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If Treasury Bonds Hit 5%, You’re Gonna See Some Serious Sh*t
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).
…click on the above link to read the rest of the article…
Sri Lanka Cabinet Offers To Resign As Out-Of-Control Inflation Sparks Widespread Social Unrest
Sri Lanka Cabinet Offers To Resign As Out-Of-Control Inflation Sparks Widespread Social Unrest
Update (1535ET): Bloomberg reports that Sri Lanka’s cabinet has submitted its resignation, a ruling party member said, amid rising public anger about the government’s economic policies that have led to soaring living costs and a foreign exchange crisis.
“We gave resignations to the Prime Minister saying we are willing to leave at any time,” Education Minister Dinesh Gunawardena told reporters in Colombo late Sunday.
“After discussing with the President the steps to be taken will be decided.”
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As we detailed earlier, the tiny island nation of Sri Lanka is experiencing worsening shortages of food, fuel, and medicine amid a foreign exchange crisis. A 36-hour curfew went into effect this weekend as mass anti-government protests over soaring living costs are underway.
Bloomberg reports that President Gotabaya Rajapaksa imposed a state of emergency on Friday after soaring inflation and widespread rolling blackouts for up to 13 hours a day resulted in protests in the capital and at the president’s private home. The emergency order gives authorities sweeping powers to detain and quell protests to restore public order.
Days ago, the Washington, D.C.-based International Monetary Fund (IMF) swooped in and initiated talks with Sri Lankan authorities on a rescue loan. Rajapaksa will fly to Washington for additional discussions with IMF officials.
A confluence of factors drained the South Asian island nation’s foreign exchange reserves by more than 70% since the virus pandemic began, including the collapse in tourism and poorly timed tax cuts.
Bloomberg explains more about the socio-economic crisis unfolding on the island nation of 22 million people.
…click on the above link to read the rest of the article…
