On Borrowed Time

Tyler Durden's picture

Authored by Tim Price via The Mises Institute,

There are a number of things you don’t want to hear a central banker say.

One of those things just popped out of Janet Yellen’s mouth – “I don’t believe we will see another financial crisis in our lifetime.” That has to be up there with Irving Fisher’s deathless observation from 17 October 1929 that "Stock prices have reached what looks like a permanently high plateau" or John Maynard Keynes’ comparably adept forecast from 1927 that "We will not have any more crashes in our time."

So far, so anecdotal. How about some data to back up the thesis that, as Thorstein Polleit puts it, the super bubble is in trouble ?

First, define your Super Bubble. We can do this in two ways. One relates to longevity (how long has the bull run lasted ?), the other to valuation (how expensive is the market now ?). The global bond bull began back in 1981, when 30 year US Treasury yields peaked at 15.2%. Now, over 35 years later, long bond yields are below 3%.

Polleit expresses it a little differently, citing the p/e ratio of bonds so that they might more fairly be compared to stocks. To calculate the p/e ratio of a government bond, he divides 1 by the 10 year government bond yield. His results are shown below.

Source: Thomson Financial / Thorstein Polleit

¹For bonds, calculated as 1 divided by the 10 year government bond yield

In his words,

You do not need to be a financial market wizard to see that especially bond markets have reached bubble territory: bond prices have become artificially inflated by central banks’ unprecedented monetary policies. For instance, the price-earnings-ratio for the US 10-year Treasury yield stands around 44, while the equivalent for the euro zone trades at 85. In other words, the investor has to wait 44 years (and 85 years, respectively) to recover the bonds’ purchasing price through coupon payments.

Meanwhile, however, the US Federal Reserve (Fed) keeps bringing up its borrowing rate; and even the European Central Bank (ECB) is now toying with the idea of putting an end to its expansionary policy sooner rather or later.

Those of us who are hostile to central planning are doubly hostile to governmental interference in the price mechanism, which is what the misguided policies of QE and ZIRP effectively are. The definitive text on this topic is Forty Centuries of Wage and Price Controls

Spoiler alert: government attempts to rig prices always fail, sometimes catastrophically.

The problem facing the likes of Janet Yellen, Mark Carney [makes sign of the cross and looks urgently for garlic] and Mario Draghi is that, having now weaponized short term lending rates, the nukes can’t be put back in their silos.

How can interest rates be raised meaningfully above zero without crashing the financial system ? Perhaps they can’t. Perhaps unelected monetary bureaucrats should never have been allowed to take them there in the first place. But we are where we are. Any commentary surrounding monetary policy can now only echo that tired old joke about the lost traveller who, when seeking advice, is told that he shouldn’t start from here.

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Ghost of PartysOver's picture

"It will be different this time."  Words only uttered by narcissistic delusional fools.

AltRightGirl's picture

Seems to me that more and more economists are in their positions thanks to affirmative action.

What better Ponzi scheme than a joo at the helm and plenty of chimps below him.

Of Monkeys and Men: The Evidence about Race and Intelligence

HillaryOdor's picture

Yay we've got the 4th Reich flooding every article's comments sections throwing out baseless claims that it's somehow the fault of Jews everywhere that Americans are stupid enough to believe in good government.   Good work guys.  I'm sure you turned a few people away from ZH at least.  I hope your handlers are paying you well for that.

blueyefinity@yahoo.com's picture

The kik3ness is strong with this one.


Haus-Targaryen's picture

Just FYI - Illustrating the habitual financial crimes committed by people of the Jewish faith does not an Anti-Semite make. 

You can criticize Jews without being an Anti-Semite.  

Pull your head out of your/(((their))) ass

HillaryOdor's picture

Right.  Because ideas don't matter.  What matters is the ethnicity or religion of the people running things, the people we ALLOWED to run things because of the stupid ideas we collectively accepted.  Got it.  Thanks for clearing that up.  Heil Hitler!

CH1's picture

HO: You're entirely correct, the comment boards here are polluted. I've noted it to Tyler numberous times and he/they do nothing. (At some point you have to wonder if he/they like it).

But in any case, I avoid sending ZH links to people, knowing that along with a good article, I'm also splashing them with shit.

Too bad... this place could be special. Instead, it's a sewer with some good stuff floating on top.

Ah well...

ZH Snob's picture

sorry, but this forum is for grown-ups, not snowflakes.  you'll find no safe space here (thank God).

CH1's picture

Hey, some morons like living in a shit stream. ENJOY!

TeaClipper's picture

Welcone, this is where you learn what free speech really means, its the very reason we are here. If you cannot deal with free speech without having to run to teacher then this site is not for you. Try Joobook or twitter, they love censorship. We do not.

CH1's picture

Been here a lot longer than you, kid.

5 to 1 says you work for a Jew... and steal from him.

TeaClipper's picture

Ahh a slow learner. That explains the pavement ape avatar

oldguyonBMXbike's picture

Thank you for those wise words uncle Jewenstein!

Angry White Guy's picture

I can't hear you.  You need to remove the Jewish dick in your mouth.

Xena fobe's picture

Yes, it's actually the damned Amish occupying powerful positions in finance and through corruption, government. 

Good governance does not result in extreme inequality.  Good governance does not result in populations divided against each other.  Good governance does not result in debt and inflation eating away at savings.  Good governance does not result in market bubbles.

HillaryOdor's picture

Good governance does not exist, not from Jews, not from Gentiles.  But keep chasing that unicorn.  I'm sure you'll always have some ethnic group to blame for all the troubles that you inflicted on yourself with your stupid ideas that government can ever do anything well.

It's like saying good communist, good socialism, or good cancer.  You want to keep it as small as possible at all times.  Good government is a fantasy that results from a degenerate culture, thus the current state of affairs.

vega113's picture

So, what's your solution to the current economical problems? Send all jews to concentration camp?
Then all world problems will be solved? Central Bankers will stop manipulate and the 1% will distribute the wealth back to the poor?
Really, what do you suggest?

ZH Snob's picture

more debasement, more debasement! 

we can't crash this shit show soon enough for me.

J S Bach's picture

End the counterfeiting Fed.

wisehiney's picture

Music to my ears.

Dey about to end dey selfs.

ZH Snob's picture

taking offense at counterfeiting implies you find value in the dollar they print.   I don't.

wisehiney's picture

You, you, you.

Yo mama too.

And yo daddy.

Quit trying to scare the citizens away from treasury bonds.

You shill cocksucker, you.

buzzsaw99's picture

How can interest rates be raised meaningfully above zero without crashing the financial system ? Perhaps they can’t...

this demonstrates the fucktardedness of the author in several ways.  first, raising the overnight does nothing.  the trash is all sitting on the central banks' ledger sheets. second, he asks and answers his own dumb ass question which should go like this:  How can the usa, eu, or japan long bond be allowed to crater without crashing the financial system?  The answer isn't "perhaps" bitchez, that much is sure.

Max Damage's picture

How can you raise rates when you have trippled the debt? simple maths. Bankers have fucked the system through pure unadulterated greed. I believe somebody named Hitler pointed that out in the 1930's

CPL's picture

Yes, using the fiat banking scheme developed by jews, their own people.  The jews made their own hell in inches and their own poison pill will be shoved down their collective throats until all 4.8 quadrillion dollars in shadow/derivative debt is paid in full.

NYC_Rocks's picture

To be more specific, the central bankers are to blame because they don't let the free markets to the work more efficiently.  Taking it a step further, actually we the people are to blame because we let our politicians create a central bank in 1913.  Yes, the bankers hyjacked the system,b ut ultimately government gave them that power.  So I blame the govt.  The federal reserve act is the source of the Fed's monopoly power.  It is not private.  This is a fact.

OverTheHedge's picture

If we assume that the Fed is just one of a number of tools to be used, then you need to look further afield for what might happen, and why. According to Varufakis, Volker hiked interest rates through the roof in order to attract, and therefore recirculate, dollars sent abroad. The other part of this system was to systematically cripple wage growth, by offshoring, wage arbitrage, and any other technique to keep wages flat. Not saying this is the truth of the matter, just a theory. However, when it comes to what the Fed does next, it might not be in the logical best interest of either the home economy, or the world economy, but will be to keep the system teetering for a bit longer.

As a complete bystander, I expect a market wobble, followed by a gold wobble, as people scramble for.margin. What happens next, is anyone's guess, but the deflation then hyperinflation looks to be a good bet. I also expect hyperinflation to be a lot less hyper than Zimbabwe, but for.longer -  20% per annum for year after year does the.same job, but the boiled frogs might not hop. So that is my current thesis, but it is all predicated on the SNB not buying every asset in the universe.

[Standard disclaimer - I am usually wrong about most things.....]

ElTerco's picture

We've been here before, right after WWII:


We solved the problem fairly quickly by temporarily raising taxes on the wealthy. It's not rocket science. It's very simple, actually. It just requires some balls, aka a willingness by Congress to work for the good of America as a whole rather than just their plutocratic masters.

Peacefulwarrior's picture

So theoretically if the Bond market eventually implodes, where does the energy release go? Equities?

oldguyonBMXbike's picture

Just like a jihadi, it goes to Heaven and is rewarded with 99 virgins.

XAU XAG's picture

After a crash in Equities and gold

The energy will go into

The Dow




Don't forget much money will flow in from outside the US

Break_the_Bank's picture

Pushing P/Es to even more extreme levels. 

In my opinion we have been seeing a flight to cryptos, representing a safe haven not found in precious metals today. 

Five Star's picture

Meanwhile the biggest buyers of bonds in the world (the Fed and ECB) and the declared reason why yields are ao low are talking about no longer buying bonds.

Let's see the bond bubble survive that


Dutch1206's picture

Yellen drinking her own kool-aid.  Looks like someone spiked it with a bottle of 151.

Silver Savior's picture

I would gladly make trades in junk silver when the time comes but I will really want to have the item if I am going to part with any of it. I think of that stuff as being better than gold.

Jethro's picture

We've been on borrowed time for at least a decade now.  Bush was bad, but Chalky doubled down, and made things even worse----but math is always a weak spot with socialists. The problem is, the system can remain solvent for far longer than we can by betting against it.

Central bankers and politicians inavariably seem to be completely incapable of understanding the value of money (ostensibly because they never have to actually earn it---it is just this abstract thing that they can manipulate for their own ends). 

oldguyonBMXbike's picture

Yes, it's true name is mathemagics. Math is the art of manipulating numerical representations on paper in order to steal real life physical resources and labor.

The_Central_Scrutinizer's picture

Deutschmark Uber Alles

Seig Heil NWO

OverTheHedge's picture

Presupposes that there will be customers for Germany's 50%GDP as export economy. Glad I'm not a German worker - looks like quite a lot of downward wage pressure coming

shinobi-7's picture

But isn't putting an end to its expansionary policy more or less the same as raising rates: Almost impossible from where we stand right now? This would have an extreme deflationnary effect and would bankrupt the system. Needless to say, governments would quickly convince the central banks that this is a very bad idea indeed. So most likely this will end up just as "raising rates" a lot of talks and no action. The only way out of the current conundrum is inflation to reduce relative debt. But how do you do that without running into hyper-inflation? If only they knew!

Thorny Xi's picture

Post 2009 machine traders vs pre 2009 human traders. She might be right about the machine market simulation that passes as a market now.