A Bond Selloff Is Rocking the World. You Might Want to Take the ...

The world’s governments thus find themselves in an ever-shrinking box. And all it will take to trigger the crisis is a return to historically-normal levels of interest rates. As recently as 2000, 30-year Treasury bonds yielded over 6 percent and 30-year mortgages cost 7.5 percent. Let rates return to those levels and the global financial system imp

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If public debt is unsustainable and the burden on government budgets is too great, what does this mean for government bonds? The inescapable conclusion is that government bonds currently are a Ponzi scheme. Governments lack the ability to reduce debt levels meaningfully, given current commitments. Because of this, we are likely to see “financial op

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Governments cannot run deficits in excess of the growth in GDP without eventual consequences. As we will see in the chapter covering the research of Rogoff and Reinhart, things go along well until Bang! bond investors lose confidence in the ability of a government to pay its debt, even if that debt is denominated in a currency the government can pr

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Let us give you one scenario that worries us. Congress shows no discipline and lets the budget run through a few more trillion in the next two years. The Fed has been successful in reflating the economy after it has embarked on even more aggressive quantitative easing. The bond markets get very nervous, and longer-term rates start to rise. What lit

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