Can the Federal Reserve really afford to start tapering???
The Federal Reserve is the biggest buyer of 10 year treasury bills currently yielding 2.6%. Does the Fed care what the yield on the 10 year is? Absolutely not. They buy treasury notes with free money.
During the 1980's the interest rate on 10 year treasury bills under Volker reached a record high point of over 15%. So a 2.6% interest rate today represents an extremely low yield. Most market watchers only think about the Fed's purchases of newly issued treasury debt when discussing "quantitative easing". Almost forgotten is the gargantuan amounts of debt that must be rolled over. The total debt issued by the U.S. on balance must be completely rolled over (refinanced) "on average" during a time span of less than 5 years. So here's the big issue aside from all the new deficit spending that must be financed. What investor is going to roll over their 10 year treasury bonds (and longer dated bonds) which are now maturing? Ten years ago that debt was issued at an interest rate of over 4%. How many of those investors (foreign countries) will agree to roll over their treasuries to secure an investment return of 40% less than before (now at 2.6%). Something tells me there is a lurking demon in the reserve calculations of most creditor nations. Why would they roll over this debt? If they were the least bit financially savvy, they would cash in their treasuries and but physical things of value. Consequently, the Federal Reserve will be forced into the "void" to make up for the lack of buyers of "aging" U.S. debt and pick up the slack.
The transition to value, to things physical rather than based upon "full faith and credit", is about to begin. Fiat (U.S. dollars) and sovereign debt (U.S. treasuries)....are about to become toast!
Although I don't drink beer very often....when I do, I drink Dos Equis. Stay thirsty my friends. And also... buy plenty of EXK, silver, and a healthy stash of gold! Prepare yourselves!
yeah, there's no exit strategy for the Fed, no strategy at all except crisis management, any real tapering will create the next crisis...
would rather be in precious metals than base metals, the result of lower metal prices will be increased demand, and less supply, not a bad time to add more EXK shares, rebalanced and bought some more shares today, GLTA
Watching the Chicago Mercantile Exchange › EURO FX Sep 2013 (E) (CME:6E.U13.E) today is most important for me in currency trading. This will reflect gold movement as well. It's also very important to compare (5 minute) - the 3 month against the S&P. I'm using this today to trade currencies, but also this information should be considered if one is trading gold/silver.