Powayseller, rates are going up: with Tuesday’s Fed pause, at the auction of 30 year Treasury notes yesterday, the yield was 5.08%, up from 4.53% at the last auction of 30 year notes back in February. Why the big increase in yield? Because demand was down, as evidenced by a nearly 40% drop in bids. Why the drop in bids? Because of a nearly 70% drop in bids by the channel used by foreign investors. Why the drop by foreigners? Because they’re losing confidence that the Fed will effectively fight inflation, and are demanding a higher interest rate in exchange.
The Fed has allowed an unprecedented increase in the U.S. money and credit supply over the last decade. The only thing that has stopped such from resulting in rampant inflation to-date has been foreigners collecting those dollars and turning them back to the U.S. Treasury. The foreigners are stopping, now. The U.S. Treasury will have to pay ever higher rates to keep the Japanese and Chinese in the game. Those higher rates are going to kill the economy. We have a big recession coming up, whether the Fed raises short-term rates (which will more quickly move us to a big slow down), or not (in which case higher rates at the U.S. Treasury auctions will more slowly move us to a big slow down).
