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For the Love of Money Is the Root of All Evil
The $500 Billion FDIC credit-line from Congress could disappear in the twinkling of Charlie Rangel or Nancy Pelosi’s eye if they feel their re-election is at risk.
Thus, we think the biggest bubble yet may be in US Treasuries.
Treasuries, already down 20% since last year, may be liable to fall further as what’s left from free capital markets demands higher interest rates to offset increasingly perceived default risks.
Talk about crowding out productive enterprise.
Treasury bank usury is in fact consuming the seed corn of the economy while most amateurs are still unaware and leaping into Treasury Notes and Bonds to get higher returns than 0% on T Bills, forgetting the risk jumping into longer maturities.
Treasury interest is the fourth largest item on the budget. Treasury interest may quadruple quickly if the partisan Congressional Budget Office is to be believed. Recall the CBO forecast $850 Billion budget surpluses each year from 2009 to 2012. 2009 was closer to a budget deficit of -$1.215 Trillion. Current budget forecasts assume a GDP growing 2.6% to 4.6% a year. So far we have not seen this for over two years, but hope springs eternal.
http://en.wikipedia.org/wiki/2010_United_States_federal_budget
http://www.bea.gov/newsreleases/national/gdp/2009/pdf/gdp3q09_3rd.pdf
Higher Treasury Note and Bond interest rates may not portend inflation, let alone hyperinflation, but more deflation and even hyperdeflation risk if we suffer additional significant government and mortgage defaults.
ARM Adjustable Rate Mortgages, Commercial Property, Credit Card and Mortgages teaser rates and other debt contracts may foreclose or reset as governments run out of tax revenues or credit for future bailouts, despite 65% increases in fees like DMV in California.
Blackrock still claims the majority of Municipal Bonds will not default. BLK suggest state and local governments will cut spending and rely on Federal Aid. BLK do admit Florida, Michigan, Nevada and New York municipalities saw defaults, but still see opportunities in Muni’s.
http://www.financial-planning.com/news/-2665258-1.html?zkPrintable=true
