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US Interest Rates Will Soon Rise

June 27, 2010

I believe manipulative power in the interest rate markets is greater today than any time in the recent past given the strength and leverage of hedge funds and the reduced number of huge financial firms.

The consensus opinion of the top layers of wealth is decidedly against social programs that are financed through income taxes or debt.  The public, influenced by conservative economists and the media, also support a return to ‘sound finance’.  Obama, though, is taking a somewhat more liberal rhetorical stance versus the rest of the world (however meagre) and it seems unlikely the ‘market’ will fail to provide a disciplinary response.

US 10 year treasuries are yielding 3.11% today.  Expect a coordinated attack that will raise the yield to 4% or even 4.5% prior to November.  Headlines will scream that the bond market is losing confidence in the US and we’re headed into an inflationary high interest rate future unless deficits are severely reduced.   It’s inconceivable, however, to imagine rampant inflation given the weakness of labor, the worldwide ideology of austerity, and the feeble efforts of Obama.  Bonds will therefore be an excellent buy after the attack has played out since it’s now very clear governments have neither the will nor the political support to fight the forces of deflation.

From → Wealth & Poverty

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