Melting General Motors - Ask a Stupid Question….

Monday, June 1, 2009

So General Motors is going bankrupt after the US took a 70% stake in the company, China is concerned about the amount of money that the US is spending on its debt, North Korea is distracting the global financial community with its nuclear ambitions and the Eurozone economy is slowly creeping downward after all is said and done. What now? Well, a report in yesterdays Wall Street Journal reported that the US Treasury and Federal Reserve is puzzled over the spike in rates on the open market of their debt instruments.

I ask very cautiously, what is so hard to understand? The dilemma that they have is figuring out if the spike means there is less of a need for the quantitative easing that the US has made a policy of due to increased demand (with demand comes higher rates) or whether the market is spooked by the mounting debt the US is incurring during this downturn. I have a simple answer, and I am by no means an accredited economist. The latter is the correct answer and it is obvious.

The fact that in the last round of 10 year T-note auctions the US bought 30% of them, or should I say the Federal Reserve “invested” non-existent money in debt issued by the US Treasury should be a clear sign of what is going on. Aside from the fact that by bidding on their own debt they increase demand, falsely at that, the idea that an entity issues debt and then buys it themselves is alarming.

What else is new? President Obama had an interview with C-Span, the publicly owned network which covers the US congress and senate 24/7 and was asked if he was concerned that we will run out of money with all of these stimulus measures costing so much. His answer did more to spook the markets than anything else, and went largely unreported by the mainstream (liberal) media.

Obama said “we are already out of money.” A president admitting that can do much for causing an exodus by investors. Perhaps the Fed and Treasury need to look above, to the man in the big white house, and then re-ask themselves the question instead of acting so perplexed at the cause of rising interest rates.

Do you think the 70’s were bad when it came to inflation? Just watch…..


About This Blog

Get the latest Forex online news and updates right here at one place.