Saturday, May 23, 2009

As the Fear Subsides, the Real Crash Begins

Treasury Secretary Geithner said it himself, yesterday. The rise in yields on Treasury securities this year “is a sign that things are improving” and that “there is a little less acute concern about the depth of the recession.”

The recession resulted in a flight to "quality", i. e., dollar denominated Treasury securities. This flight halted a declining dollar and concern about the ability of the Treasury to raise funds at reasonable rates. Now that the recession is winding down, the flight to "quality" is reversing, and the trends for the dollar and Treasury securities are headed down again, and this time they will get an added push from the $800 billion in new money (M2) that Fed chairman Bernanke has created since January 2008.

What will all this mean:

A crashing dollar.

A crashing bond market.

Huge inflation down the road.

It's not going to be pretty.

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