-- Published: Thursday, 2 November 2017 | Print | Disqus
By Graham Summers
According to the Wall Street Journal, Jerome Powell will be the next Fed Chair.
Whether or not this is fact is difficult to tell. Neither the White House nor Powell himself has confirmed the news.
However, at the end of the day, who leads the Fed is largely irrelevant. Regardless of your position on Fed policy, math is math. So let’s consider the math.
The US finances its budget via taxes. If taxes don’t cover the budget, the US must issue debt. This has been the game for 40+ years.
Today, the US has $20 trillion in sovereign debt. And like all other US budgetary expenses, the interest payments on this debt are covered by taxes… otherwise the US must issue more debt to cover them.
Fortunately, interest payments on the debt take up very little of the US budget because interest rates are at extraordinary lows thanks to the massive bubble in bonds.
And yet, despite the fact rates are so low, the US is STILL running a $500B+ deficit.
Put another way, the US is spending WAY more than it takes in via taxes even with the economy supposedly roaring and interest payments WAY below historical norms.
So what happens if the bond market revolts? What happens if rates begin to rise due to inflation and the US is forced to start paying higher interest rates (and therefore larger debt payments) on its $20 trillion in debt?
We explore these issues in our best-selling book The Everything Bubble: The Endgame For Central Bank Policy. On a side note, Amazon is currently running a 10% discount on the price. If you’ve not already bought a copy, you can lock in this discounted price today.
Put simply, take away the bubble in bonds, which permits Governments like the US to issue debt at rates WAY below the historic average, and most major countries are bankrupt in a matter of weeks.
Well guess what? The bond markets are already beginning to revolt. As I write this, the bond yields on FOUR of the largest economies in the world are rising, having broken out of their downtrends of the last few years. The bond markets for US, Japan, Germany and the UK are all in revolt.
And guess what is triggering this?
Inflation forces bond yields higher as the bond markets adjust to compensate for the fact that future interest payments will be worth less in real terms.
Bond yields higher= bond prices lower. Bond prices lower= the bond bubble is in serious trouble.
The above chart is telling us in very simple terms: the bond market is VERY worried about rising inflation. And if Central Banks don’t move to stop it now by ending their QE programs and hiking rates, we’re in for a VERY dangerous time in the markets.
Put simply, BIG INFLATION is THE BIG MONEY trend today. And smart investors will use it to generate literal fortunes.
Imagine if you'd prepared your portfolio for a collapse in Tech Stocks in 2000... or a collapse in banks in 2008? Imagine just how much money you could have made with the right investments.
THAT is the kind of potential we have today. And if you're not already taking steps to prepare for this, it's time to get a move on.
Chief Market Strategist
Phoenix Capital Research
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-- Published: Thursday, 2 November 2017 | E-Mail | Print | Source: GoldSeek.com