Free Republic

A credit bubble is created when the amount of money borrowed exceeds the capacity of the borrower to pay it back. This concept is easy to understand, but the financial foundation of borrowing has been manipulated to an historic extreme by government. Not just through the national debt but through the agreements to create debt through public sector union contracts and municipal bond issuance.

"Investors" are so desperate to hold on to short-term paper that they paid $100 for a 3-month Treasury-bill at today's auction. That is a 0% yield - for the first time ever - lower even than the auction right after Lehman's bankruptcy in Nov 2008. It is probably safe to say that NIRP is next, followed by more negative yields further to the right of the curve, as the US gradually becomes Europe. But don't worry: as Yellen admitted during her healthcare-scare speech, "nominal interest rates cannot go much below zero", just a little.

The warnings are getting louder. Is anybody listening? For months, I have been documenting on my website how the global financial system is absolutely primed for a crisis, and now some of the most important financial institutions in the entire world are warning about the exact same thing. For example, this week I was stunned to see that the Telegraph had published an article with the following ominous headline: “$3 trillion corporate credit crunch looms as debtors face day of reckoning, says IMF“. And actually what we are heading for would more accurately be described as a “credit freeze” or...

A PeakProsperity.com reader recently lamented: I have been trying to get my head around the mechanism of QE. Not being an economist or experienced investor I don't really understand a lot of the jargon. The usual simple definition of QE as "thin air money printing" does not satisfy my need for understanding either. Have hunted for a description of QE for dummies that leaves me feeling like I get it, but with no luck. My difficulty is in understanding how thin air money gets into circulation. So I'm going to do my best to answer this plea in as intuitive...

Bonds: Avoid the next great bubble By Paul J. Lim June 4, 2010: 5:20 PM ET (Money Magazine) -- As manias go, this one is different. Your neighbors aren't coming up to you at cocktail parties bragging about making a killing in bonds. No one is flipping fixed income for quick profit. And no talk-radio guru is shouting that bonds will be the only investment left standing after the next financial Armageddon. Don't let the lack of fanfare fool you. A projected $380 billion will pour into bond funds this year, more than went into domestic stock funds in the...