“No matter how cynical you get, it is impossible to keep up.”― Lily Tomlin
How convenient for the Fed that interest rates have spiked on the long end. They must be breathing so much easier now.
My point is the 'House' is about to approve the $1.9 Trillion stimulus package. This is deficit spending by the US government... meaning they have to get somebody else to pay for it. Up until yesterday it was the Fed which was on the hook to provide the 'readies'... but now commercial banks have the chance to buy at lower prices and then front run yield curve control by the Fed and enjoy massive (on paper) capital gains when yields are pushed lower again.
Bottom line.... the current total of US debt (including the unfunded liabilities of pensions and healthcare) is $140T and they are running a $3T deficit (at last count).... interest rates have to stay functionally negative, there is absolutely no other choice. What's more those rates have to be very negative... not just a little bit so. My guess... they can not service the interest payments and run such a large deficit if real rates are negative 0.6%.... in short order real rates will be back to -1% and probably below that.
Will there be a $2T fiscal package soon after? Probably the US government will be forced into it but they might delay for as long as possible in the hope the reopening provides some economic relief. (on that, some virus experts are saying the US is yet to see another possible surge in Covid cases due to the new variants not yet showing up in the numbers). The last line of defense is the Fed balance sheet.... surely they want to minimize how much support they have to supply.
The above is my 'rabbit-hole' view of things. I have tried listening to the 'experts' and I am seeing a lot of very contradictory commentary. No-one seems to have a real handle on what's just happened... at least as far as I discern.
