The recent precipitous plunge of the US government bond market is largely ignored on Wall Street. The biggest dollar loser of 2013 is not real estate, commodities or gold, but is long term US Treasury Bonds (1) and notes, which have lost from 5% to 15% (depending on Maturity) of their value in the marketplace since May 2013. Pensions, profits sharing plans, especially trust funds including Social Security, and similar pools may be the biggest losers. Some can not afford the loss.
Not one person in a hundred suspects that a bond decline may threaten their retirement and security, and why it is happening. Congressmen, who are responsible for it, seem oblivious. What has caused this now bursting “bubble” in the world’s biggest market? The explanation is so simple a smart 10 year old should have no problem with it. The United States government is the acknowledged leader in the printing press circus, expressed on Wall Street as owner of the World Reserve Currency.
When the US began the Quantitative Easing binge the whole world knew about its excesses. Dollar should have fallen in the world market, but it did not. US government Bonds, Notes, and bills went up in price while the volume of these bonds increased incrementally. The US debt increased by 7 or 8 trillion dollars in 10 years but the price of bonds also went up, not down as we would expect, when the amount was increased.
This happened because the Federal Reserve (FED) printing program was just too obvious to other countries. The major money powers in the rest of the world joined the printing circus instead of running from it in horror. From China to Brazil, from England to Italy, governments turned on the press and printed their own currency in record amounts in order to buy dollar instruments. They competed with the US for who could dilute their own money more, and faster. China and Japan accumulated $1 trillion or more each of the $17 trillion of US debt outstanding. Many other countries now own US Treasury issue in smaller, but still staggering amounts, and private funds hold some $4 Trillion on bonds, notes and bills. The logic country used was they did not want be disadvantaged in world trade by allowing their respective currencies to rise, so they sold their currencies and bought our US Treasury securities, bonds, notes and bills.
The Federal Reserve Bank simulated these private bond purchases by buying up to 45 billion dollars a month in 2013. The FED let it be known that it would buy (with printed money) all bonds offered by the Treasury that the private sector did not take. The private sector ignored the fact that, while it was investing real money, the FED was printing its billions on a computer screen! Why not buy, they reasoned…a shortage makes for an up market! Everyone was making money on the rise in bonds resulting from massive new sales…that made no sense.
The flow of new printed money poured through the banks to the lucky few closest to the top, rather than the through the food stamp line to the many. This restrained inflation of consumer goods. The price of consumer stuff did not race up in the market place, it has only marched ahead a little at a time. Instead the valued of investments owned by the few, including overpriced US Treasury bonds, went up and up.
Ben Bernanke once quipped that the FED would “throw it (money) out of helicopters” if need be to support the Economy. Had he done so, more of the money would have fallen into the hands of the poor and working class, who would have used it to buy food and autos. Not so with the banking few and the fortune 500 companies who got received the new dollars. They buy investments, and both stocks and bond raced higher year after year.
US treasury bonds did not go up because they paid a good return, no, the return was miniscule, less than a true and reasonable rate of inflation. Bonds skyrocketed to new highs because of artificial demand, never mind the interest rate received on the investment was record lows. The dollar inflation was translated from wrecking the dollar to stimulation of stocks and bonds. After all, how could your pension manager be criticized for buying what the FED is buying, and taking a fee to watch the price of bonds go higher every year?
What caused the end of the bull market in Treasury bonds? Investors finally started to notice the interest return on treasury bonds is nominal. What thinking person would loan money to our government for 10 or 30 years for a return that is less than the real cost of living increases? Who in their right mind would loan money to spendthrift who is $17.3 trillion in debt? Bonds finally burst in May 2013. And at this point, many big holders realized they needed to get out, but the buyers had evaporated. If everyone is in, who is left to buy when Mr. Big wants out? Only the FED! The first phase of the down market was a 15% plunge in 30 year T-bonds starting in May, 2013.
Several well known bond holders privately lamented “no more.” Each is trying to get out of Treasury bonds they have, and cannot…they are too big to sell, just as the banks were “too big to fail” five years ago, and their private pleas are, “why did I wait so long!”
Politicians ignore the problem. Those who speak for the FED (they do not run it) seem to think they have gotten away with unlimited printing, they tell us they are looking for new “tools” to use to regain control. Sorry, they did not get away with it, they shifted the bubble to a new and worse one, and with it most bond markets of other countries, especially Israel, corporate bonds, municipal bonds. Now they are “Tapering” meaning they are printing only $80 billion per per month, down from $90 billion.
One financial analyst, the FT Advisor, reported: “US and global bond funds also had their share of suffering. The outflows out of Bill Gross’ Total Return Bond Fund reached new highs in August as the Pico flagship fund lost 1.1bn euros (£926m). Year-to date, the European version of the US diversified bond fund shows an organic growth rate of -19.74 per cent which implies the fund has lost nearly a fifth of the assets held at the start of the year due to redemptions. The fund, which carries a gold Morningstar analyst rating, shows a performance of -4.1 per cent in euro terms, underperforming the average US diversified bond fund by 0.8 per cent and the Barclays US Aggregate Bond TR by 1.3 per cent in the first eight months of the year.“
A very natural event has quietly occurred, the bond bubble has been pricked and is bursting in slow motion. Those who have expected the dollar to crater may not have to wait long. No matter what return one gets on Treasury bonds it can not make up for a fall in value of 10% or more per year in value.
Please consider sending this letter to all your representatives, both State and Federal, and tell them you want each one of them out of office for what they have done to our money. The only thing the present President or any Congressman could do to save our savings is to nationalizing the Federal Reserve System by force of arms. I suggest the President mobilize New York National Guard to take over the New York FED Monday morning.
Post Script for our Regular Readers:
Please see our new website. www.whtt.org, it is still a work in progress, but it too is paid for thanks to others who contributed, and those who helped me see through the Treasury bond scam! Please watch our new introduction to Christian Zionism, The Tragedy And Turning, with Tom Compton editing.
As you know, We Hold These Truths is dedicated to reeducating those (like I once was) influenced by Christian Zionists and the war-based economy. This is the only permanent cure we know of for our warring, financially corrupted society. The Federal Reserve was created in 1913 to control our money and finance our wars; the movement to neutralize Christianity by injecting Zionism into it was hatched about the same time and place with the publishing of the Scofield Reference Bible in 1909, in Oxford, England.
OTHER PLACES WE HAVE STRAYED: WHTT also went a bit afield when we broke ground to expose the connection between Ethanol and World Starvation, 2006. And our recent four articles exposing The Israel Dollar Bond Ponzi is closely related to this story. This said, I promise my readers WHTT will harken to my expertise where there is much left to do. Thanks also to those who have helped financially. Right now we need an editor-proofer, having lost a great 10 year volunteer named Marge. If you can do it and wish to help please contact me directly.
Merry Christmas.
Charles E Carlson, and WHTT Volunteers
602 741 4650
1) This negative performance is also reflected in the price of US Treasury bond mutual funds, down 12-20% for 2013 See 30 year bond chart: http://www.dormantrading.com/TraderTools/quotes.htm?page=chart&sym=ZBZ13&domain=trading&display_ice=1&studies=Volume;&cancelstudy=&a=W
3) S. 462: United States-Israel Strategic Partnership Act of 2013: https://www.govtrack.us/congress/bills/113/s462/text
