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The anti-QE rhetoric is building just in time for next week's FOMC meeting, as Guggenheim's...

The anti-QE rhetoric is building just in time for next week's FOMC meeting, as Guggenheim's Scott Minerd channels his inner Bill Gross, calling the Treasury market (TLT, TBT) a "ponzi scheme." "The only reason investors would buy Treasurys today is that they expect the Federal Reserve will buy them at higher prices in the future," Minerd tells clients. The longer the Fed's bond buying continues, "the more volatility-inducing pressure will build."
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Comments (14)
  • Whitehawk
    , contributor
    Comments (3129) | Send Message
     
    "Hyman Minsky developed an economics of financial instability…his great insight is into the dynamics of phase transitions: the famous movement from the hedge position to the speculative position to the intrinsically unsustainable, doomed to collapse ponzi position which arises from within the system and is subject actually to formalization in the endogenous instabilities of non-linear dynamical models."

     

    The Ponzi that Minerd is referring to is quite transparent - we all know the government is spending too much, the Fed buying the debt and swelling its balance sheet. Treasurys are traded and front run based on the Fed as an all-too-willing buyer. It works until it doesn't.
    14 Jun 2013, 02:55 PM Reply Like
  • flemsnopes
    , contributor
    Comments (123) | Send Message
     
    I can almost hear the announcement: We would like to taper; we need to taper; we could taper at any time, but the IMF needs us, so we won't taper. Sincerely, The Fed.
    http://bloom.bg/1bEu3QN
    14 Jun 2013, 03:15 PM Reply Like
  • winningtrader
    , contributor
    Comments (2465) | Send Message
     
    Ponzi scheme is an investment vehicle where investors get paid their promised return and principal from new investor funds. This is indeed the state of the Treasury market as the government cannot pay even interest on its obligation but borrows more to pay that. So, from that perspective it is indeed a Ponzi. In fact, it is a Ponzi scheme in a state of a bubble.
    14 Jun 2013, 04:31 PM Reply Like
  • The Geoffster
    , contributor
    Comments (4221) | Send Message
     
    It will interesting to watch the development of new reserve currencies and whether any of them will be tied to gold.
    14 Jun 2013, 05:36 PM Reply Like
  • Got That Swing
    , contributor
    Comments (293) | Send Message
     
    The "Ponzi" analogy is ridiculous. A Ponzi scheme cannot pay out all its obligations, but Treasuries are the safest investment in the world.

     

    Is Minerd saying that every time traders buy for the sake of capital appreciation they are participating in a Ponzi scheme? Then every market is a Ponzi scheme.
    14 Jun 2013, 08:51 PM Reply Like
  • ronwagn
    , contributor
    Comments (924) | Send Message
     
    Yes, every market is, too some extent, a Ponzi sheme due to inflation.
    Am I wrong?
    15 Jun 2013, 09:23 AM Reply Like
  • css1971
    , contributor
    Comments (869) | Send Message
     
    Nominally.

     

    And yes, the stock market is a Ponzi scheme or rather, a pyramid scam. Only dividend/income investors are not.
    15 Jun 2013, 05:11 PM Reply Like
  • ronwagn
    , contributor
    Comments (924) | Send Message
     
    Thanks for the input.
    15 Jul 2013, 09:27 PM Reply Like
  • samuraitrader
    , contributor
    Comments (882) | Send Message
     
    The real Ponzi scheme is the bank credit-based monetary system itself since it requires constant inflation, i.e. more borrowing to create more money, to survive. The Fed is fighting the slowdown in borrowing, a result of the baby boomers going into savings and debt paydown mode. I believe that the Fed will lose this battle soon.
    15 Jun 2013, 08:27 AM Reply Like
  • WhispersofWisdom
    , contributor
    Comments (94) | Send Message
     
    The FED and the Treasury can hold the securities forever. As FNMA and FHLMC have proven, the markets return to a normal curve and everything is fine. Home prices eventually go up as do all other prices. Bernanke is the smartest guy at the table. Austerity only works in a positive cash flow and surplus economy...not a depression. The Eurozone vs. U.S. is a case in point as was our own Hoover insanity.
    15 Jun 2013, 10:03 AM Reply Like
  • ronwagn
    , contributor
    Comments (924) | Send Message
     
    So it really is a Ponzi scheme.
    15 Jun 2013, 11:45 AM Reply Like
  • flemsnopes
    , contributor
    Comments (123) | Send Message
     
    So, if interest rates rise and the Fed's massive balance sheet of long term, low interest rate, treasuries from "operation twist" plunge in value, the Fed will just hold them? Who takes the loss, the Fed, the Treasury, or is it just magic debt? On the other hand, if the Fed continues buying to keep interest rates artificially low, do they eventually become the only buyer of treasuries, as everyone else flees to higher return investments? Is there any figure at which the Fed would automatically have to stop buying; 4 Trillion, 5 Trillion, 6 Trillion, 7 Trillion, or is there simply no limit? Just curious.
    15 Jun 2013, 03:51 PM Reply Like
  • Kyle Spencer
    , contributor
    Comments (1222) | Send Message
     
    The problem with all of these Bubble, Ponzi and Conspiracy analyses is that the same logic could be applied to whatever you like depending on what you're trying to sell today.

     

    Want to sell gold? Then U.S. Treasuries are a Ponzi scheme.

     

    Pushing stock? Then inflation is a Ponzi scheme.

     

    Want to sell a new morning-after pill? Life is a Ponzi scheme.

     

    I have no doubt that Death and Taxes are, likewise, Ponzi schemes. (I am avidly anticipating the takedown of that overbooked, understaffed time-share Ponzi known as "Heaven".)
    15 Jun 2013, 03:13 PM Reply Like
  • flemsnopes
    , contributor
    Comments (123) | Send Message
     
    Social Security is a true Ponzi scheme, the Federal Reserve is more like the Mafia.
    15 Jun 2013, 06:26 PM Reply Like
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