Off Topic: “Buffett says U.S. Treasury bubble one for the ages”

[urbanrealtor]

to SD and John,
How do you see the bond market popping?

This is not a rhetorical question.

I am curious.

[underdose]

The wildcard here is Bernanke’s promise to print money and buy treasuries if there is a broad sell-off. But then, choose your poison, a glut of treasuries no one wants, or a glut of greenbacks no one wants. Either way it is inflationary. In fact, it looks like a potential death spiral to me. I think Buffett is way understating this by saying it is on par with the internet and housing bubbles. This is much bigger. It likely will be the complete collapse of the dollar.

On the other hand, of course, if Helicopter Ben does not in fact fire up the helicopter, our government is on the wrong side of the “magic of compound interest”. They have the biggest neg-am adjustable rate loan of all time. Every bond that matures and is retired is replaced with a new issue (at today’s interest rate). Every penny of interest is being payed by auctioning new issues. AND, more is being borrowed beyond that by the $100’s of billions. Compound interest makes the principle grow exponentially. Rising interest rates makes the exponential growth accelerate exponentially. What was $10 trillion yesterday will double to $20 trillion before you know it, then in less time double again to $40 trillion, then 80, then 160… Well, at some point we’ll have to be in default. Not good, not good. Really hard to come up with a plausible way out of this….

[underdose]

The wildcard here is Bernanke’s promise to print money and buy treasuries if there is a broad sell-off. But then, choose your poison, a glut of treasuries no one wants, or a glut of greenbacks no one wants. Either way it is inflationary. In fact, it looks like a potential death spiral to me. I think Buffett is way understating this by saying it is on par with the internet and housing bubbles. This is much bigger. It likely will be the complete collapse of the dollar.

On the other hand, of course, if Helicopter Ben does not in fact fire up the helicopter, our government is on the wrong side of the “magic of compound interest”. They have the biggest neg-am adjustable rate loan of all time. Every bond that matures and is retired is replaced with a new issue (at today’s interest rate). Every penny of interest is being payed by auctioning new issues. AND, more is being borrowed beyond that by the $100’s of billions. Compound interest makes the principle grow exponentially. Rising interest rates makes the exponential growth accelerate exponentially. What was $10 trillion yesterday will double to $20 trillion before you know it, then in less time double again to $40 trillion, then 80, then 160… Well, at some point we’ll have to be in default. Not good, not good. Really hard to come up with a plausible way out of this….

[underdose]

The wildcard here is Bernanke’s promise to print money and buy treasuries if there is a broad sell-off. But then, choose your poison, a glut of treasuries no one wants, or a glut of greenbacks no one wants. Either way it is inflationary. In fact, it looks like a potential death spiral to me. I think Buffett is way understating this by saying it is on par with the internet and housing bubbles. This is much bigger. It likely will be the complete collapse of the dollar.

On the other hand, of course, if Helicopter Ben does not in fact fire up the helicopter, our government is on the wrong side of the “magic of compound interest”. They have the biggest neg-am adjustable rate loan of all time. Every bond that matures and is retired is replaced with a new issue (at today’s interest rate). Every penny of interest is being payed by auctioning new issues. AND, more is being borrowed beyond that by the $100’s of billions. Compound interest makes the principle grow exponentially. Rising interest rates makes the exponential growth accelerate exponentially. What was $10 trillion yesterday will double to $20 trillion before you know it, then in less time double again to $40 trillion, then 80, then 160… Well, at some point we’ll have to be in default. Not good, not good. Really hard to come up with a plausible way out of this….

[underdose]

The wildcard here is Bernanke’s promise to print money and buy treasuries if there is a broad sell-off. But then, choose your poison, a glut of treasuries no one wants, or a glut of greenbacks no one wants. Either way it is inflationary. In fact, it looks like a potential death spiral to me. I think Buffett is way understating this by saying it is on par with the internet and housing bubbles. This is much bigger. It likely will be the complete collapse of the dollar.

On the other hand, of course, if Helicopter Ben does not in fact fire up the helicopter, our government is on the wrong side of the “magic of compound interest”. They have the biggest neg-am adjustable rate loan of all time. Every bond that matures and is retired is replaced with a new issue (at today’s interest rate). Every penny of interest is being payed by auctioning new issues. AND, more is being borrowed beyond that by the $100’s of billions. Compound interest makes the principle grow exponentially. Rising interest rates makes the exponential growth accelerate exponentially. What was $10 trillion yesterday will double to $20 trillion before you know it, then in less time double again to $40 trillion, then 80, then 160… Well, at some point we’ll have to be in default. Not good, not good. Really hard to come up with a plausible way out of this….

[underdose]

The wildcard here is Bernanke’s promise to print money and buy treasuries if there is a broad sell-off. But then, choose your poison, a glut of treasuries no one wants, or a glut of greenbacks no one wants. Either way it is inflationary. In fact, it looks like a potential death spiral to me. I think Buffett is way understating this by saying it is on par with the internet and housing bubbles. This is much bigger. It likely will be the complete collapse of the dollar.

On the other hand, of course, if Helicopter Ben does not in fact fire up the helicopter, our government is on the wrong side of the “magic of compound interest”. They have the biggest neg-am adjustable rate loan of all time. Every bond that matures and is retired is replaced with a new issue (at today’s interest rate). Every penny of interest is being payed by auctioning new issues. AND, more is being borrowed beyond that by the $100’s of billions. Compound interest makes the principle grow exponentially. Rising interest rates makes the exponential growth accelerate exponentially. What was $10 trillion yesterday will double to $20 trillion before you know it, then in less time double again to $40 trillion, then 80, then 160… Well, at some point we’ll have to be in default. Not good, not good. Really hard to come up with a plausible way out of this….

[stansd]

Urban,

Several options in my mind:

1. Investors start to fully appreciate the fact that the U.S. gov’t is already technically bankrupt. Liabilities>Assets on a massive scale when you add in Medicare, S.S., existing debt, bailout, etc. Increasing taxes is not a vehicle to raise the money-we’ll hit the wrong side of the laffer curve. Gov’t will ultimately decide to screw the debtholders by printing money (already in process???).

2. Economy improves and investors who are currently holding the safest assets they can find (treasuries) become less risk averse. Demand decreases and yield rises.

3. China/Japan/Middle East gov’ts lose their appetite for treasuries do to the need to stimulate their own ecnomies and an increasing appreciation (rationality?) for #1 above. Demand decreases, prices decrease, yields rise.

Scenarios I can come up with where the bubble doesn’t burst only hold up for a year or two (continued economic weakness, government buys treasuries, etc.) After that, one of the forces in #1-#3 takes over.

Stan

[stansd]

Urban,

Several options in my mind:

1. Investors start to fully appreciate the fact that the U.S. gov’t is already technically bankrupt. Liabilities>Assets on a massive scale when you add in Medicare, S.S., existing debt, bailout, etc. Increasing taxes is not a vehicle to raise the money-we’ll hit the wrong side of the laffer curve. Gov’t will ultimately decide to screw the debtholders by printing money (already in process???).

2. Economy improves and investors who are currently holding the safest assets they can find (treasuries) become less risk averse. Demand decreases and yield rises.

3. China/Japan/Middle East gov’ts lose their appetite for treasuries do to the need to stimulate their own ecnomies and an increasing appreciation (rationality?) for #1 above. Demand decreases, prices decrease, yields rise.

Scenarios I can come up with where the bubble doesn’t burst only hold up for a year or two (continued economic weakness, government buys treasuries, etc.) After that, one of the forces in #1-#3 takes over.

Stan

[stansd]

Urban,

Several options in my mind:

1. Investors start to fully appreciate the fact that the U.S. gov’t is already technically bankrupt. Liabilities>Assets on a massive scale when you add in Medicare, S.S., existing debt, bailout, etc. Increasing taxes is not a vehicle to raise the money-we’ll hit the wrong side of the laffer curve. Gov’t will ultimately decide to screw the debtholders by printing money (already in process???).

2. Economy improves and investors who are currently holding the safest assets they can find (treasuries) become less risk averse. Demand decreases and yield rises.

3. China/Japan/Middle East gov’ts lose their appetite for treasuries do to the need to stimulate their own ecnomies and an increasing appreciation (rationality?) for #1 above. Demand decreases, prices decrease, yields rise.

Scenarios I can come up with where the bubble doesn’t burst only hold up for a year or two (continued economic weakness, government buys treasuries, etc.) After that, one of the forces in #1-#3 takes over.

Stan

[stansd]

Urban,

Several options in my mind:

1. Investors start to fully appreciate the fact that the U.S. gov’t is already technically bankrupt. Liabilities>Assets on a massive scale when you add in Medicare, S.S., existing debt, bailout, etc. Increasing taxes is not a vehicle to raise the money-we’ll hit the wrong side of the laffer curve. Gov’t will ultimately decide to screw the debtholders by printing money (already in process???).

2. Economy improves and investors who are currently holding the safest assets they can find (treasuries) become less risk averse. Demand decreases and yield rises.

3. China/Japan/Middle East gov’ts lose their appetite for treasuries do to the need to stimulate their own ecnomies and an increasing appreciation (rationality?) for #1 above. Demand decreases, prices decrease, yields rise.

Scenarios I can come up with where the bubble doesn’t burst only hold up for a year or two (continued economic weakness, government buys treasuries, etc.) After that, one of the forces in #1-#3 takes over.

Stan

[stansd]

Urban,

Several options in my mind:

1. Investors start to fully appreciate the fact that the U.S. gov’t is already technically bankrupt. Liabilities>Assets on a massive scale when you add in Medicare, S.S., existing debt, bailout, etc. Increasing taxes is not a vehicle to raise the money-we’ll hit the wrong side of the laffer curve. Gov’t will ultimately decide to screw the debtholders by printing money (already in process???).

2. Economy improves and investors who are currently holding the safest assets they can find (treasuries) become less risk averse. Demand decreases and yield rises.

3. China/Japan/Middle East gov’ts lose their appetite for treasuries do to the need to stimulate their own ecnomies and an increasing appreciation (rationality?) for #1 above. Demand decreases, prices decrease, yields rise.

Scenarios I can come up with where the bubble doesn’t burst only hold up for a year or two (continued economic weakness, government buys treasuries, etc.) After that, one of the forces in #1-#3 takes over.

Stan

[bsrsharma]

How do you see the bond market popping?

Net world savings are going to be less than net capital need by U.S. at some point due to increasing deficits. At that point, interest rates will raise till U.S. willingness to pay that interest rate goes away. Going by the historical record of the ’80s, this can be as high as 16% for 10 year notes.

[bsrsharma]

How do you see the bond market popping?

Net world savings are going to be less than net capital need by U.S. at some point due to increasing deficits. At that point, interest rates will raise till U.S. willingness to pay that interest rate goes away. Going by the historical record of the ’80s, this can be as high as 16% for 10 year notes.

[bsrsharma]

How do you see the bond market popping?

Net world savings are going to be less than net capital need by U.S. at some point due to increasing deficits. At that point, interest rates will raise till U.S. willingness to pay that interest rate goes away. Going by the historical record of the ’80s, this can be as high as 16% for 10 year notes.

[bsrsharma]

How do you see the bond market popping?

Net world savings are going to be less than net capital need by U.S. at some point due to increasing deficits. At that point, interest rates will raise till U.S. willingness to pay that interest rate goes away. Going by the historical record of the ’80s, this can be as high as 16% for 10 year notes.

[Author]

Posts