US Treasury Bonds are Junk Bonds? Is America Defaulting on Its Debt? Where to Hide?
US Treasury Bonds are Junk Bonds? Is America Defaulting on Its Sovereign Debt?
Recently, I wrote an article explaining why US Treasury Bonds
are junk bonds and why rating agencies cannot be trusted at all,
because they have been up to their eyeballs in fraudulent activities.
I wrote that what I am stating may seem outlandish but it
reflected reality – that the US as well as its ally in crime, the United
Kingdom (UK) are bankrupt. Very few economists dare assert such a
conclusion because it would be a death sentence for their careers.
So, who can you trust anymore?
But, does it require so much courage to expose the ugly truth when
there are so much evidence to support what I have stated in my articles
which can be gathered even from the mainstream media?
It was taboo to suggest before the Global Financial Tsunami that America
was a bankrupt state and does not deserve an AAA rating. Yet, it took a
rating agency from China in early 2011 to break the taboo,
China’s Dagong credit rating agency says the U.S has already defaulted.
U.S. Treasury Bond Bubble Red Alert, QE Taper Talk Puts Bonds at Risk – Where to Hide?
Our internal best bubble indicator is triggered when an asset, or asset class, exhibits volatility below its historic norm. That is, money flows into an asset not appreciating the risks that are embraced. Think tech stocks in the late 1990s. Think housing in the run-up to the financial crisis. Or think Treasuries. The long-end of the yield curve (longer dated Treasury securities) is historically a rather volatile place. In recent years, however, it’s been eerily quiet. This isn’t limited to U.S. Treasuries, but both domestic and many international fixed income markets have rewarded investors with yield, but relatively low levels of volatility. In our assessment, we don’t need the Chinese to dump their Treasuries, but merely for historic levels of volatility to return to the Treasury markets for there to be a rude awakening. That’s because bond prices can fall; an investor in a bond fund is subject to interest rate risk, i.e. the risk of bond prices falling as higher interest rates are anticipated. A lot of yield chasers and other “weak hands” may be holding Treasuries that might flee this market should heightened volatility persist.
The recent “taper talk”, i.e. the talk about the Federal Reserve (Fed) reducing its Treasury purchases has provided a first taste of how increased volatility affects bond investors. The Fed has worked hard to contain the long end of the yield curve, amongst others, by communicating to keep rates low for an extended period; by buying Treasuries; by engaging in Operation Twist; and finally, by shifting the Fed’s focus from inflation to unemployment. However, as recent volatility in Japan’s government bonds (JGBs) has shown, it may be harder going forward to smooth talk the markets.
Is there a chance America could default on its debts?
According to federal budget analysts at the Bipartisan Policy Center, the Treasury would only be able to make a slight majority of its 80 million monthly payments in August. Treasury Secretary Timothy Geithner would likely be put in the same position as a struggling consumer low on cash and behind on his bills: he would have to selectively decide which debts to pay for the month and which to ignore.
Should August 2 come and go without a solution, Congress’s inaction (and Geithner’s subsequent decisions) would have dramatic global repercussions. Most likely, his big priority would be to pay off bond investors so that a formal default wouldn’t occur. Yet even if these institutional investors are assuaged, the Treasury would still have to postpone millions of payments at home … payments to Social Security recipients, federal employees, contractors and soldiers possibly among them.
So technically, America wouldn’t actually default come August 2 – certain federal payments would be delayed. The federal government’s existing revenue stream is decent enough so that it could still pay interest and principal on unpaid debts.
That said, the postponed federal payments would have a dramatic impact on cash flow, consumer spending, consumer credit and even interest rates.