Friday, February 4, 2011

Rate Rises Cometh

With respect to technical analysis of markets, break outs above or below long standing (or even short term) trend lines are not to be trusted until a successful re-test of said trend line occurs, however, at present, the long bond chart has, at least by my runes, signaled a major trend change by breaking out above the upper trend line of a decades long bull market in bonds.

If one is inclined to follow the utterances of certain monetary authorities and their mainstream media minions, the action in long rates of late is the result of an expected incipient rebound in the economy. If, on the other hand, one subscribes to the well buttressed argument of persons like former Reagan budget honcho
David Stockman, the implications of the recent action in the long bond are decidedly less than pleasant to put it mildly. Long (bond) story short, the ability of the U.S. government to fund its epic profligacy is going to come under considerable constraint in the not too distant future. I hasten to add that the ominous rise in rates is also a function of the market sussing out that the debt ceiling is going to be raised, yet again. In any event, the action in bonds spells trouble of the not to be deferred for much longer sort.

As the time I have to devote to this humble blog is limited presently, a further discussion of this development will have to wait until next week.


Anonymous said...

I don't know how long they can keep this ponzi scheme going. Soon there won't be any suckers left from whom to borrow, and they'll have to just print.

Meanwhile I just wrote up a post on rejecting all taxation. If we could make it politically impossible for the government to sufficiently tax (which would just be the extension of the political trend since the 70s) at the same time it was already becoming borrowing-constrained, that could help weaken the system.

Edwardo said...

To say eliminating taxation would weaken the system seems to me a vast understatement. Eliminating taxation wouldn't just implode the bond market, it would destroy the currency regime since-and this is where the MMT proponents are correct-there would, literally, be no need for FRNs in any form, digital or cash. Taxation, as you know, necessitates usage. It can't be an accident that the 16th Amendment was passed the same year that the Federal Reserve was created.

With the tax system eliminated all other transactions, personal, commercial, etc. outside of taxation, could be settled in other currency-currency being broadly defined.

I don't see how taxation won't be, isn't being, de-facto, if not de-jure, destroyed, since, there is less and less, year over year, to tax as the economy-despite bogus official numbers-the labor participation rate continues to collapse, which puts the lie to the unemployment numbers-continues to steadily deteriorate. So long tax dollars.

A proper run on the dollar is as close to certain as possible, and though I have my ideas, I just don't know when it will happen or what precisely will be the catalysts. In the meantime, a spike in interest may be about to open Pandora's Box.