brianoh

U.S. Dollar: The Next Bubble to Pop

Your article says : "3-month Treasury yields have plummeted from 5% in July 2007 to (gasp!) 0.02% right now! The 1-month yield is 0.01% and 1-year 0.61%. This is fairly ridiculous. I fail to understand why any investor worth their salt would not just get cash (the physical paper bills, not the electronic kind) and either hold it or buy assets. "

I am surprised that you don't see why investors don't buy assets. Obviously they don't trust the value of those assets. What assets would you suggest they buy?

The US strategy for the past decade has been to inflate asset prices to absorb foreign investment and fund the US economy. The bursting of the housing bubble saw the end of that upward spiral. The policy is obviously highly flawed, because: a) it cannot continue forever, and b) it economically disenfranchises future generations.

Nevertheless, I am inclined to think in the short term that "you can't fight the Fed". Or, in other words, the Fed will destroy the US economy for short-term gain.

The Great Dollar Pump of 2008: A Doomed Central Bank Intervention

Trouble is, the Fed controls the fawcet, and the Fed is run by bankers and Keynesian-economists. They rely on asset-inflation to boost the economy, and ignore the fundamental signs of the performance of the economy. If any other country was performing like the US, it's currency would be devastated. Gold was once the valve controlling the M3, and now there is no valve. It is obvious that the actions of the Fed have had major adverse consequences for the US economy. Trouble is, noone can stop them other than themselves. Forget congress, forget the Treasury, they are only interested in short-term results. Where will it all end? The housing bubble and bust is a sign that asset-inflation cannot continue. The Fed needs it to continue to support other overpriced assets such as stocks - trouble is, real US incomes have not risen in 30 years. If traditional CPI calculations were used, the story would be much worse.