At the time, I wasn't watching Al Jazeera English but there was a gentleman who had also noticed. Here's his report from May of 2007.
Certainly, if I had saw this then I would have made the connection. But I didn't.
Max Keiser, the reporter in this report, was in Iceland 4 months later. He was reporting on something called a "Carry Trade", investors and funds borrowing money from a country with low interest rates and then investing the money in another country with a higher rate of return. He correctly predicted this couldn't go on forever, if a currency lost it's value the deal could be a bust.... and he was right. What's even more astounding was he went to the head of the bank in Iceland to question them about the very risk that would sink the country financially... only months later.
At the beginning of the second video Max mentions the level of debt and the term..."unwinding" and thus we zoom back to today. Just as in Japan and Switzerland in 2007, our country's central bank has engineered very low interest rates... Much of this money is quickly being borrowed at 0% and then turned around into Treasury Bonds paying 3-4%. These are assets. A positive cash flow. However, if the dollar begins to lose value and inflation begins to eat up that interest it could very well become another liability. Subsequently... just like Max's reference to living next to the volcano... their is a risk in what would seemingly be sure bet. There isn't the currency exchange problem but there is a purchasing power problem. The value of the dollar. If it starts to drop quickly or the perception is that it will drop quickly, investors will want to quickly get out. To keep investors in... interests rates, in effect will have to rise.
And just like in Europe, with Greece, Ireland, Spain and others... as the interest rate rises on the huge amount of debt the inability to pay becomes obvious and the only solution is bankruptcy or bailout. However, in the US, what is even worse for our current situation is that the money loaned at 0% has been backed by non-existent assets such as sub-prime mortgages that were accepted at face value by the Fed. They may be only worth pennies on the dollar. Tack that onto bonds that could potentially be worthless and all the sudden what the Fed... and much of the financial industry is holding could very well be worthless.
In the past month or so the Federal Reserve announced it's intentions to buy into this market. Which, with more demand for Treasury bills, should have driven interest rates down lower... but what has happen in the last few weeks has been a dramatic rise. From less than 3% to about 3.5%. In other words, as the Fed buys in... others are selling out. I would assume these are the smart players... or the connected whose tracks were to be covered by the Fed's actions.
Treasury Yield Curve for December
This isn't Keiser but this was just a few days ago. Peter Schiff was on top of the dot com bust, the sub prime bust and he's now calling the bond bubble.
The following graph should give everyone some pause. The Keynesian theory of using the government's power to go into debt in a economic downturn to boost demand has lost it's value. Adding additional debt is actually retarding productivity. This is obviously something our government has never encountered. And a sign the the Federal Reserve is at the end of it's rope.
Just to be clear, regardless of what happens, the sun will come up tomorrow. It's only money... and it might just be time to reexamine what are the things that are most important. If one looks deep enough, it's not the money that matters, it's the things that the money represented to us. Safety, security, respect, peace of mind... these can all be achieved without money and if you would like to know more about how... stay tuned!
****Update****
Monkey business in the bond market
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