* US 10 year Treasury a yield of about 2% is totally artificial. It’s the result of massive purchases by not only the Fed but all of the other central banks of the world.
* It doesn’t come out of savings. It’s made up money. It’s printing press money. When the Fed buys $5 billion worth of bonds this morning, which it’s doing periodically, it simply deposits $5 billion in the bank accounts of the eight dealers they buy the bonds from.
* At some point confidence is lost, and people don’t want to own the (Treasury) paper. I mean why in the world, when the inflation rate has been 2.5% for the last 15 years, would you want to own a five-year note today at 80 basis points (0.8%)?
If the central banks ever stop buying, or actually begin to reduce their totally bloated, abnormal, freakishly large balance sheets, all of these speculators are going to sell their bonds in a heartbeat.
Stockman prescription to fix the economy.
A: We have to eat our broccoli for a good period of time. And that means our taxes are going to go up on everybody, not just the rich. It means that we have to stop subsidizing debt by getting a sane set of people back in charge of the Fed, getting interest rates back to some kind of level that reflects the risk of holding debt over time. I think the federal funds rate ought to be 3% or 4%. (It is zero to 0.25%.) I mean, that’s normal in an economy with inflation at 2% or 3%.
Money is fast losing favor. The bankers that control it have completely lost peoples’ trust and the governments that print it are fast losing what credibility they ever had, leaving the barbaric metal looking practically angelic in comparison with the suppurating Babylon that fiat money has become associated with.
The price of gold may rise to US$5,000 an ounce just because the value of the dollar might halve in the coming few years. If the U.S. government decides to rein in the real value of its titanic debt by inflating it away at 5-10% a year then gold could cruise to $5,000 an ounce this decade without the need of the kind of vertical price spike I’m expecting.
In my model, commodities are prone to bubbles. The price curves of commodities are prone to exponential rises at various times. Historical charts of commodities are littered with such ‘rocket launches’ and in the 1970’s pretty much every commodity had these periods of exploding prices, two, or even three times in the course of a few short years.