Inflation or Deflation??

 Financial

Madness!

Ugly Math: 

Why The Treasury Market Could Implode At Any Time Now

Seeking Alpha

Sep. 14, 2020 10:53 AM ET

Of $20T in marketable Treasuries outstanding, $4.7T is from T-bills due in 6 months or less. Treasury is almost completely reliant on short-term debt to fund current deficits.

The Treasury hasn't been able to raise any net cash from T-bills since June, since $7.3T in this debt has already come due since March.

More long-term debt is out of the question. Demand is waning and foreigners are pulling out. Substantially more long-term debt would push long-term interest rates too high.

Yet another $2 trillion bailout bill is in the works, but there are only $2.82 trillion in total reserves in the entire US banking system. If it passes, the Fed will have to expand its balance sheet by trillions more to avoid another "Repocalypse".

Besides another $2 trillion bailout bill, a no deal Brexit could trigger a banking crisis, or a contested US presidential election could destabilize the already shaky Treasury market.

This entire situation is completely absurd. It is ripe for a devastating explosion at any time. I do not believe it will be gradually unwound. Most likely it will end suddenly like a clap of thunder. This is why I do not think that consumer price inflation is going to slowly creep higher towards the Fed's contrived 2% average target in some gentle lazy river ride over the coming years. Consumer price inflation is going to explode higher violently and suddenly, in an ugly and frightening torrent that will begin in the foreign exchange markets and bleed quickly into domestic consumer prices when the prices of imports suddenly skyrocket in an international dollar collapse.

When the dollar index suddenly lurches down 5% or so in a day on a failed Treasury auction or the passage of the next bailout bill or Brexit being confirmed in October triggering a European banking crisis or a constitutional crisis in a contested presidential election in November or whatever exactly ends up happening, we will know the final end game has begun. Even if every trigger is somehow dodged, it does not change the math and this will eventually happen anyway.

Gold and silver will skyrocket suddenly in a way that will surprise even the most religious of gold bugs as the dollar gets dumped. Whatever ends up triggering it and whenever it finally happens, it is coming, and it will not be a slow process. Bubbles never deflate slowly. They explode. This one has been blowing up for 40 years since the bond market bottomed in 1981.

Buy gold, buy silver, buy real assets, get out of the dollar and all Treasuries and batten down the hatches before the storm begins. Strictly mathematically speaking, this absurd situation cannot possibly continue on for much longer.

DYI:  I’ve posted this article as a different perspective and outcome that I’m expecting.  It is always good to keep an open mind to different ideas.  Be as that may be our debt problem – [I’m not making light of our Federal and State debt load] – is in the corporate arena.  

About 15% to 20% of our corporations are labeled zombie as they are completely require constant infusions of cash to maintain operations.  The day that interest rates begin to rise on corporate paper high enough and most importantly long enough these companies will not be able to make their interest payments.  Once they begin to implode speculators who purchase this debt will dry up very quickly hence begins the house of cards collapse.  

Obviously a massive loss of jobs will occur thus dropping spending that reduces the velocity of money.  This drop in velocity will induce a deflationary smash with deflation running at negative 2% to 4%.  Those who remain employed will be scared to death that they might be unemployed as well.  Paying down debt and saving money will become very popular gravitating to high quality assets such as U.S. Treasury securities along with gold and silver.       

DYI