A June 19th article from Fortune Magazine vividly illustrates two increasingly obvious realities. The first of those truths is that media talking-heads are so utterly incompetent in spotting developments in the market that what passes for “analysis” is generally nothing more than useless exercises in hindsight.
In “warning” the world that the U.S. bond “bubble” was about to “pop”, Fortune observed that long-term bond prices had already fallen by more than 1/3rd. Quite obviously, the “pop” occurred months ago – it simply took this many weeks for one of the world's premier (?) sources of business news to understand what was happening.
The second reality is that the U.S. government is in a no-win scenario, where it has to choose between trying to re-inflate its bond-bubble or continuing to prop-up the U.S. equities-bubble – but there is no way it can do both (see “U.S. bond-bubble bursts, bye-bye equities rally”).
Of course, for anyone with even the slightest capacity for independent thought, it shouldn't have taken this long to totally dismiss what emanates from these corporate-propaganda outlets. These clueless parrots have spent most of the last two years exclaiming their complete and utter “surprise” when the largest bubble in history “popped” (U.S. housing), and their equal level of astonishment as the inevitable consequences of this asset-deflation worked their way through the U.S. economy.
U.S. housing prices tripled in a roughly a decade, while the incomes for most American families were steadily falling. This entire spike in prices could never have been sustainable. Even the near-blind Alan Greenspan claimed he could see these bubbles forming (see “Greenspan: spotting a bubble is easy”).
However, even though the U.S. housing market has only given back half of those price-gains, the same corporate mouthpieces are now claiming, one after another that the U.S. housing sector has bottomed (see “Bloomberg's Sunday Propaganda: U.S. housing has bottomed”). No doubt they will all soon be expressing more “surprise” as the inevitable price declines in this sector continues.
Meanwhile, these same rocket-scientists have belatedly begun to figure out that there will be consequences from yet another U.S. asset-bubble bursting. “Here come higher interest rates”, proclaims Fortune, once again stating “news” which actually occurred months ago. The rise in the interest rate on 10-year Treasuries by more than 1% translates into more than a 40% jump in that rate.
As these market “experts” begin to connect-the-dots, they are realizing that the insanely reckless monetary policies of the Federal Reserve are leading to “one of two scenarios”. In the first scenario, they have belatedly figured out that leaving U.S. interest rates at near-zero indefinitely must result in runaway inflation – as foreign investors seek to avoid being decimated by a collapsing U.S. dollar by refusing to purchase any more U.S. debt. In that scenario, they see inflation out of control while U.S. interest rates are simultaneously forced much higher.
In the second scenario, to avoid (?) out-of-control inflation and a “disorderly”surge in U.S. interest rates, the U.S. government would soon begin to steadily increase interest rates on its own – to stave off a total meltdown in the U.S. dollar, and the inevitable soaring inflation that would bring.
Given that the purpose of near-zero rates was to try to stabilize the housing market, try to stabilize employment, and try to stabilize U.S. asset prices, reversing interest rates higher must result in a new acceleration in foreclosures, unemployment and collapsing asset prices. This would then force the government to again slash interest rates to zero, and lead to trillions more in bail-out dollars being injected into the U.S. economy.
Slashing interest rates back to zero, and printing trillions more bail-out dollars would cause an even worse crash in the U.S. dollar – and thus even more out-of-control inflation. Naturally, none of those obvious consequences were mentioned by Fortune.
Similarly, in the first scenario Fortune envisioned, it was incapable of understanding that when inflation soared higher and the U.S. dollar plunged lower that capital (both foreign and domestic) fleeing the U.S. market would cause an inevitable deflationary collapse in asset prices.
Thus, if Fortune was capable of even simple economic analysis, it would have understood that both of the scenarios it described are leading to both soaring inflation in the price of basic goods and services, combined with a continuing collapse in U.S. asset prices (see “Rising U.S. interest rates signal hyperinflationary depression”). In other words, there is only one scenario ahead for the U.S. - but simply two different paths to get there.
Don't worry. Several months after the U.S. begins a hyperinflationary depression you'll be “warned” by Fortune.