"The US has two big problems:1) How do we sell $10T worth of...

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Jrowl1

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07/05/24

17:06

Post #: 73708895
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Originally posted by kacy: ↑

There seems to be a lot of flip-flopping going on. . .

One minute we are being told inflation is out of control and more tightening may be needed. The next minute we are being told no rate hikes and we are cutting QT from 60b/mth to 25b/mth and Treasury is starting a bond buyback program. So, what's going on?

The US has two big problems:

1) How do we sell $10T worth of bonds when there is nobody out there with that sort of cash to buy them?

2) How do we stop inflation from going higher?

The easy solution to both these problems is to have a bank crisis (or recession) and when everything crashes fix it by cutting rates and printing more money. I reckon, that was the fed plan until Thursday. That's when Biden told his puppets "I'm down in the polls, so no no crisis and the market stays up".

The plan now seems to be to prop up the banks by swapping bad bonds for good ones using Treasury cash (Yellen's idea, see video below), and to keep talking up the economy so that Biden looks good.

Some think Powell looked very worried when he was giving his talk on Thursday - (me too). Powell also said he cant say when rates will come down and he expects they will stay high for longer??? So, what's his thinking behind that? => "No one will buy our bonds if we cut our rates, so we have to keep them high, but the economy might break and we will then be forced to cut."

The big problem with the new plan is: where is all the money coming from??? Yellen's plan is to avert a banking crisis by borrowing more money from the public (by issuing more notes or bonds) and to use it to prop up the banks by swapping their bad bonds for good ones that are earning 5.5% interest. Yellen must be thinking; "well, we have to get $10T from the public in cash by the end of this year, so we may as well make it $15T". How is the public going to cough up that much money when the current bond auctions are already exploding from a lack of buyers???

So, how will this play out in the market?

The US is now forced into selling massive amounts of bonds no matter what. So, expect treasury interest rates to go higher. We can expect the attractive interest rates on US bonds to suck money out of the banks, stock market and the economy. So, expect company profits to go down and the economy to tank. We may still get a banking crisis because Yellen's bond swap deal is only targeted at the BTFP bonds and not the bad CRE loans. Also, the banks are short on cash and can't compete with bonds.

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"The US has two big problems:

1) How do we sell $10T worth of bonds when there is nobody out there with that sort of cash to buy them?

2) How do we stop inflation from going higher?"

They will find a way, it's not hard, inflation blame it on Russia, price gouging retailers, Racism, homophobia etc.

Last edited by Jrowl1: 07/05/24

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