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US Treasury Bonds - The Biggest Bubble In History - About to Pop

[Editor's Note: The following post is by TDV Editor-in-Chief, Jeff Berwick]

The US Treasury Bond market is the longest unbroken bull market known to the financial world. For more than 30 years it has trended higher in nominal US dollar terms.

Of course, it has been helped greatly by price fixed and market fixed, Ben Bernanke, who has now bought up more Treasuries, by far, than any other identifiable group, but didn't pay for them out of production; he just did it with the pressing of a button, using a pretty fat finger!

At the current rate, with the Federal Reserve buying up every penny of newly issued government debt in 2013, and then some, it won't be too much longer before the Federal Reserve owns more than China, Japan, the oil exporters and Caribbean bank centers combined.

Considering it is a group of private central bankers that can print money to buy as much of anything they want it should really have people raising some eyebrows! But, aside from the fraud involved, let's take a look at how the issuance of debt is following the exact path of a bubble.

STAGES OF A BUBBLE

First, there is the money printing. This is the distinguishing feature of a bubble, its ultimate cause; and there is no more direct form of this model than the central bank printing money to buy the government’s debt right out of the gate.

Jean-Paul Rodrigue is a Canadian most noted (in 2008) for his "bubble model", charting four "phases of a bubble". According to the model, while the "smart money" has purchased during the earlier "stealth phase", institutional investors begin to buy during "take off". Following media coverage, the general public begins to invest leading to steep rise in prices as "enthusiasm" and then "greed" kick in. "Delusion" precedes the peak.

Here is the progression, according to Rodrigue:

On a tip from good friend, Jeremy Martin, of the well-known Cambridge House conferences that we regularly attend, we decided to take a look at the entire US debt as plotted by the Heritage Foundation:

We then plotted Rodrigue's "bubble model" over top of the US debt data:

It's not perfect but it fits the model almost exactly. Where do you think Treasury bonds will head from here? TDV's Senior Analyst, Ed Bugos, is eyeing the Treasury Bonds for what could perhaps be the short of the century. He hasn't told subscribers to pile in yet, but I can tell from his twitchy finger over the "short" button on his online brokerage account that he is getting very close. Subscribe to TDV Premium for more expert information on when and how to profit from the coming collapse and protect yourself from the collapse with investments in gold, silver and precious metals stocks and foreign real estate.”

Anarcho-Capitalist. Libertarian. Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks. Jeff Berwick is the founder of The Dollar Vigilante, CEO of TDV Media & Servicesand host of the popular video podcast, Anarchast. Jeff is a prominent speaker at many of the world’s freedom, investment and gold conferences as well as regularly in the media.

It's a funny thing about central banks, governments, goverment spending and economy-destroying monetary inflation. First of all, while the central bank is indeed a private cartel, it gets its monopoly power from the state. This is the very definition of corporatism or fascism...and it lies at the very heart of the economy because money is the signal carrier in the economic body. Mess with the money supply and interest rates by means of the decidedly non-market forces of state monopoly and the economic body will malfunction, eventually causing it to grow tumors and die.

So why have a central bank at all? Well, Keynesian economic theory was developed solely to justify central banks, inflation and state control. But since these things are, you know, wrong, Keynesian economics is as convoluted and unnecessarily complicated as Ptolemaic astronomy.

Ptolemaic theory, like Keynesianism, starts off on the wrong foot with a hilariously wrong premise: that the earth is the center of the universe. Keynesianism assumes the state is the center of the universe and that the state's existance is justified and its meddling with the economy is warranted.

The Keynesians would have you believe that a central bank can massage an economy into perfect growth, applying just the right pressure at the right time via interest rate manipulation and money and debt creation...that a central bank can maximize employment at any given time. But that notion doesn't even occupy the same continent as truth. What a central bank is really good at is creating money and then lending it to the government.

All new money created by the central bank -- without any preceding prodcutive activity or capital investment to back it -- leeches away purchasing power from existing stocks of money. So money supply inflation by central bank fiat is a sneaky tax. It transfers purchasing power out of the private sector pockets and funnels it to government coffers when the central bank uses it to buy government bonds.

Like most parasites, the government and central bank don't really care about the long term health of their host. The private sector and rising standards of living be damned! The state is always ready to expand itself to control every aspect of life in a collapsed economy.

We believe, however, that it will be a little different this time around, thanks to the internet. People are catching on and we may very well be on the threshold of another giant leap forward for humanity. But beating back the state and its bank is a long process...Transformational events like these are accomplished over generations. I'm saying it's a long way from here to there...

...In the meantime, there is also a lot of opportunity. You can do far more than just protect yourself from the predations of the central bank; you can profit enormously. TDV can help. Just click here to find out how.

Regards,

Gary Gibson
Editor, The Dollar Vigilante

Comments (8)

sartorius - 9 weeks 6 days ago

So, when this happens, is it expected that a "short" position would gain more than any rise in precious metals?

kronk (not verified) - 12 weeks 2 days ago

What? No mention whatsoever of the bank for international settlements and its coordinated control of 162 private central banks worldwide? Debt is a non-issue when the framework is so tightly controlled.

Mark Uzick (not verified) - 12 weeks 2 days ago

Your belief that the Treasury Bond market will collapse implies that the Fed will not continue on its dollar printing hyperinflationary course.
I disagree: the real bubble to collapse is the dollar itself - in dollar terms, the Treasury bond prices should continue to rise and interest rates should eventually go negative.
For obvious reasons, most people may hope that I'm the one who is wrong about this, although, in the end, the state's loss of its ability to print fiat money that has the purchasing power to pay for its destructive schemes may be for the best.

JR (not verified) - 12 weeks 2 days ago

You've hit the nail on the head, though my own feeling is that interest rates at the long end will not go negative. As the long end approaches zero, the 'market' will finally realise that a 30yr bond cannot trade at par, as this implies a 30yr bond is money, rather than credit. Rates at the short end have gone negative before, & could well do again.
It is patently ridiculous that a obligation to pay $ in 30 years be equivalent to $. It is of course patentently ridiculous that the $US - the credit of the Federal Reserve Bank - be equivalent (or thereabouts) to gold, but, the $US is the biggest, most egregious credit bubble in human history, more outrageous even than the Pound Sterling. It could yet 'double' from here.

How goes the Dollar, becomes the gen'ral Cry.
Rather than fail we'll at 1/1581 Buy.
Instead of Scandal, how goes Dollar's the Tone,
Ev'n Wit and Beauty are quite useless grown:
No Ships unload, no Looms at Work we see,
But all are swallow'd by the damn'd Curren-cy.

JR (not verified) - 12 weeks 2 days ago

The rate of interest on a Treasury bond is, more or less, the inverse of its price. Treasury bonds are priced in $ - the credit of the central bank - a completely subjective, indeed meaningless measure, since the value of the $ is given by the assets of the central bank, which are Treasury bonds, amongst other junk.
If government wants bond prices - in $ - to rise i.e. interest rates to fall, that is what will happen.
Government wants bond prices to rise, so interest rates will continue to fall in '$ terms'.
If you want to short Treasury bonds, do it in gold, in other words, buy gold. You will lose your $ if you short bonds in $.

mava (not verified) - 12 weeks 2 days ago

Jeff,
You are absolutely correct on everything you said here. You very likely to be right on calling it a top as well. But, for the interest of the truth, I must note that your graphical example here is useless.
This is because both charts follow the shape of a parabolic curve, roughly. Parabola, a geometric figure, as known in a class of geometry, or a function, as known in math is, I am sure you're familiar with from school. You probably remember one of the properties of parabolic curve, and that it has a constant, roughly = 2.3. Number here is of little importance, but the existence of a number is very important. It means, that all parabolas are similar.
Taking this from an another sad, wasted day at school to the real life, this means that unlike the laymen, we can not allow ourselves to indulge in comparing parabolas, any more than we can allow ourselves to play a government lottery, - because any two parabolas will look the same if counterimposed.
It is hard to resist to do this, because natually, we notice this fact, but do not rationalise it. Therefore, at any given moment, we tend to believe that the two parabolas we look at at the time, are just now in the state of being "the same", or congruent. But, as you know, this happens every moment, any given moment.
Chris Martenson in his money series, also makes a similar assertion, - he invites a listener to take a look at the shape of the parabola, - and to make a conclusion that it can't go any longer. A bit different take, but having the same mathematical cause, in his case.
Any time you look at the curve of a metric that is graphing a function, which was [b]designed to be a run-away function[/b], it is going to look like it is running away, because it was designed to be parabolic. This is why any time you look at debt of United States, it looks as it is running away.
Notice here, what this simple observation tells us. It tells us, that because the charts of United States debt, for instance, looks running away, that they are in fact were [b]designed to be running away[/b]. Meaning, of course that opposite to the public opinion, what determines the growth of US debt is not "how much US spends", or "borrows", but how much must be spent or borrowed in order to keep running a scam, where to any observer, the situation is exactly the same it had always been.
Keynes, being a methematician, undoubtedly knew this. He must have designed the curve way in the future (specified a formula), which assured that to most creditors of the United States, the situation will always look no worse than before. Unfortunately for the scammers, the "other side of the medal" is that it also looks "no better than any time before". Such duality splits the observers in two distict groups: - those who believe that the situation is dire like never before, and those who belive that there is nothing to worry about.
In other words, mathematically speaking, the shape of the curve of the debt of the United States, bears a witness that what we are looking at is a designer scam.

However, you are absolutely right on using every other methodic to estimate the end, because, unlike mathematical curves, the real charts always meet their end. This just might be the time.

mava (not verified) - 12 weeks 1 day ago

Also, because we know that the shape of US debt is a parabola, and we therefore conclude, that it was designed that way, we can then further conclude that the amount of debt taken out next is too, predetermined!

Watch it. No matter what will be decided in the congress, sequester or cuts, or qe forever, the amount to be borrowed next will be the exact amount required to keep the parabolic shape.

This means that all those who waste their time arguing about spending, budget, sequesters are either fools or purposefully creating a show for the rest of us, designed to make us belive that the debt progression is NOT predetermined.

And once you understand this fact, that everything you see is just a show, not real, then do you now understand what is really going on, or is it need to be chewed up?

JR (not verified) - 12 weeks 2 days ago

In $ terms, Treasury bond prices will continue to rise, that is, interest rates will fall - to somewhere near zero at the long end. I give no prediction on how long it will take. It is impossible to predict the path of a credit bubble, except to say that it will burst.
Again, Treasury bonds are priced in $, the $ is the obligation of the central bank, not a standard of measure of value, but a completely subjective, indeed meaningless, measure. The government can make $ interest rates whatever they fancy them to be, which is continuing to fall, so that $ bond prices continue to rise.
The only standard of measure of value is gold, hence the 'Gold Standard'. The discount, or to generalise somewhat, interest rate of the $, & $ denominated debt, in gold terms, will continue to rise. That is, the price of the $, in gold terms, will continue to fall.
Just buy gold. Silver is good too.