print“An increase in the price of an item is not the same as an appreciation in its value.” Consequently, it’s hard to understand the happy hyperventilating over the Dow having broken through 17,000 for the first time. Keeping the printing presses roaring, as the Federal Reserve has done, will result in a rise in prices, stocks included. Homes too.
A cleareyed look ahead to “a very serious bond-market crisis” is more appropriate.
Warns David Stockman, author The Great Deformation: The Corruption of Capitalism in America:
If you allow a $17 trillion debt to be financed at $250 billion a year when it really should be $700 billion or $800 billion under normal interest rates, then politicians are gonna take the easy way out. They’re not going to fall on the sword. They’re not going to lay out the real painful choices to the public. They’re not going to vote against the squeaky wheels and the powerful constituents when the Fed is printing the money and doing the job of financing the debt for them.
So I think that’s where the crisis comes. When the Fed finally reaches the point where the entire monetary system is threatened – and I think it would be if it had continued at $85 billion a month – we come to the juncture where the Fed can no longer keep its big fat thumb in the market buying up the monthly and weekly issue of Treasury debt. At that point, we are going to see the rubber meet the road, so to speak. We’re gonna have the day of reckoning, because there isn’t demand out in the real marketplace among real investors for massive amounts of additional Treasury debt at these sub-economic interest rates. And when interest rates normalize, Katy, bar the door, because the carry cost on the federal debt— which will by then be $20 trillion— will soar by half a trillion a year. The politicians will finally panic, but I’m afraid by then it might be too late—- that we’ll be in a very serious bond-market crisis.