Archive for September, 2009

Till Debt Do Us Apart—Be Careful Mother of all Bubbles on Cards in US!!!

September 5, 2009

Economy recovering…. the bull phase will be on within a year from now….. is what is we are listening everyday in our news . 600 economists sample was taken and they believe that the stimulus packages are working by looking at the Goldman Sachs profit figures. Obama administration is also happy with the performance of the economy and what they are not embarking is that this stimuluses are working and insisting that the only worry is the federal debt shooting upward. This is just like an individual who borrowed $1 trillion and saying “I am happy but the only worry is the debts should come down”.
Yes, definitely recession is over but the depression has started …
Maybe Obama administration is also believing that the recession is over and they are also not saying that the prosperity in the economy has begun so hence they do not want to say it to the general populace.
Unfortunately, the federal debt which is raised by the US government is already 100% of the US GDP and the thing is already the US economy is in recession (negative growth) and if the growth is to be achieved then it should come from the export sector and internal savings (invested). Unless this happens the economy is not going to recover and the US economy will continue to be in negative growth territory . On top of that if we add social security, Medicare and Medicaid payments for baby boomers in the coming years along with the negative growth prevailing it will be a huge burden on the federal reserve and hence fed have no other option but to monetize the debt. Hence, there will be hyperinflation scenario persisting in the system. The government has no option to increase the supply of goods and services hence they opt for the monetary policy tuning. So, they have to raise the interest rates to double digits to attract the foreign investors otherwise there will not be any buyers for the American treasury bonds hence the monetization of debt will again take place and the fed workers have to run the press overtime to meet the obligations .
On the other hand, if monetization of debt and double digit inflation occurs then the existing bonds which are issued by the US government will collapse because when interest rates rises from (0.50% to 10%) then definitely the existing treasury bond prices in the market will collapse and most of the other countries foreign exchange reserves will be wiped out with ease (esp. China’s $2 trillion foreign exchange reserves). Also, if any country backs the weakening US dollar (Inflation eats away the currency’s purchasing power)they have to suffer by losing their sovereign assets as well. This will again put pressure on the world’s growth rate (even in emerging countries). This problem of hyperinflation and monetary tuning will seriously put pressure on the Bond prices and also people in the country will lose confidence on the bonds and will stop buying the bonds . After this loss of confidence in the bond market,the fed will be forced to print more money and thereby making the dollar lose its purchasing power (already 95% pp is lost i.e, now a person should pay 20 times extra amount when compared to 1930’s) even more. Whilst, creating an unprecedented bubble in the United States and this will be the mother of all bubbles and also called the bailout bubble which will persist over a long period of time.
So, hence this bond bubble will be a next bubble which will be on cards and don’t trust the soft spoken words from Obama’s administration and this time around it will be Greenspangeddon and Bernankegeddon. Nevertheless it is high time, to pull out your money from American Treasury bonds and other American paper money which will be of no real use to the American bourgeoisie and other lower classes of people.

Disclaimer: The views expressed here are of the author and the readers are advised to consult their own financial advisors before taking any financial decisions or whatsoever.