My Comment : Rising rates would risk bursting the bubbles.
Excerpt: The US government can’t afford rising rates. And it certainly can’t have the Fed tapering its bond purchases. In fact, I would argue Uncle Sam is going to need the Fed to step up its quantitative easing in order to monetize the additional borrowing that’s looming in the future. Biden and his fellow Democrats in Congress can pretend that all of this proposed spending will be paid for by tax hikes, but they are living in fantasy land. The government will pay for Biden’s infrastructure plan and the “American Families Plan” the same way it paid for all of the coronavirus stimulus spending.
It will sell bonds.
That means the Fed will have to keep buying bonds with money printed out of thin air in order to keep the bond market from completely imploding.
Earlier this week, the Treasury Department upped the amount of money it plans to borrow in the second quarter. And not just by a little bit. In February, the Treasury projected borrowing in Q2 would come in at a relatively modest $95 billion. The new estimate for second-quarter borrowing is $463 billion. Then, in Q3, Uncle Same will nearly double that, with estimated borrowing of $821 billion.
And I guarantee you there will be more borrowing after that. That’s the only way the government can feed these ballooning deficits.
The borrowing and spending tell you all you need to know about the trajectory of interest rates. They’re staying right where they are – inflation be damned. In fact, both Powell and Yellen have cited low interest rates as the reason the government can make all of these “investments” in the economy.
The Fed is boxed into a corner. Powell knows it. Yellen knows it. But give them props – they are putting on quite a show trying to assure us everything is fine to keep the markets calm. It reminds me a little bit of the orchestra playing as the Titanic sinks.
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