With deflation, extant interest rates are more valuable to the lender and crushing to the debtor.
+1 this is why i don't think bankers let HT happen.
I've just finished Adam Fergusson's 1975 book on Weimar Germany, Austria and Hungarian HT. The parallels are alarming and the US is not at war to the extent of WWI and German's reparations, though current US military budget approaches Germany's debt to Versailles relative to GDP. However, as has been pointed out various times in this thread, higher aggregates will evaporate in our economy, which was not possible in the Axis economies. Paper money just kept piling up.
you're developing the proper perspective. this is exactly why the Weimar marks just given to me are STILL worthless after all these years and despite the age. those paper marks were not debt and could never be cleared from the economy thru default. USD debt however is vaporizing as we speak decreasing the amt of virtual USD's.
What we are seeing and I think will continue to see are larger and larger bubbles and busts. Investors will be scrambling from one volatile market to another. The dollar is strong, and the UST are selling like hot cakes, in my opinion because it's the only game in town. Europe is not credit worthy at any interest rate and Asia (and everyone for that matter) is depreciating their currencies to prop up exports. In this environment the US can get away with issuing more bonds while lowering its interest rates by buying them with new dollars. The inflationary risk of UST is stifled by the massive flight from the euro.
Catch me please if and where my logic is unsound.
this is correct. Fed manipulations lead to extreme bubbles/busts. gold is at an extreme and will crash. USD short interest is at an extreme and will skyrocket. the interest on the short end of the yield curve is now
negative! investors are now paying for the privilege of buying UST debt. why? b/c it is the most liquid mkt of all. gold bullion IMO is the most illiquid mkt.
gold bulls are making a big deal about Operation Twist and how the extra liquidity is going to drive gold much much higher. price action tells us differently in fact, i invoke Antal Feketes paradox; the mere fact that the speculative players know that the Fed will be entering the long end of the mkt encourages them to front run and buy more UST's at lower prices to then flip them to the Fed and American taxpayer. hows that for a paradox and non linear thinking? this will just make matters worse for the general economy b/c the gov't UST mkt is acting like a huge black hole vortex sucking all capital into itself thus killing business and the real economy.
The US has created a very risky but profitable scenario. They will continue to issue bonds, indeed they must as long as the budget is unbalanced, and can keep the rates low by buying many of them back with new M0, thus slowing down the appreciation of the dollar which will be applauded by the US export industry, workers, and politicians. I don't see what would pop this transparent ponzi bubble. As long as the USD appreciates against gold, money will continue to flood in to the US, interest rates for many foreign bonds will increase until default, which will pump UST even more.
What possible scenarios would decrease demand for UST and what would force the interest rate up?
precisely the dynamic you espoused above; the bottoming out of the impending bust cycle when the Fed and gov't will be forced at the bottom to print even more and thus cause a HT. but this will take about 5 yrs before we get there.
i was listening to FSO and the Ryan Puplava interview on the way into work this AM. he said that the scramble for USD's is so intense that banks are now lending out their gold to get ahold of USD's. how's that for a brain twister? THIS is how bad the USD crunch is. you see it all over the headlines now with CB's having to coordinate to provide USD liquidity. problem is they can't do it and they don't really want to do it. they want to save the USD.
in fact this gold lending will eventually lead to gold selling as i predict.
also the famous Volcker quote that the CB's failed back in the 1970's to "suppress the price of gold" as being a mistake. why can't the gold bulls take that statement for what it is? what it is is a lesson to CB's to never let that happen again b/c they lost a lot of money in the HT of the 1970's. this time they won't let it happen again. what ever happened to the accepted theory that the Fed used the gold price as a warning sign that their profligate activities were getting out of hand? everyone assumes they've forgotten that tenet but i say they haven't.