by Andy Hoffman, Miles Franklin: It’s Friday morning, on what could be a key inflectionary day in monetary history. Which is quite the extraordinary statement, when considering that mere minutes ago, I was, for once, having trouble formulating the day’s principal message. That said, when I looked through my notes – of the past 24 hours’ articles; and comments I jotted down about various topics; two charts caught my eye – which subsequently, catalyzed the revelation of why rates will never be “allowed” to rise. That is, until the bond vigilantes inevitably arrive to overwhelm government “monetizers”; in the same manner that soaring physical gold and silver demand will inevitably – and likely, simultaneously, overwhelm the naked paper shorters.
First, a chart depicting the U.S government’s record monthly outlay in June – of a whopping $429 billion, yielding a $90 billion monthly deficit. Which, I might add, was attributed to “higher subsidy costs for student loans; and to a lesser extent, housing guarantees.”
This, as a potentially bloody “debt ceiling” debate looms mere months away, with the “official” debt being temporarily, artificially held at $19.9 trillion, atop $5+ trillion “off balance sheet.” This, as $100+ billion of “unfunded liabilities” lurk in the background like time bombs. Not to mention, the debt that will be required to fund bailouts so large, they’ll make TARP look infinitesimal. Like entire cities – like Chicago and Hartford; States – like Illinois; and “territories” – like Puerto Rico. And keep in mind, the Federal government not only has no budget in place, it hasn’t even proposed one for the 2018 fiscal year – which commences October 1st, just in time for said “debt ceiling” debate.
Next, this chart from Bank of America – which itself could be titled Nuff’ Said, in depicting roughly half of all global bond market movements are now attributed to Central banks. A number which, is unquestionably, vastly understated – given how obvious it is that the Fed “monetizes” as many bonds covertly, as it does overtly (in artificially maintaining 1% interest rates, and reinvesting the proceeds of maturing Treasury and mortgage-backed bonds). I mean, who do you think bought the hundreds of billions of Treasuries sold in the past 12-18 months by the Chinese, Russians, and Saudis? “Retail investors?”