A few days ago, despite my conviction that the Treasury market is going to collapse in the near future, I said we may see some retracement in yields -- maybe even a retesting the lows -- for two reasons. First, the Fed may make good on its threat to buy the long end of the yield curve and second, the Japanese might defend the strengthening yen by buying Treasuries.
The economy is in tatters. Corporate earnings are dismal. Consumer confidence is at historic lows. And I believe the worst is yet to come -- massive credit card defaults and unemployment leading the way. The Fed has embarked on a path of quantitative easing, and while that path is typical of a fatuous monopolistic government with absolute power to dictate policy to its minions, I also believe it has no choice but to follow through with the policy -- regardless of the ferocity with which some of us condemn the decisions. No, the Fed has to keep rates low as long as it can, regardless of the consequences. But the consequences will surely come.
The prospect of the United States defaulting on its debt is not just likely. It's inevitable, and imminent.
The regulatory black holes into which sanity and reason disappear on a daily basis are soon to collapse under the mass of their sheer size. The circle jerk going on among G7 governments has to end – the steady advance of gold, even in the face of a managed price, exposes the real value of the U.S. dollar, as opposed to its apparent value expressed in the dollar index.
Is 2009 the year that the United States formally defaults? And with that, will the dollar collapse be rolled back ten for one or more?
There are a lot of reasons to support that theory. To Wall Street economists, such an event is heresy and therefore unthinkable. Yet Wall Street is the very La-la-land that bred the idea of a perpetually indebted nation in the first place.
Number one among the indicators favoring this scenario is what is happening in the U.S. Treasuries auction market.
Last Thursday, an $30 billion auction in five-year notes failed to stir the interest of traditional primary dealers. The auction itself was saved by an anonymous “indirect” bid.
Check out the rest of this blog here.