highmax

Inflationary Forces and a Tectonic Crack in U.S. Treasuries

Thanks for your take Jeff. With MS predicting 5.5 10 yr yields by y/e, and GS forecasting 3.25, it seems that one is counting on competition from issuers far and wide to drive rates up (by 40%), and the other is betting on US T-notes being a safe haven in a future scenario. The administration is on record as recognizing the immediate need to rein in the deficit, yet this year will be another record for issuance..China wont respond well to a declining deficit by keeping up their levels of debt purchase, and increasing rates will make debt service much more onerous..

I believe they should have already stopped stimulus spending last quarter to have any chance whatever of avoiding huge tax increases.

Jim Rogers on the Next 10 Years

Near term could get interesting if the Chinese start consuming more, saving less and start running trade deficits. Then they wont be inclined or probably able to finance the U.S. deficit and interest rates will start to kick upward, meaning higher cost of capital as it becomes scarcer worldwide. Could lead to new round of QE, just when Treasury wants to start reining in the deficit.