Are you like Ben Bernanke, scratching your beard while trying to figure out why quantitative easing isn’t working?
It should be straightforward, right? You buy bonds heavily, you push the yields down.
But it just doesn’t work, because the fact that you’re printing and borrowing to buy these debts is just a signal that you’re not all that good for your money.
The Pragmatic Capitalist explains:
Treasury yields have surged since the Fed officially began their quantitative easing program in the middle of March. Of course, the U.S. government believes they can eliminate a debt problem by creating more debt (brilliant, huh?). They’re seeing the direct effects of their money printing strategy as investors around the globe pile out of U.S. treasuries as a result of the U.S. government’s total disregard for its own currency. We’ve been saying it for a year – you can’t solve a debt crisis with more debt. Consumer debt based de-leveraging recessions aren’t your average recessions that can be solved with lower rates and a printing press. The Obama administration is playing a very dangerous game of chicken here with the bond market. I doubt the bond market will lose – as it rarely does.
Stocks are tanking as yields soar and commodity prices jump. Exactly what global consumers need: higher raw material prices, stagnant wages and more expensive money.
In the end, we have a horribly schizophrenic attitude towards debt and leverage right now.
We want banks to lend (more leverage), but we want to limit credit card companies (less leverage).
Barack Obama said today that we have to get off the boom/bust cycle of living off debt (less leverage) but that loans are at the core of the American dream (the ability to buy cars, education and houses).
More generally, our attitude has been, as noted above, that the answer to the leverage and debt crisis is more leverage and debt at both the Fed and through the government’s deficit.
Right now, the bond market is betting against our confused, mixed messages, saying they won’t work.
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