The Federal Reserve has no option but to start buying Treasurys as the government's needs for financing are huge, but the government bond market is a disaster in the making, Marc Faber, editor and publisher of The Gloom, Boom & Doom Report, told CNBC.
Federal Reserve policymakers start a two-day meeting on Tuesday, weighing options on how to spur lending to help cash-strapped consumers kickstart the economy.
Economists expect them to leave rates at zero and look to other ways of boosting liquidity, such as buying government bonds – a measure which has already been taken by the Bank of England.
But there will be a time when the Federal Reserve will have to increase interest rates to fight inflation, and it will be reluctant to do so because the cost of servicing government debt will rise substantially.
"So we'll go into high inflation rates one day," Faber said.
The stock market is likely to continue its bounce at least for a while, but the outlook is bleak, he added.
"I think we may still have a rally (in the S&P) until about the end of April and probably then a total collapse in the second half of the year sometimes, when it becomes clear that the economy is a total disaster," Faber said.
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faber is the financial yoda
ReplyDeleteAny number of bubbles could pop next: credit card, student loan, car loan, commercial real estate, housing, but U.S. treasuries might be the most dangerous.
ReplyDelete"I think we may still have a rally (in the S&P) until about the end of April and probably then a total collapse in the second half of the year sometimes, when it becomes clear that the economy is a total disaster," Faber said.
ReplyDeleteOne gem of a quote
But no the pundits on tv are saying buy buy buy , stocks have hit bottom LOL , what crock of shit
ReplyDeleteIf we could all just believe - forget reality that people are still losing jobs, the unaccounted for people still on severance who have yet but will be counted when that runs out, the foreclosed homes the banks are still sitting on, the defaulted mortgages that have not been foreclosed because of the foreclosure stay and the long long list of many other variable - just sweep all this under the rug
ReplyDeletewe will once again be a prosperous nation of debt loving consumers
There will come a time when just servicing the interest on total debt, will surpass total gross consumer income. At that point, man will have to choose between paying taxes or feeding his family. When that happens, all of the IRA's 401K's and pension plans that are invested, will be wiped out because government will not be able to honor their contracts with corporate America. Let's face it, the bankers have forced our own manufacturing base to kill their own markets.
ReplyDeleteAnd now we are selling off America piece by piece. We have to get rid of our debt monetary system. We cannot borrow our way out of this cesspool of indebtedness.
Crashes are caused by the banks contracting the money supply. This happened in 1929, and it is happening now.
ReplyDeleteRemember, we are forced to borrow in order to have a medium of exchange.
"The actual creation of money (ALWAYS) involves the extension of credit from private commercial banks."
Russell Monk, asst. general council U. S. treasury.
Wll money is debt, with no money ever created to pay the interest on the borrowed money.
When government borrows, you pay that borrowing through higher and higher taxes.
When businesses borrow, you pay off their loans and interest in higher prices for goods and services.
Under this current monetary system, if there is no debt, there can be no dollars.
If you have money in your pocket, checking acct., savings acct., IRA, 401K, pension plan, that money could not exist, unless someone else, either individually or collectively has an equal amount of debt.
Money is created when debt is incurred, and extinguished when debts are repaid.
We must take down this debt system and replace it with a system where money is created by rewarding man's current productivity.
Man's productivity is what is backing our money today, however, it is man's future productivity because we had to borrow every cent that is in circulation today. We do this by signing mortgages or loan agreements.
In essence, we agree to mortgage our future productivity, and the bank creates the money
out of thin air, on our promise to pay it back. The bank never really had all of that money to loan, but it is the entity to which the interest is paid. Remember, no money was created to pay the interest on that loan.
Think about this. If you signed a mortgage at a bank to borrow $100,000, The bank would then create that amount out of thin air, on your promise to pay. Isn't it your promise then that is actually creating the money?
Then the bank, after doing about 2 weeks of preliminary mortgage paperwork, and sending out a monthly statement for 30 years, gets to collect approximately $200,000 in interest, that no money was created to pay.
Multiply this procedure by millions of mortgages and loans over the many decades and you can see just how sinister this debt system is, and how the bankers have gained so much power and influence.
Doesn't the US government get the interest on loans made out by the Federal Reserve ? According to Wickipedia, the US Treasury last year received about $700 billion in interest from the Reserve. It seems a surprisingly small amount from all the loan funds created by the Reserve. I guess the Reserve's bankers know how to feed themselves first, and send the small change to Treasury.
ReplyDeleteIf Treasury borrow from the Reserve and receive all the interest on the funds they have borrowed, Treasury essentially pays ZERO interest no matter what the official interest rates are !
The creation of money does NOT necessarily require the creation of debt. It is how the Federal Reserve creates 97% of its money, and many other central banks that follow its lead. I suggest that the 3% of "real" non-debt money that is created is too low for stability. The Federal Reserve is designed to serve the interests of bankers rather than the wider society. Just look at the secretive arrangements that led to the creation of the Reserve.
ReplyDeleteI believe the Chinese Central Bank creates much more of its money without also creating debt. When Chinese companies export, their Central Bank receives the US dollars, and creates new Yuan to pay the Chinese company. The Chinese system is savings based, while the US system is debt based.
The Chinese system may be a lot more robust than the US system. Debt based monetary systems work well when the economy is growing and asset prices are increasing. When the economy is declining, suddenly few are willing or able to borrow because asset prices are in decline. It would be interesting to see these systems tested by experimental economics, where a group of people work on a well-constructed game.