Guest Post: QE And The “Crowding Out” Of The Bond Market Vigilante

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Fri, 09/30/2011 - 04:48 | 1725018 props2009
props2009's picture

What is scary is yield expansion for Chinese bonds and chinese CDS and German CDS all of which has started to rise to 3year highs.

Fri, 09/30/2011 - 04:49 | 1725019 Motley Fool
Motley Fool's picture

This is bullish for ink and paper. :P

Fri, 09/30/2011 - 05:06 | 1725025 achmachat
achmachat's picture

and for everything "real" that has to be bought with an ever-expanding supply of Federal Reserve Notes!

Yesterday I was "reading" an old Duck Tales comic in which it is stated at least 5 times that only precious metals are real money. Incidently, that episode was about a stamp that's sooooo precious because there's only one of them in the world, that is until Donald finds an entire supply of it, hence making the stamp worthless. Perfect metaphor of the Federal Reserve Notes that keep losing value as they are printed and created out of thin air.

Nevertheless, today is an awesome day, as there's 165 troy ounces of beautiful shiny silver arriving in the afternoon to join the rest of the stash!

Fri, 09/30/2011 - 05:51 | 1725054 The Deleuzian
The Deleuzian's picture

I love those old Disney cartoons (way before my time but way ahead otherwise)...  There's many examples of this in modern numismatics...Morgan dollars that were $1000's of dollars in the 60's before the great Carson City and old school New Orleans Mint hordes were found... I personally know someone with a whole roll of the 1955 Double-Die Lincoln pennys ...Only goes to show.....

Fri, 09/30/2011 - 04:56 | 1725023 daily bread
daily bread's picture

Let's see, roles of the FED:

1. Does it buy most of the country's mortgage debt?  CHECK

2. Does it buy most of the country's public debt?  CHECK

What else can a "poor" money printer to do? I forecast:

3. Buying the last big chunk of private debt -- it will start to issue credit cards, bearish for VISA/MASTERCARD.

4. Buying the last big chunk of public debt, i.e. states/municipals.

Fri, 09/30/2011 - 04:59 | 1725024 Motley Fool
Motley Fool's picture

All your debt are belong to us?

Fri, 09/30/2011 - 05:12 | 1725031 Shirley Wilfahrt
Shirley Wilfahrt's picture

Prepare to be assimilated!

Fri, 09/30/2011 - 09:04 | 1725426 Downtoolong
Downtoolong's picture

Don't forget those student loans. Even living in your parent's basement won't pay those off if you can't get a job.

Fri, 09/30/2011 - 05:19 | 1725035 swissaustrian
swissaustrian's picture

This chart has a weimarian character...

Fri, 09/30/2011 - 05:27 | 1725041 The Deleuzian
The Deleuzian's picture

Looks to me from the bar graph above that the Federal Reserve is the Bond Market...To be honest...I don't even know what that means!  The repercussions from this is dangerous...One of those 'unknown unknowns' I suppose

Fri, 09/30/2011 - 06:48 | 1725121 Sri
Sri's picture

I agree that is one scary chart but isn't the objective of any QE is to force money that would have gone into government debt to go into a more productive arena to generate economic growth (you lower government interest rates to 0 and send those looking for return into other areas that need investment).  It looks like that money just went to prop up equity markets. 

Fri, 09/30/2011 - 08:59 | 1725405 Bastiat
Bastiat's picture

Another objective of QE is to buy the UST debt at unrealistic yields to keep the UST from going broke.

Fri, 09/30/2011 - 07:41 | 1725189 kahunabear
kahunabear's picture

Liar loans had pretty good rates at one time too. Markets are easily manipulated and not always efficient.

Fri, 09/30/2011 - 08:23 | 1725304 sbenard
sbenard's picture

Good article. Thank you!

It was interesting that Professor McKinnon makes the case that the Fed's ZIRP has suppressed the very economic activity it was intended to boost. I read his entire article, and it was very enlightening!

Fri, 09/30/2011 - 08:57 | 1725395 Bicycle Repairman
Bicycle Repairman's picture

"…the vigilantes have been crowded out by central banks the world over.  [see the yellow/red bars in the chart"

Bond vigilantes?  They were castrated long ago.

Fri, 09/30/2011 - 09:19 | 1725484 Belarus
Belarus's picture

I have modeled it and the stock market needs to crash 14%, 22%, 32%, then 50% to fund our ongoing unfunded deficits in the years to come.

The other other place the kind of money our treasury will need in the Federal Reserve montezing our debt. 

The third option is if Super Congress or interest rates forced the government to plug the unfunded hole, Super Congress has no chance in hell of doing that while interest rates explosing north of 10% WILL get the job done.

Everything, queing Tepper's best voice, everything else is just noise. Europe just hastens the day.

Fri, 09/30/2011 - 17:29 | 1727572 malek
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-- (wrong thread)

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