If Treasury Bonds Hit 5%, You’re Gonna See Some Serious Sh*t
Almost as if all of us Austrian Economists (read: any carbon based life form using common sense when it comes to finance) live in an echo chamber together, a third expert I respect came out over the last few days and has warned that 5% on the 10 year treasury would be the breaking point for markets and the economy.
If my calculations are correct, when this thing hits 5%…you’re going to see some serious sh*t.
Peter Schiff now argues that the Federal Reserve and US Treasury are being forced to confront the reality that inflation is persistent, which has led to an increase in yields, recently reaching 4.7% on the 10 year, the highest since November.
The thought process, for financial neophytes, is that bond traders will continue to sell bonds, driving yields up, in order to make it difficult for the Fed to cut rates — and essentially forcing the Fed to fight inflation head-on instead of capitulating to the economy and markets (should they crash).
This follows Jack Boroudjian’s analysis from last week, stating that rates will keep drifting higher and that 5% to 5.5% is the danger zone: Yields To Trigger “Serious Earthquakes” Across Economy: Jack Boroudjian
It also follows Harris Kupperman’s similar take: Bond Market About To Have An “Aneurism”: Harris Kupperman
Put simply, the Fed faces a dilemma: it needs to raise rates to combat inflation and make Treasuries more appealing, but higher rates would exacerbate the already burdensome debt servicing costs and threaten industries reliant on borrowing. Or, to use the parlance of my recent interview with Matt Taibbi, higher rates simply serve up another day of “sh*t burgers” to the economy, whereas lower rates act as rocket fuel for economic activity (and market confidence).
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