In a recent interview for Arcadia Economics entitled, “the Corporate and Treasury Bond Bubbles are bursting”, Jim Willie said, “We’re going to have a massive Credit Crisis, Bond crisis, Bank Crisis all rolled into one - Bank Bond and US Govt debt”
I’ve talked about this kind of thing also although I’ve used slightly different terms namely … a Debt Disaster, Bond Bomb but I have talked about a Banking Crisis. So it seems that we’re in accord with these things.
He didn’t explicitly mention a Currency Crisis as I have in my videos although, he did talk about the Dollar’s demise as the video went along and explained how it might come about.
One thing I found particularly interesting is that 12 minutes into the video he started to talk about the interest rates cuts that the FED was planning for 2024 … “And Powell announced that he’s going to do three cuts … I don’t think they’ll do three. After they do one, they’re going to get a different problem … I don’t think they’ll do a second cut”. He went on to talk about “a Bond risk” which would cause them to stop lowering rates.
I said something similar in a video I released on the 19th December about the Reverse Repo Facility saying that the FED might have intentions to cut rates, but because of the problem with Bonds they might not manage it to do it.
To quote what I said in the video …
“I think it’s important to factor in Bonds.
Interest rates and Bond yields are closely connected. What happens to one, affects the other.
They don’t rise or fall in unison, but they’re closely correlated.
China and other countries have been off-loading their US Bond holdings for a while now because US Bonds are looking increasing less attractive to investors. The sell off will lower demand and therefore prices. The sell-off will continue and accelerate as it gathers momentum.
This has been putting downward pressure on prices and upward pressure on yields – because for Bonds, prices and yields are inversely correlated.
A lot depends on the sequence of events – what happens when.
Maybe in the short term, the FED can keep buying the Bonds to keep yields low and maybe this will enable Powell to Pivot.
But further on in the future – I don’t know when – maybe only a matter of mere months - ultimately, market forces will overwhelm the FED. The FED has a lot of power, but doesn’t have unlimited power. Market forces are far stronger than the FED. The FED will lose this Battle Royale and Bond yields will go up.
An important thing to consider is that Bonds are basically Government debt and they also represent the “credibility” and “creditworthiness” of a Government.£
So it seems that Jim Willie and I are more or less in accord on this point also.
We shall see what happens though. By the end of the year we know if we were wrong or right.
In terms of timings … he said “June or earlier”.
