[quote=phaster][quote=CA renter]
The Fed’s insistence on keeping rates at ~0% are exacerbating the problems.
As for how it will affect the bond market, I believe that most people who work in these markets understand the risks…at least, I sure hope so.
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The fed is keeping interest rates near “0” because historically that is how economic activity was kickstarted.
The mechanism by which the fed directed interest rates, was by printing money and lending it out to credit worth institutions, who in turn lent it out to credit worth people… (see the problem?)
Few institutions have their books in order, same goes for people (fewer people have the capacity to take on more debt), yet since 2008 the fed has created something like 4 TRILLION dollars in an attempt to try and get the economy going (but most of the printed credit “money” is just sitting on ledger sheets at the fed and big banks)
As I see it we’re in twilight zone of global “mild stagflation” waiting for something to give…
I say that is because if ya think the US FED printing 4 TRILLION or so is a big number, consider the mind-blowing 15+ TRILLION the bank of china has printed since 2008.
I’d bet that most people who work in the “bond” market don’t ponder such things, and only see a limited picture of stuff around them and not the BIG “crazy” picture.
It is this narrow world view, that caused 99% of “financial experts” to miss seeing the bubble in housing, systemic problems caused by CDOs, etc. last time around.
Perhaps, I might be fooling my self looking at all the data trying to grasp the big picture, but feel the next implosion is going to be government debt at the city and state level.
Unlike the federal level which can print money and have deficit spending, there is no similar pressure relief valve “mechanism” at the city and state level AND the unfunded “pension” debt is a huge value – in the billions or tens of billions for large cities, and “collectively” hundreds of billions at the state level.
Muni bonds are based on the faith, that the city and states will pay back bondholders, so when I read that new account rule about public pension debts being required to be placed on the balance sheet (I kinda think that a “debt” tidal wave seemingly appearing out of nowhere is something to be concerned about, because somehow its going to affect bond ratings, investors perceptions and in time the outlook of joe six pack walking down main street)
Its going to be interesting in years ahead, cause somehow something BIG has to give with all the mismanagement…[/quote]
The Fed cannot kick-start an economic recovery as much as it can unleash a speculative wave of misallocated money…rushing around the globe in search of yield. I, for one, have long been staunchly opposed to the Fed’s responses to recessions and the corrections of these monetary misallocations.
As to the rest, the government debt implosion has already happened. It’s been on the radar for many years, now. If someone isn’t aware of it, they certainly have no business in the financial markets.
But to think that these debt problems are solely due to public pensions is to ignore all of the other deficit spending done during the monetary free-for-all. Pensions are only one piece of the puzzle, and they’re not even the major piece in many cases. ALL stakeholders need to come to the table in order to fix this mess — taxpayers (many of whom have been getting tax subsidies, like Prop 13, that we have no business giving away, especially for real estate that isn’t a primary residence), bondholders, public employees, government contractors, (illegal) immigration advocates, and VOTERS who’ve voted in every election to spend money that we do not have.
