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To: Freedom_Is_Not_Free
Do you see the possibility of a bond market collapse from this bailout?

I don't know. To some extent the takeover lowers systemic risk because the piles of derivatives based on agency debt are now as solid as the US treasury. The main problem, like all the "solutions" to problems that come from loose credit, is that long term inflation is slowly but surely becoming the only way out.

The remaining unnationalized bond market (e.g. corporate) may get a little short term relief as loose money chases their yields because the mortgage security yields stay suppressed. But that's just more of the same economic distortions like Bernanke and his low rates. Ultimately that has to catch up in the form of a credit meltdown, but that day of reckoning can be postponed for a long time.

The ultimate bond market collapse will come in treasuries. We no longer have enough actual taxpayers and tax revenue even in optimistic scenarios to pay future obligations even without the extra 5 trillion in agency obligations. But the dollar will have to melt down first and that won't happen for a while (e.g. until the current commodity slump is over)

169 posted on 09/08/2008 6:20:14 PM PDT by palmer (Some third party malcontents don't like Palin because she is a true conservative)
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To: palmer

Thanks. I was thinking, who will bother buying treasuries when they can get 10% from Fannie backstopped by the US government? Kiss treasuries good-bye.


170 posted on 09/08/2008 6:35:59 PM PDT by Freedom_Is_Not_Free
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