The Sahm Rule looks like it has triggered. The next US...

The Sahm Rule looks like it has triggered. The next US unemployment report is released on Friday next week. That might spike up the Sham Rule even more and put the R word back on the agenda. When people become worried about things getting worse and losing their job, they clam up and save every penny. That's when the s_it really hits the fan.

By issuing around 30 trillion worth of short term debt recently (with maturity dates of just weeks or months), the US gov has turned itself into a massive bond market debt junkie. This is because the US gov has to keep issuing more and more bonds to roll over the short term debt as well as the long term maturing debt - and needs even more to cover the deficit. So the US gov can be likened to a junkie that needs more and more and more with no relief in sight.

If the US gov issued its debt normally, e.g. with 5 & 10 yr bonds, the gov would be able to have a break from buying bonds and would not be so concerned about the behaviour of the economy or the bond market. But as things stand, the US gov will go into cardiac arrest if the bond market stops buying bonds and they will do that if they think the economy is improving and inflation and interest rates are about to go back up.

This is the fundamental reason why there can be no upside once the fed starts cutting rates. They have to go all the way to zero and then move the debt into the fed with an extended period of QE. (Like they did during the GFC - but 10x bigger). This will require a crisis of some sort.

The big question is how and when are they going to do this? It will have to be soon because there is nothing worse for an economy than to be forced into printing money into an inflationary environment - which will happen if they are forced into a war. So that makes me think they will want to go to zero asap. (Will the Olympics be the trigger to another war against terror? - Lets hope not.)