Funding the bubble before it bursts

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marco krapels's picture
marco krapels
Status: Member (Offline)
Joined: Jul 22 2009
Posts: 1
Funding the bubble before it bursts

Dear Chris,

While I may share your vision that a collapse of the US economy as we know it is ultimately inevitable, I believe your audience would benefit from being able to monitor certain "trigger events".

The US economy is largely driven by the availability of credit.  When credit from traditional sources (bank, credit unions, etc) is cut off, we depend on Government spending (and borrowing) to fill the gap.  That's the situation we are in now.   As long as the US Government is able to fund this "deficit spending" by re-issuing US Treasuries at an affordable rate, the situation as we know it may persist for some time.  Therefore, I believe there are a few key indicators to follow (and my analysis zones in on US Treasury bond issues):

- US Treasury's department ability to refinance maturing US Treasury Bills in the marketplace (i.e. not placing them with the Fed but truly being able to place newly issued US Treasuries with 3rd party buyers - i.e. Chinese and Japanese Central Banks.

- Average duration of US Treasuries placed in the market and outstanding.  In other words:  The US may be able to successfully refinance (re-issue) a maturing 10 year note, however, if the maturing 10 year US note is refinanced with only a 1 year US Note, it implies that the market place will not accept long term US risk and, hence, only buys shorter dated bonds.  I think this may be evident now and it would be worthwhile for you to analyze the shortening average duration of US outstanding debt which may lead one to conclude that 3rd party investors are losing confidence in the US sovereign credit worthiness.

- The above trends may (and probably will) ultimately result in higher rates.   The US will need to pay up to refinance US Treasuries.  In fact, regardless of inflation, the risk premiums investors will ultimately demand may lead to the collapse of the US treasury bond and hence significantly increase the cost of capital in the US (inverse relationship bond price vs rate).  This will lead to sky rocketing mortgage rates because Fannie and Freddie can no longer fund their purchases of US conforming mortgages by relying on low rate issuances of US Treasuries.  This could be the beginning of the end.

In summary, for the benefit of your audience:

- monitor the average duration of US national debt (Treasuries)

- monitor significant rate increases in medium to long term US treasury bills.

significant movement in either of the above could be a predictor of very bad times to come.  When the US no longer can inflate the bubble by financing its own deficit spending, the party will be over.

Sincerely,

Marco Krapels

(brother-in-law of Lorna Hanes)

 

 

  

Thomas Hedin's picture
Thomas Hedin
Status: Platinum Member (Offline)
Joined: Jan 28 2009
Posts: 815
Re: Funding the bubble before it bursts

If the problem with the economy is to much interest bearing debt, then how about we introduce debt free money into circulation to destroy the principle plus the interest?

Cloudfire's picture
Cloudfire
Status: Diamond Member (Offline)
Joined: Sep 29 2008
Posts: 1813
Re: Funding the bubble before it bursts

 

Hi, Marco;

Welcome aboard! . . . Great first post, clearly stated . .  though, if I recall correctly, CM has been monitoring those parameters. 

Thanks for the analysis!

-- C1oudfire

 

Ready's picture
Ready
Status: Platinum Member (Offline)
Joined: Dec 30 2008
Posts: 917
Re: Funding the bubble before it bursts

Marco,

These issues are closely monitored, especially on the "In Session" threads, which are accessable via paid membership. If you are not a member, I highly suggest it. Well worth the price of admission and your thoughts on the topic would make good reading, especially as they are considered along with many of the other heavy hitters on the site, not the least of which is Chris Martenson.

Best,

Rog

admin's picture
admin
Status: Administrator (Offline)
Joined: May 6 2007
Posts: 346
Re: Funding the bubble before it bursts

Excellent point Rog.  Not only the In Session threads, but there are a few enrolled member-only Martenson Reports which talk specifically about key warning signs.

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