and 10% on a weekly if not on a daily basis. How would the real estate market look then? How would anything financial look?
Everything financial now relies on interest rates that stay down. Car sales, retail sales, housing, stock prices etc. Not to mention the ability of the Treasury to actually pay the interest on their (our) debt. Rising interest rates in “normal” times is not a good thing for anything financial…these are far from normal times. The Fed originally created a zero interest rate environment to save the banking system…but they also created the environment for the end game. They essentially allowed (encouraged) reflation above and beyond the ability to repay. Debt was not “washed” away, paid down or liquidated from 2008 on, it actually increased greatly!
By “greatly” I mean nearly doubled on the federal level. What worked and “felt good” will soon not work. Think about this, debt on the federal level has close to doubled in 5 years and at the same time interest rates which were going down for a good portion of that time have now nearly doubled from their lows. I know this is foolish but everyone knows that 2+2 =4 right? If debt has doubled (2) and interest rates have also doubled + (2) doesn’t that equal 4? “4” as in how much more difficult it is to pay the debt service than it was just a couple of years ago? Most people will admit that if their mortgage, car payments and credit card bills doubled they would have a hard time making the payment…what if they quadrupled?
Yes I know, the higher interest rates do not immediately translate into higher payments until the debt “rolls over” but the conditions now are already in place for the “quadrupling.” …And this has occurred WHILE the Fed was “supporting” the bond markets. Where exactly would rates be if the Fed had not been monetizing? We may never know the answer to this because the Fed will more than likely ALWAYS be buying until the very end.
I thought I understood what Jim Sinclair meant by “it will be game over when the last pillar falls” but I do know for sure what it means now. The “last pillar” being the bond market. The bond market is the only “source of funds” left to keep the doors open. Higher interest rates on their own will not close or shut this source off but they are a “symptom” just as a headache normally accompanies a fever.
I would like to mention before finishing that the volatility in the bond market has gone almost comatose in a slowly rising (rates) fashion. This in itself is a warning sign, almost like the calm before the storm. “Volatility” is/will be a killer to the derivatives markets. I bring this up because interest rates directly affect $100’s of trillions and indirectly affect $100’s of trillions more in derivatives. The stock markets can do anything that they’d like leading up to whatever rate level turns out to be the “trigger point.” There is a trigger point for interest rates out there where volatility will launch to unprecedented levels and control of everything is completely lost. “Control” is what has allowed this game to continue, losing control of anything will lead to the loss of control of everything. There is of course the chance that the Fed will announce a “taper” which I would take as a public statement saying, “Sorry but we are pulling the plug, Happy New Year!”
I love your commentary because you make it real. The global financial problem can only be solved by a complete reset, either the quick deflationary route, or the prolonged loss of faith route which frankly China could bring on very quickly by backing the Yuan with gold! We shall see. Sadly, the Fed has chosen its route with the appointment of Janet Yellen. Taper is almost certainly off the table, thus, QE to infinity and beyond. It’s going to take some time but for the moment the Fed will hold rates down until US Dollar creditors really take their revenge. It could just be that gold might be the catalyst! A default of the Comex or LBMA would bring the house of cards down with a free floating cash price showing the true value of the dollar. Worthless! Bitcoin is already showing this truth, sadly too few follow or own Bitcoin for it to shake the markets just yet. Keep up the good work. Regards.
Thank you Richard.
Excellent article. TPTB who have created this mess have backed themselves into a corner and there is no easy way out. Now the chickens come home to roost and the little people will have to pay. Time to stock up on gold, silver and PM stocks. We do live in interesting times indeed.
thanks
“2+2 =4 right?”
The author was a bit lucky there as he was talking about doubling and got the right answer by accident.
Suppose things had trebled, not doubled. “3+3 =6 right?”, oh dear, wrong answer, it should have been 9.
With the doubling it should have been 2×2 of course, not 2+2
Bill got it right.
His equation represents his words.
Doubling of the Debt PLUS Doubling of the Interest Rates = quadrupling of the problem.
Two separate scenarios combine to formulate a compounded result.
“losing control of anything will lead to the loss of control of everything”
I see you still have a great way with words Bill. We may disagree over the optimal function for gold, but great article.
Wow, same problem in the title as well.
Still a good artice though, it’s a wonder to me that things have stood up for so long.
I’m pedantic by the way.
I certainly agree with the poster promoting gold and silver, but I have strong reservations about the miners. The elites are a psychopathic lot that has already raped the global population under the total abrogation of the rule of law for them, and them only. Should the financial SHTF, all mining countries will immediately seize all mines (especially gold and silver) within their borders. Both Harper and Obama have already provided for that in various “hidden” or obscure regulations.
““Control” is what has allowed this game to continue, losing control of anything will lead to the loss of control of everything.” The Banksters are those in control up until now. How long can the Banksters control the rising interest rates by purchasing the US Treasuries? They have “purchased over 70% of all issuance for over a year!!” The current question is, “When do the Banksters lose control?”
This all sounds like a lead up to the event of a sudden collapse described in Revelation 18 where three times John the Revelator says the money system collapses in one hour. See verses 10, 17, and 19 where the merchants lament, “Who will buy our goods?”
— TedC
I’m sorry, the last pillar won’t be the bond market, but THE DOLLAR!!!!….At one point, and only there, the fed will be obbliged from the riots and violence in the streets, (caused by the collapse of the dollar brought in by the lost of confidence in it due to the continued Printing) to up the rates!! there, it will be the end game and the complete destruction of the west financial system.
Now, probably the next move will be some sort of tapering, but will be VERY SHORT LIVED! because the stocks end bonds will collapse in short time, and the fed will understand that she will have to restart Printing to save the financial system. momentarly….
Sorry for my english.
Bye and good luck!!
Felix.