Saturday, June 11, 2011

This Is How the Dollar Dies

 I've laid out in the past few days (here, here, and here) suggests interest rates are inevitably headed higher. But how much higher?

Over the long term, the average real rate of interest on U.S. sovereign debt has been around 2% a year. The latest Producer Price Index (which we believe is more reliable than the Consumer Price Index) shows price inflation is currently 6.8% annually. Add the 2% real return we believe investors expect, and you get 10-year Treasury bonds yielding 8.8%.

Currently, those bonds yield only about 3%.

This implies a huge collapse of bond prices – a collapse of more than 50%.

A collapse of that magnitude would completely wipe out the stock market. It would be a massacre.

No one is expecting any of this. Everyone believes something like this could never happen. Yet this rise in interest rates would only carry us to the average return bond investors have earned over the last several decades. It doesn't even consider the kind of panic selling that would ensue.

In truth, rates might go considerably higher than this for one fundamental reason. If the bond market crashes, investors would begin doubting America's ability to finance its debts, never mind trying to repay them. As rates rise, the cost of maintaining our debts would grow substantially – perhaps doubling.
More Here.


  1. Video - It's a Depression

  2. The 3 real problems facing the world economy are combination of debt crisis to pay for wars against the third world , CO2 pollution creating climate change and the interest on past debts the threat of hyperinflation through loss of the value of the dollar hegemony in world trade and finance .
    The system we know and love.

    One proposal is for carbon taxes on humans as well as Austerity to reduce consumption levels global warming and the national debt.

    But another proposal is these problems can all be solved starting at the local level by the municipalities raising the licence fees for dogs and creating cat licences ,thereby raising their revenue streams without increasing property taxes or by revenue raising by police taxing innocent motorists passing through their towns.

    This incresed taxation for dogs and cats
    would in the long run reduce the millions of American cats and dogs ,whose consumption contributes more to carbon pollution and global warming than many third world countries.

    With the reduction of the pet population by market means ,this will reduce the need for carbon taxes ,CO2 emissions trading scams imposed on humans and econoc recovery would quicky follow.As millions of people would not use their food stamps buying pet food .

    But, Animal rights activists say that this tax
    proposal would unfairly treat animals As it would treat poor animals unfairly just like human taxpayers.

    And therefore all austerity and Carbon taxes should be paid for strictly by human taxpayers and consumers so that dogs and cats are not unfairly taxed to pay the losses for TBTF corporations and be mistreated like humans .

    Humans are already used to being taxed and suffer financial stress to bail the system out cats are not.

  3. During times of universal deceit, telling the truth becomes a revolutionary act.
    G Orwell

  4. We are not among the 98%. We are not the brained washed, pharm drugged, delusional sheeple. Those people will suffer greatly and probably die off. They trusted the liars.

    We are the informed and we are prepped and ready.

    Thanks in part to The Depression Blog. Thanks.

  5. 7:38 Ever hear the old adage that's like pissing in the Atlantic and waiting to see it rise?
    If you eliminated EVERY dog and EVERY cat that EVER walked this planet - it WOULD NOT reduce
    CO2 by any MEASURABLE amount - that is to say
    you could NOT read the percentage difference by any known means

    Also - if you want to pick on something and be a greenie ------

    Replant the rainforest - EVERY leafing tree is capable of filtering over 5,000 lbs of carbon
    in it's lifetime

    Now; your getting somewhere

  6. Get rid of the Cats and welcome more Rats

  7. Please, no more rats. D.C. is a weiner infested rat hole.

  8. 4:35 No shit! Fucking people need to think!
    Sonofabitch people are really dumbr than a box of rocks no shit they are.

    On one hand you have cat; on the worthlessness
    scale of 1-10 I'd give it about an 99 - on the
    other hand you have a tree of amazing vartiety
    that; in addition to it's carbon nuetrality
    properties ; gives us so many other things like
    fruit and nuts and flowers and bark and resins and lumber and shakes and ropes and twines and tannins and glues and rubber and on and on and on.

    And some fucking people want to focus on dogs and cats?

    I got an idea- lets have June 24th as worldwide dog and cat tasting day - everyone get one on a spit and we'll go around and taste test and after we're done we'll do something of actual importance - walk to Brazil and replant a tree
    cause the stupid bastards burn them down for goat pasture

    Now goats mind you -= that's another discussion

  9. " Add the 2% real return we believe investors expect, and you get 10-year Treasury bonds yielding 8.8%."

    Treasury yields will never get that high. Even a modest correction in yield (higher) would result in deflation. CPI is running high because of money printing and very low rates. If rates moved up, people would cut back on spending and borrowing. Causing demand for good and services to decline.

    I suspect that we will have another brief period of deflation, until Congress passes another stimulus and the Fed starts QE3 or QE3-Lite.

    FYI: 10-yr treasury yield peaks

    1981 - 15.3%
    1989 - 9.26%
    2000 - 6.26%
    2007 - 5.00%

    Can you spot the trend? At each Peak, the economy fell into a recession. Based upon the trend, the 10 yr would peak around 4% before the economy falls back (into a worse recession\depression). For the past 3 years, the 10 Yr has been bouncing around 3% and change. The decline in 10-yr yields probably has a lot to do with the declining return on investments per dollar of borrowed. I believe it was in late 2009 or 2010 that for every dollar borrowed, less then a dollar was earned in investment returned.


Everyone is encouraged to participate with civilized comments.