Friday, February 19, 2010

The Fed Raises Rates


Since no one but the crickets showed up at the last Treasury bill auction, it looks like "Zimbabwe Ben" Bernanke has decided to up the ante for borrowing with a 1/4 point increase in the FED's interest rates. (Good article over at Zerohedge)

China is losing its appetite for buying our debt.
As the biggest and most liquid pool of assets in the world, the US Treasury market lies at the heart of the global financial system and allows the American government to finance its trillion-dollar budget deficits. Until recently, China has been the largest foreign official holder of US debt.

That is why the latest release of Treasury International Capital (Tic) data, showing that China’s holdings of Treasuries fell by a record amount in December, has caused something of a stir.

The FED had to raise the interest rates to induce foreign demand for our debt to return, and they are also hoping that the common US investor will pull their money out of equities to buy "safe" T Bills.

The problem is this:
How much can the FED raise interests rates when the Treasury is issuing billions in new debt each month? With billions of short term debt maturing, no doubt it will be rolled over into more debt with higher interest rates. What we are looking at is that fact that any rise in interest rates will pretty much mean an unservicable amount of interest that our government (i.e. the taxpayer) will have to pay.

Expect that equities, and commodities, like gold, will drop (it'll be a good time to buy gold!)
The Dow will no doubt open lower today (Friday morning), but will soar later on in the day with all the short selling that will be going on. (Remember- buy low, sell high)
It's all a game.
The market is being manipulated, and the game is for the elites to drain as much cash out of the market as possible. And they'll do it too.

Meanwhile unemployment claims are increasing and the annual energy inflation rate is hitting 25%. If you've been to the grocery store lately, you probably have already seen inflation. Smaller packages, for the same amount of money.

And Washington keeps spending.

And yes, you'll see the dollar surge a bit, especially while the Euro is in the crapper thanks to Greek debt and other struggling economies in the Eurozone like Spain and Portugal and Italy; but the truth is we are definitely not out of the woods yet. It will be more like a jobless "non-recovery".

Just remember - the Great Depression was "Great" primarily because of all the government intervention that lengthened it. We are staring at some pretty nasty government and Federal Reserve interventions and we are going to have to pay the piper later on down this horrendous road.

More government spending and more issuance of government debt (with the interest that we will have to pay on that debt) will undoubtedly destroy whatever is left of our economy.


Bonus: Here's a real good read.

1 comment:

David Aron said...

Excellent Analysis. It seems to me that the actions of the Fed and the US Gov't are akin to standing on a shoreline with a pail trying to shovel back a tsunami. There is a clear financial crisis brewing, which will be driven by the already growing inflation problem, excessive debt and the collapse of commercial real estate and consumer industries.