Treasury Bond Bubble? A Big Sign of Inflation

This Bloomberg article explains a possible bubble in U.S. treasury bonds.  Their reasoning is that a bond trading at zero, near zero, or negative interest rates provides no return, thus there should be no market for it. Why would investors buy bonds that weren’t going to make them any money?

The explanation ties into an article i wrote earlier and it had to do with Peter Schiff’s theory that the strength of the dollar lies in de-leveraging of assets abroad. Because of the economic panic, investors sold off everything they had and put their money into U.S. treasury bonds.

To buy the bonds, they needed dollars first though, increasing the demand for dollars and thus the value, resulting in a strong dollar. Because of the image of a safe-haven that Treasury bonds enjoy, there was a scramble for the bonds in an uncertain time, regardless of the returns.

Once these investors get back on their feet and find other places to put their money as the situation plays out, they are going to want to get out of the zero or negative return of the Treasury bond market. When they do that, they will most likely invest abroad in economies that are experiencing more growth or at least stability and potential like China.

When the sale of Treasury bonds occurs and investors flow to other economies, the dollar is going to be left standing without a chair. The increase in supply will trigger inflation that will be hard to stop given the enormous increases to the money supply by the Fed via their bailout policy.

Bottom line… People invested in Treasury bonds because they didn’t know where to go. It’s a terrible investment though and actually loses money. Once that fact becomes apparent and openings become available elsewhere, the treasury bubble will burst and so will the dollar.

All Hail the Car Czar

Apparently everything is all hunky-dory now between Congressional democrats and the White House as far as the bailout goes and all that remains is some minor filibustering by a few republicans.

The bill allows for $15 billion dollars in loans and the implementation of a new position, that of a ‘car czar’. His job would be to dole out the loans and ensure that things are spent correctly (according to his judgement, not ours).

The problem inherent, besides spending tax-payer money on failing businesses, is the ‘car czar’ now just acts as one more apparatus to be abused by lobbying forces within Washington. Whoever controls the czar will control his abilities to do harm to competitors. Do not believe for a second that nobody will abuse that power, they are abusing you as a tax-payer and customer as we speak, what do you think they will do to a competitor?

Will Government Confiscate Gold?

Doubt it. Or so says an article from Europacific Capital.

The question is since the government took everyone’s gold in the 30’s, why wouldn’t it do it today since we are now entering the worst recession since that time?

There is a difference, says the article, and that is in those days the dollar was still backed by gold. Thus, gold was the restraint placed on governments that wanted to inflate. Because of the Keynesian economics of the day (not that things have changed) the government felt it needed to inflate it’s way out of the depression. Inflation of paper money would have been disastrous if paper money could still be traded for gold. So to eliminate that obstacle, the possession of gold by citizens was made illegal and the transition from a backed currency to one of government fiat was complete.

Today, there is no obstacle to government inflation and gold possession does not pose nearly the threat it did in those days.

Unimaginative Europe Copies Innovative America

Well, i suppose it shouldn’t be much of a surprise. The European auto manufacturers are now copying their American counterparts. VW is asking for financial aid from the German government and BMW is not far behind. I guess that’s one thing America will always have… ideas… and debt.