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Jeff Nielson is from Canada and is a writer/editor for Bullion Bulls Canada (http://www.bullionbullscanada.com/#content). He has a personal background in law and economics. Bullion Bulls Canada provides general macro-economic and political commentary, since the precious metals markets are among... More
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  • U.S. Bond Bubble Bursts, bye-bye Equities Rally 0 comments
    May 22, 2009 10:50 AM

    The long-predicted bursting of the absurd and humongous U.S. Treasuries bubble has occurred. Since U.S. bond prices peaked in December of 2008, the 10-year U.S. Treasury bond has gone from a yield of 2.55% to a yield of 3.40% as of this moment – a plunge of well over 30%.

    Now here's the question boys and girls: what does the U.S. government do when an asset bubble bursts? Correct! They try to re-inflate the bubble.

    To figure out how the U.S. government plans to (attempt to) re-inflate this bubble all we have to do is to look back to last fall – and see how they created this bubble, in the first place. The answer is clear: they started a panic.

    This panic, in turn, caused equity markets all over the world to crash – and caused U.S. Treasury yields to plunge to their lowest level in history (with short-term Treasury yields actually going negative!). The lowest yields in history translate to the highest prices in history – at a time when the U.S. government was just about to dump the largest supply of U.S. Treasuries in history (on an already-saturated market).

    Hence, every commentator with the slightest understanding of economics concluded several months ago that the current sickening plunge in U.S. Treasuries was inevitable. The problem is that soaring yields mean soaring interest rates – and this will inevitably flatten the U.S.'s economic house-of-cards.

    Not only will rising interest rates accelerate the collapse of the commercial and residential real estate markets, but it will also accelerate defaults on every category of U.S. loans – which are already at record, delinquency levels. And that is just the impact for individual Americans.

    For the evil banksters, this burst-bubble is even more catastrophic. First, it will cause an exponential rise in losses in all categories of loans. Further, it will drastically squeeze profit margins on the viable components of their business (small as they are).

    Therefore, we should all brace ourselves for the next artificial panic, generated by the U.S. propaganda machine, and the banskter-servants in the U.S. government. Fortunately for them, causing a panic is easy: all they have to do is tell the truth about the U.S. economy.

    For instance, they could jettison their totally fictional monthly jobs (loss) report – which has been fabricating monthly losses of only a little more than 600,000. In reality, the U.S. economy has been losing about 2 million jobs per month, on pace to lose 20 MILLION jobs, this year alone.

    If that doesn't work, they could tell the truth about the U.S. housing market. They could point out the greater than 20 million vacant homes. They could point out that the banksters are only listing roughly 1/3 of the properties they have seized on the market – meaning that at some point there will be a HUGE increase in supply hitting the markets (see A Revealing Look at U.S. Housing Propaganda”).

    They could point out that (contrary to their previous propaganda), that the U.S. housing crash was already guaranteed to get worse right through 2011 – due to the upcoming spike in mortgage-resets on the way (see “U.S. mortgage-crisis to get MUCH worse in 2010-11”).

    Or, the U.S. government to point to its own obvious insolvent status. The “official” deficits of the U.S. government have (for this entire decade) only accounted for ½ of the increase in government debt. Put another way, the “official” number under-reports the real deficit by 50%. This means that the current $1.8 trillion deficit “predicted” by the Obama regime actually translates to roughly a $3.5 TRILLION increase in debt, this year alone.

    Those numbers get MUCH worse if the U.S. government uses GAAP accounting to measure its total increase in liabilities (as the Treasury Department does once each year). Last year, the GAAP-calculation for the U.S. deficit was $5.1 TRILLION – and that number will rise dramatically this year!

    There are so many other lies to expose that the U.S. government has plenty of “ammunition” to use if it wants to start bombarding markets with truth. With U.S. equity markets (conveniently) closed on Monday, the likelihood is that the U.S. propaganda machine will manufacture something really terrifying for the markets over the week-end. This will cause global equities to plunge, and cause the frightened lemmings to start scurrying back to U.S. Treasuries – while U.S. equities are (temporarily) spared.

    The problem for the U.S. government is that if they do too good a job in starting a new panic, then all equities including U.S. markets will crash back toward previous lows. This creates a new nightmare for the U.S. government: a pension crisis (see “U.S. pension-crisis: the $3 TRILLION question”). Indeed, the U.S. government was desperate to create the recent, phony rally in U.S. equities to try to prevent a pension crisis.

    As a result, the current scenario for the U.S. government is clear: it is totally “screwed”. If it saves equities, the Treasuries bubble implodes – with various sorts of catastrophic consequences. If it attempts to re-inflate the bond-bubble, it unleashes a totally different economic catastrophe.

    What a surprise that years of lies combined with years of totally irresponsible fiscal management could lead to an economic catastrophe!

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  • Fixed-income investments are totally insane in the current environment, and we can't hold all our wealth in gold and silver bullion.
    May 5, 2009
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