Alasdair Macleod: The Whole US Economy is in a Massive Debt Trap And is Tending Towards Hyperinflation!

• No tapering! 
  by Alasdair Macleod in Federal Reserve, http://www.goldmoney.com/ 
  It was not too surprising that there is going to be no tapering for some very good reasons. The commencement of tapering would have led deliberately to bond yields rising, triggered by an increase in sales of government bonds to the public and at the same time escalating sales by foreign governments as they attempt to retain control over their own currencies and interest rates. This was the important lesson from floating the rumour of tapering in recent months.
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  The reason tapering was not going to happen is summarised as follows:
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  1. Monetarists and therefore central bankers believe that rising bond yields and interest rates will strangle economic recovery. They want to see more robust evidence of recovery before permitting that to happen.
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  2. Rising bond yields would have required the Fed to raise interest rates sooner rather than later to stem the flight of bank deposits from the Fed’s own balance sheet held as excess reserves, which only earn 0.25%.
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  3. Importantly, the global banking system has too much of its collective balance sheet invested in fixed-interest bonds, and is also exposed to rising interest rates through interest rate swap derivatives. Tapering would almost certainly have precipitated a second bank crisis starting at the system’s weakest point.
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  4. The cost of funding the US Government’s deficit would have risen, difficult when the debt ceiling has to be renegotiated yet again.
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  5. Rising US interest rates will most probably destabilise emerging market currencies, risking a new Asian crisis.
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  6. It is a bad time to shift the burden of government funding back into the markets, because foreign holders have shown they will sell into rising yields.
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  The Fed has reaffirmed that zero interest rates will be with us for some time to come. It simply has no choice: it has to play down the risk of inflation. The result will be more price inflation, which is bad for the dollar and good for gold.  This was reflected in the US Treasury yield curve, where prices of long maturities fell yesterday relative to the short end.
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  read more!

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