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From a very important WSJ article "Panel Floats Idea of U.S. 'Century' Bonds"- published on Friday afternoon, natch:

Wall Street is pushing the U.S. government to lock in low interest rates for the next few decades by issuing ultralong bonds that would mature in 40, 50 or even 100 years.

Aha! Remember my deflationary thesis.

You cannot inflate away really short term debt. "Inflating debt away" is just fancy talk for theft. The only way you can steal from a creditor is if they have no choice. But creditors - Treasury buyers - who have lent money on a very short term basis do have a choice. Every time the Treasury rolls over its debt, these creditors have the opportunity to demand higher yields. If the Fed is inflating, creditors will demand higher yields to compensate!

I have argued that deflation would suit the government's purposes best. Look how low the yield on the 30-year was during the crash in fall 2008. During an equities selloff, they could sell tons of long term Treasurys at low yields. Their biggest priority will be selling lots of long term Treasurys, so the yield won't necessarily spike so low this time.

But, lengthening the maturities to "40, 50, or even 100 years"? That would be a masterstroke. That is downright greedy of them! I hope they do it.

It would be easier to make money if the Fed would follow its own rational self interest, which is to preserve the financial strength of the empire.

In his speech last week called "The Economic Outlook and Macroeconomic Policy", good ol' Benny Bernanke tossed us another deflationary morsel:

Moreover, diminishing investor confidence that deficits will be brought under control would ultimately lead to sharply rising interest rates on government debt and, potentially, to broader financial turmoil. In a vicious circle, high and rising interest rates would cause debt-service payments on the federal debt to grow even faster, causing further increases in the debt-to-GDP ratio and making fiscal adjustment all the more difficult.

Double aha! That is what I have been saying for a year!

If the Federal Reserve and Treasury were clever enough to implement this deflationary scheme, one place to look for clues would be the Schedules of Federal Debt published by the Treasury. As of the January 31, 2011 report, the marketable treasury bills outstanding were $1.76 trillion - roughly the same as six months ago. The treasury notes, which are longer maturities than bills, have increased from not quite $5 trillion to $5.67 trillion. And the treasury bonds have increased from $816 billion to $900 billion.

Triple aha! Over the past six months, they have lengthened - at a rather slow pace - the average maturity of the federal debt.

How could we play a return to deflation? One obvious choice is TLT - the long term treasury bond ETF. Implied volatility is low and thus the calls are cheap. Another idea is to short or buy puts on TBT, the ultrashort Treasury ETF. This is attractive because all of the ultrashort ETFs are terminally defective. Third idea would be to buy ZROZ, the zero coupon treasury (very long duration) ETF which would benefit the most from falling interest rates.

Disclosure: No position.

Source: How Can We Play a Return to Deflation?