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Global Bond Rout Deepens On Us Fiscal Worries

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http://www.telegraph.co.uk/finance/economics/8190059/Global-bond-rout-deepens-on-US-fiscal-worries.html

The yield on 10-year Treasuries – the benchmark price of money worldwide and the key driver of US mortgages rates – has rocketed to 3.3pc, up 35 basis points since President Barack Obama agreed on Monday to compromise with Senate Republicans on tax cuts.

The Treasury sell-off has ricocheted through the global system, triggering bond sell-offs in Asia, Europe and Latin America. Japan's finance ministry braced as borrowing costs on seven-year debt jumped by a sixth in one trading session, while German Bunds punched through 3pc.

The White House deal with Congress will renew the Bush tax cuts for rich and poor alike for two years, as well as adding a further a 2pc cut in payroll taxes and an extension of unemployment aid.

David Bloom, currency chief at HSBC, said it is hard to disentangle whether investors are shunning bonds because they expect US stimulus to boost growth next year, or whether they are losing patience with profligacy in Washington.

"If this is all about growth, that's brilliant. But if yields are rising because people think Amirca's fiscal situation is unsustainable, then its Armageddon," he said.

"The US can get away with this only because it is the world's reserve currency. This would be totally unacceptable in any other country. We think these problems will start to crystallise for the US in the second half of 2011, once the European debt crisis has stabilised," he said.

A bit of a drama queen declaring it's Armageddon luckily yields are rising because of growth. It's the global recovery.

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http://www.nytimes.com/2010/12/09/business/09markets.html?_r=1&ref=business

Prices on Treasury bonds fell sharply on Wednesday, continuing a sell-off that was ignited by the extension of the Bush tax cuts. Equity markets on Wall Street spent much of day trading within a narrow range.

Financial markets have interpreted the tax cut deal, which was announced on Monday and must be approved by Congress, as contributing to economic growth over the next couple of years but also increasing the federal deficit and raising borrowing costs.

Yields on the 10-year benchmark bond rose 19 basis points to 3.318 percent early Wednesday afternoon before retreating to 3.259 percent, after the Treasury Department reported the results of its sale $21 billion in 10-year notes. Wednesday’s sale attracted almost three times as many buyers than bonds sold, a ratio characterized as fairly typical.

The Treasury plans to auction $13 billion in 30-year notes on Thursday. Demand for $32 billion in 3-year bonds on Tuesday was low, lost in a market already awash with supply.

“We have seen a really extreme move in the last few days and now we are going to see potential investors examine the markets and whether they will allow it to persist or reverse,” Guy LeBas, the chief fixed income strategist for Janney Montgomery Scott, said.

The frenzy in the bond market, which some analysts described as the worst they have seen, comes as the Federal Reserve is trying to stimulate the economy by buying about $600 billion in government bonds through June 2011.

The Fed’s monetary easing was intended to keep borrowing costs low and spurring growth, but that has run headlong into the tax cut compromise, which could increase borrowing costs for the government.

Genius, the lunatics are completely in charge, although to be really fair if we did have lunatics in charge it would be decidedly better.

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http://market-ticker.org/akcs-www?post=174358

Hoh, hoh.... they say he's got to go go go BondZilla!

But Ben, you said this wouldn't happen! You said you had it all under control. That rates on the long end would go down, not up....

Never mind that there was never a bit of evidence you were doing anything other than either lying or "wishcasting" - pick one.

Why? Because the last time Bernanke did "QE", the so-called "QE1" (now), bond rates actually went up, not down, and now it's happening again.

Surprised?

I'm not.

At all.

Why not? Because there is no exit plan, Bernanke knows it, he's lying, and the market has figured it out.

Here's the problem in the main. Bernanke's only tool to "tighten" monetary policy means selling bonds into the market and taking in cash from the system.

But what happens if he holds bonds that have all gone down in value? He gets screwed, that's what. In an extreme case The Fed could go "bankrupt." Bernanke will avoid this, of course, and he can - but only by not soaking up that liquidity - that is, allowing the cash he printed to remain in the system while the rotting bonds he bought are "absorbed" by The Fed.

The market knows this. It also knows that the duration of his holdings has gone up a lot and that he cannot pull enough liquidity via short-term roll-off to matter - that is, despite his claim of being "100% confident" he cannot tighten policy - not now and not for many years.

The market thus sees risk - that if the economy improves you get inflation, and lots of it, as Bernanke can't do anything about it. If the economy doesn't improve then the only way for the government to continue spending like crazy, which it clearly is going to do, is to continue to devalue the currency, which means interest rates go up too as commodities will continue to skyrocket (priced in dollars) and this will destroy the tax base upon which government funding rests from the bottom up.

I talk a lot about the tax base, which is best-represented as the labor participation rate. It sucks, it is not improving, and it cannot improve so long as commodity prices continue to ramp and the currency devaluation continues:

This was the prime error made during The Depression. Contrary to Bernanke's claims of being "a student" of The Depression he's really the Fool-in-Chief of that time. FDR's devaluation of the currency trashed the tax base and guaranteed sky-high unemployment for the same reason it's happening now - devaluation of the currency destroys the finances of the middle class and below as their spending on essential commodities (food, fuel, clothing) is not only more-or-less fixed in volume (which means their cost to those people ramps as price rises) but as a percentage of income this expenditure is much higher than it is for upper-income earners.

That in turn suppresses entry-level and lower-wage jobs, which holds down the labor participation rate. And it is that labor participation rate that drives the ability of government to collect taxes - you can only tax someone who has income, and only people pay taxes - all attempts to tax any other entity, such as corporations, are simply passed through to people.

It is not a coincidence that after stabilizing this chart took a major second leg down when Bernanke initiated QE1 - April of 2009. It is also not a coincidence that it began to recover when QE1 ended around the beginning of 2010 nor that when Bernanke started to threaten QE2, in the summer of 2010, that it weakened again and continues to weaken.

This is the precise dynamic that played out in the 1930s and Bernanke is causing it, not reacting to it.

Yesterday afternoon Obama made reference to Mitch McConnell and he "not being willing to threaten the sovereign credit of the United States."

Mr. President, you, in re-nominating Bernanke and not putting a stop to both the outrageous deficit spending and allowing Bernanke to back himself into this corner without removing him, have destroyed the sovereign credit of the United States.

You may not recognize it yet, and neither has the market in the main, but I assure you that recognition will come, and precisely where the "tipping point" happens to be where you no longer have any meaningful degree of control over the situation is not determinable in advance.

And before you start spouting off about how smart you and Bernanke are, remember that neither Iceland, Greece or Ireland knew where that tipping point was in advance either.

Dennigers view on it.

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Are the bond vigilantes back :)

I hope so. Sometimes I think house prices won't come down much more in nominal terms and that is based on interest rates staying where they are for five or so years which Roger Bootle thinks is possible. If we have decent rate rises here, house prices here will be toast!

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Genius, the lunatics are completely in charge, although to be really fair if we did have lunatics in charge it would be decidedly better.

And people laugh at David Icke because he thinks the world is run by a race of malevolent giant lizards?!

Given the data, it seems a very reasonable hypothesis to me... :ph34r:

Edited by Tiger Woods?

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http://www.telegraph...al-worries.html

A bit of a drama queen declaring it's Armageddon luckily yields are rising because of growth. It's the global recovery.

This is the most interesting news of the day. This can still look like it is all part of the plan, mortgages in the US are fixed rate and corporations have loaded up on cash in the last two years. It's affecting yields worlwide and the UK where mortgages are variable rates (ouch!) is no exception; this could make for some interesting action here.

What happens in the next few days is important; if speculative spirits get carried away (some wise heads say the bond markets have bottomed) and keep raising yields, the Fed could look like it's lost control which could cause self perpetuating falls in the bond markets. Too much of this and the US's solvency rapidly comes into question which would be catastrophic.

We're witnessing the Fed playing with fire here, we do live in interesting times :-)

Edited by _w_

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This is the most interesting news of the day. This can still look like it is all part of the plan, mortgages in the US are fixed rate and corporations have loaded up on cash in the last two years. It's affecting yields worlwide and the UK where mortgages are variable rates (ouch!) is no exception; this could make for some interesting action here.

What happens in the next few days is important; if speculative spirits get carried away (some wise heads say the bond markets have bottomed) and keep raising yields, the Fed could look like it's lost control which could cause self perpetuating falls in the bond markets. Too much of this and the US's solvency rapidly comes into question which would be catastrophic.

We're witnessing the Fed playing with fire here, we do live in interesting times :-)

Not just the Fed, but the US gov't. This spike in rates has coincided with the tax cut deal between Obama and the Republicans. The Republicans since Reagan have been great at cutting taxes especially for the rich while letting spending rip. Warren Buffett has got this one right.

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And people laugh at David Icke because he thinks the world is run by a race of malevolent giant lizards?!

Given the data, it seems a very reasonable hypothesis to me... :ph34r:

At least with David Icke we could be certain the lizards aren't in charge unless David Icke is a sleeper lizard... :ph34r:

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Not just the Fed, but the US gov't. This spike in rates has coincided with the tax cut deal between Obama and the Republicans. The Republicans since Reagan have been great at cutting taxes especially for the rich while letting spending rip. Warren Buffett has got this one right.

Yep the Republicans love cutting taxes as it increases growth and therefore increases tax revenues funding said spending....

However it clearly doesn't work as planned.

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Yep the Republicans love cutting taxes as it increases growth and therefore increases tax revenues funding said spending....

However it clearly doesn't work as planned.

Don't worry, it won't stop them repeating the meme over and over again.

It could work, but the rich mostly spend money rent seeking from the poor (aka "investing") to make themselves even richer.

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Yep the Republicans love cutting taxes as it increases growth and therefore increases tax revenues funding said spending....

However it clearly doesn't work as planned.

History repeating.

When Communist economics failed in the 1920s onwards, it was never because of problems in the economic theory, it was always down to 'wreckers', 'international sabotage', 'trotskyist elements', etc... and as soon as perfect communism was established, all of these would go away.

Whereas, of course, when the policy of privatising everything, cutting taxes for the rich and removing all social protections leads to lower growth, it's always because of 'socialist' governments, 'red' unions, etc.. and what we need is more of the same until it all works perfectly.

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Not just the Fed, but the US gov't. This spike in rates has coincided with the tax cut deal between Obama and the Republicans. The Republicans since Reagan have been great at cutting taxes especially for the rich while letting spending rip. Warren Buffett has got this one right.

Both US political parties have been morally bankrupt since 1980 and are taking their country to the cleaners. From what I've read, Clinton's surpluses were due to changes to the accounting treatment of US Social Security IIUC so no hope from that corner either as Obama seems to confirm. The same's happening here IMO. The parties are just more discreet about it but the extent of the asset stripping is just as bad.

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History repeating.

When Communist economics failed in the 1920s onwards, it was never because of problems in the economic theory, it was always down to 'wreckers', 'international sabotage', 'trotskyist elements', etc... and as soon as perfect communism was established, all of these would go away.

Whereas, of course, when the policy of privatising everything, cutting taxes for the rich and removing all social protections leads to lower growth, it's always because of 'socialist' governments, 'red' unions, etc.. and what we need is more of the same until it all works perfectly.

Good point, you know an ideology is failing when.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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