I think most realize Bernanke has no choice except to monetize. The trouble is all on the "income statement" of US gov't. There aren't enough buyers for the gargantuan monthly debt issuance, so Treasuries are bought by the Fed and it accumulates on the balance sheet as debt. This scheme will work for a while longer if the dollar holds up and interest stay at or near ZIRP. Eventually the bond market will balk, and a crisis will erupt.
Piezoe is old enough that all he really cares about are the next few years. Just like the majority of the AARP crowd, it's all about "where's mine"...to hell with the consequences.
I agree with your assessment in the main. As you say, there are not enough buyers at these low rates without Fed participation, but at higher rates there will be more buyers. The purpose of QE, among other things, is to allow Treasury borrowing without upward pressure on interest rates. QE should not go on if the other buyers of government debt at these low rates dry up completely-- that will be a sure sign of trouble-- or if serious inflation kicks in. So I don't expect rates to have to rise as long as QE can be kept up. I think it will be inflation rather than interest rates that signal when QE must be reined in. Some debt, barring a miraculous improvement in productivity, will undoubtedly be monetized. There will be, already is, some significant inflation. But the government is definitely following the right course of action. The level of private debt is three times that of government debt. When the private sector deleverages the government must pick up the slack, otherwise it will be the 1930's all over again. The level of government debt is high, but so far not too high. There is room for it to go higher still. The most serious problem going forward, in my opinion, is slow disappearance of the middle class. If this trend can be reversed, and if medical and military costs can be reduced to fall in line with those of the other industrialized nations, the U.S. should do just fine. Otherwise the long range outlook is, as Dick Button said of the Olympic skater who fell four times, less than good.
This is about as close as you'll ever see to a Keynesian admitting they were wrong with their first assessment, so I'll take what I can get from someone like yourself. True, we don't know the exact dollar amount of the printing. But we do know it is unprecedented and in the hundreds of billions, probably trillions. As for the value of the currency vis-a-vis others, do 10 or 20 year charts and see how that is working out. Don't be fooled by the dollar index, which heavily weights the Euro (a union which is in dire straights). Just look at gold. Or any commodity.
Tsk tsk. And you were showing such promise. Of course there aren't enough buyers with rates this low without the Fed. Investors demand return relative with the risk they are taking on. Yes, yes, the old line about how the US government is not a risky investment. Let's ignore that this is outdated, incorrect wisdom in our times, and say the true risk is the inflation - that is the true enemy of the bond investor. Why the hell would an investor purchase a 10 year bond at 1.9% when he believes inflation is going to be running 3%+ in the next decade?? And enabling politicians to spend recklessly with impunity. This is not something that is healthy, or in the best interest of the country. Pray tell, how will you be able to determine if other buyers of government debt dries up completely, when the 21 primary dealers are forced to continue to buy from the Treasury in order to maintain their primary dealer status? Since they represent the largest banks in the world, what you're suggesting is that you'd be able to hear the pitch change in someone's whistling despite the stadium of people shouting in the "background". Folly. So your answer to a debt problem is more debt? You folks are priceless. Deleveraging is going to happen whether or not you, or Ben Bernanke, wants it to. The level of debt and credit is simply not sustainable in the long run. Not without ridiculously high inflation. The game is over, my friend. It's just about the math - and math doesn't care what political affiliation you hold. The longer you postpone the day of reckoning, the worse it will be. Paging Dr. Krugman! It's over 100% of GDP now. How high did you want it to go again? Yeah, and why do you think this is? You just said the government has to pick up the debt when the private sector deleverages. Great, and who do you think has to pay for that debt? The Middle Class bears the brunt of that, Mr. Wizard! They are the ones who will be taxed (over taxed actually). They are the ones whose wealth will be eroded by inflation. They are the ones who will suffer most from loss of jobs when companies look for greener pastures, and investors take their money elsewhere. You really need to wake up.
+100 Great Job ,too bad it takes a whole paragraph per clause to debunk the folly of toothfairy economics.
Exclusive: DoubleLine's Gundlach shifts gears, now buys U.S. bonds By Jennifer Ablan LOS ANGELES | Mon Mar 4, 2013 3:53pm EST "(Reuters) - Jeffrey Gundlach, one of the world's leading bond fund managers, has reversed his once-bearish stance on government debt, saying he has bought "more long-term Treasuries in the last month" than in the last four years. "Gundlach said he started buying benchmark 10-year U.S. Treasury notes in the last month after yields popped above 2 percent, because he sees value there relative to other asset classes, including stocks, which he said are "overbought." "I bought more long-term Treasuries in the last month than I've bought in four years. I am a fan of Treasuries now. I wasn't a fan of Treasuries in July," said Gundlach, chief investment officer and chief executive officer of DoubleLine Capital. "His Los Angeles firm manages $56 billion in assets. "Gundlach's views are a change in tune from July, when he correctly predicted that government bonds could be at a peak in price. Ten-year notes were then yielding 1.48 percent, within striking distance of the 1.44 percent level touched in the previous month, the lowest going back to the early 1800s, based on data gathered by Reuters. "They looked cheap at a yield above 2 percent, compared to certain riskier assets, which had gone up in price over the last six months while Treasury prices fell," he said. "Also, owning 10-year Treasuries at yields above 2 percent provides an offset to credit risk we are taking elsewhere in the portfolio." "So far, Gundlach's call is proving correct as 10-year Treasury bond yields dropped below 2 percent to yield 1.87 percent on Monday. "The investor, who was dubbed by Barron's as the new "King of Bonds" two years ago, said he thinks the recent rally in stocks, which last week drove the Dow Jones industrial average within 75 points of its record close of 14,164.53, has gone too far. "They are obviously overbought in the short term," he said. "Gundlach, known for his contrarian investment views and opinions, also shorted Apple at $610 last year and predicted that the tech giant's stock would fall to $425. On Monday, Apple's stock was trading at around $423. "He also said the U.S. economy would have no growth without central bank action. "It's pretty clear that the Bank of Japan, Bank of England, the ECB and the Federal Reserve have expanded their balance sheets by approximately 3.5 percent of GDP per year for the last four years - and if it weren't for that, you'd have negative GDP." "Gundlach's DoubleLine Total Return Fund returned 9.16 percent in 2012 â more than double than the benchmark Barclays U.S. Aggregate Bond Total Return USD index at 4.215 percent. "Treasuries have outperformed riskier credit since the 10-year yield hit 2 percent. One way of illustrating this would be to look at the performance of the iShares Barclays 10- to 20-year exchange-traded fund (TLH.P), which tracks longer-dated Treasuries, against riskier junk bonds. "Since 10-year yields popped above 2 percent in late January, it has outperformed the iShares iBoxx $HY ETF (HYG.P), a popular ETF focused on high-yield bonds. A strategy of buying the TLH and shorting the HYG would have gained 2.1 percent. STILL SHORTING THE YEN "Gundlach said he remains short the Japanese yen and long the Japanese stock market because he believes Japan will pursue aggressive currency debasement in its effort to stimulate the economy. "They are going to debase the currency and people even want them to debase the currency," Gundlach said. "Their own country wants inflation. "Can you imagine Barack Obama or Mitt Romney wandering around the United States, saying, âI'm going to inflate. I want to inflate. My policy is inflation.' They want to counter deflation, but they don't talk about it. The prime minister of Japan says, âI want to inflate' and people said âYay,' so they're going to inflate. The yen is going down." The yen, trading at 93 to the dollar, is "of course" headed toward 100. "I think it is going to 200" yen to the dollar, he said. "For its part, he said the Nikkei .N225, already at around 11,650, is on its way to 13,000. "He first introduced his Japan idea in December. "Aside from the Japanese yen, Gundlach is also avoiding European debt. "I'm not interested in buying into the idea that central planners in Europe are really going to save the world," he said. "I'm not going to be stuck holding the bag with Spanish bonds. I don't care if somebody makes money on it. It is just not for me. It is also not analyzable." (Reporting by Jennifer Ablan; Editing by David Gaffen and Jan Paschal)
Yeah, duh. He's buying them because he thinks equities have lost their mind (which they have) and that a significant, if not drastic, correction is on the cards. That's what savvy investors do - they buy bonds when equities are overpriced, and vice versa when equities are under valued. This is more a lack of options than anything else. As for Japan, pay attention - because they are merely living out the final death throes of what we will eventually go down. They started QE a decade earlier than us. They have a head start.
Yes, but it's important to make the distinction that it's relative safety. It's like being the tallest midget. Equities are over valued. Euro debt is way too risky given the peripheral countries. Japan has gone where no man has gone before (but we will eventually). Commodities are in a bubble. There is simply no asset class that offers the liquidity depth that Treasuries do. Hell, the guys says all of this in the article. Even Gross at Pimco has said he buys treasuries, simply because everything else is "far worse". This doesn't mean Quantitative Easing is a good thing, and your article is certainly not support for it. If anything, you are supporting my argument further. The Federal Reserve has distorted ALL asset classes with QE.