Repricing Sovereign Risk

Less investor demand for bonds raises their yields, and consequently, lifts the interest that governments pay to bondholders. But because government bonds
are used as a benchmark for the interest rates charged all types of debt, including home mortgages, a sustained rise in their yields could ripple through the economy.

Is this the beginning of the end for bail-o-rama? The perception of "risk free" may well be changing. It will happen, the question is how fast, and whether this is the beginning. If so the US dollar and other bailout currencies may start to come under selling pressure. Once it starts expect a sharp reversal in interest rate trends.

20% Mortgage rates in 2012?

Maybe. Check the link to the article from the NY Times for a heads up.

Pet Cemetary

Check the above link to the article with the following headline quote:

The Federal Reserve's decision Wednesday to buy $300 billion in longer-term Treasury securities has ignited a firestorm, with analysts saying it will either cause a currency crisis or jolt the economy out of the morgue.

In the a) and b) option question printed above I think anyone who has followed this blog will realise what the answer is. Jolt the economy out of the morgue......conjures a imagine of a last minute resusitation and a pulse returning to the nearly deceased. I rather think of as a scene from Pet Cemetary. Initially everything seems OK, then you slowly begin to realise that the dead were best left dead. Helicopter Ben is finally getting a chance to fire up that whirlybird and commence his much anticipated monetary bombardment.

As the article alludes...so that article should state. This will preciptate a currency crisis and US dollar will finally collapse in value leading to a rapid upward correction in US and global interest rates. Real wages will fall as they fail to keep pace with inflation. The debt burden will be purged one way or not from the system.

The US will default, de facto, on its foreign debt causing sheer apoplexy in China. The US will then, unable to borrow externally, be forced to repair its domestic balance sheet and productive capacity. Slowly American savings will begin to rise and the U.S. will progressively return to productive growth....all other things remaining the same. But then again, they never do.

The Great Recession

An eponymous post (link above from the Australian).

Apparentlty the International Monetary Fund agrees.............this is The Great Recession.

Choo Choo

From Bloomberg:

The “rampant printing of currencies” won’t immediately lead to inflation as banks reduce borrowing and asset values decline, Bass, 39, wrote in the March 2 letter, a copy of which was obtained by Bloomberg News. “The greater concern is the potential inflationary time bomb that grows as governments continue to borrow, print” and stimulate economies.

You will have seen a stream of artciles here at this blog explaining how we are headed for significant increases in inflation associated with sovereign induced currency impairment and debasement. Unlike Mr. Bass, quoted in this article, I do not believe the US dollar will be immune at all. Indeed, it could be the greatest victim of global sovereign risk impairment.

Just remember when everyone says again, no one saw it coming, you saw the light at the end of a tunnel here, and yes, it was a freight train.

Thin Air

The title of this article needs very little additional commentary:

Britain's last policy hope: create money

There seems to be a consensus that the global reponse to the Great Depression shouldn't be repeated. It seems governments are committed on a path of mutually assured currency destruction. Unlike before we no longer have a gold standard as a modicum of restraint, so there is little constraint upon Central Banks going the full Weimar.

As Kohler was quoted in the previous post, sovereign risk is now the key issue.

I'm moving my super into gold.