A Quote by Luke Johnson
At some point the Japanese, Chinese and Saudi buyers of US and European Government bonds will see just what miserable value they offer. Then governments may have to stop all the runaway spending and bailouts and even put up interest rates.
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The time will come, and probably during 2009, that the only way the U.S. will be able to fund its deficits is to create money by printing it. The Treasury will have to sell bonds, and, in the absence of foreign buyers, the Fed will have to print the money to buy them. The consequence will be runaway inflation, increasing interest rates, recession, and inevitable tax increases on all Americans.
See the investment world as an ocean and buy where you get the most value for your money. Right now the value is in non-callable bonds. Most bonds are callable so when they start going up in price, the debtor calls them away from you. But the non-callable bonds, especially those non-callable for 25-30 years, can go way up in price if interest rates go way down.
I think we have a bubble in the US in government bonds, because of the quantitative easing and the negative real interest rates, and to some extent, that increases asset values across the board, including in startups.
To finance deficits, the government must sell bonds to investors, competing for capital that could otherwise be used to invest in stocks or corporate bonds. Government borrowings raise long-term interest rates, stifling economic growth.
It is the people who constitute the basis of Government credit. Why then cannot the people have benefit of their own gilt-edge credit by receiving non-interest bearing currency-instead of bankers receiving the benefit of the people's credit in interest-bearing bonds. If the United States Government will adopt this policy of increasing its national wealth without contributing to the interest collector-for the whole national debt is made up on interest charges-then you will see an era of progress and prosperity in this country such as could never have come otherwise.
The underlying strategy of the Fed is to tell people, "Do you want your money to lose value in the bank, or do you want to put it in the stock market?" They're trying to push money into the stock market, into hedge funds, to temporarily bid up prices. Then, all of a sudden, the Fed can raise interest rates, let the stock market prices collapse and the people will lose even more in the stock market than they would have by the negative interest rates in the bank. So it's a pro-Wall Street financial engineering gimmick.
If the U.S. Government was a company, the deficit would be $5 trillion because they would have to account by general accepted accounting principles. But actually they encourage government spending, reckless government spending, because the government can issue Treasury bills at extremely low interest rates.
If you are prepared for some risk, junk bonds pay about 5%, but they tend to get whacked when interest rates rise. Same with lower-yielding but higher-quality corporate bonds.
The Government has to stop borrowing as much money; if we don't, quite frankly New Zealand will be downgraded and interest rates will go up for all New Zealanders.
The key is if the economic data stays soft, maybe we don't have to worry much about interest rates anymore. Then we need to worry about earnings. What gave us a really strong move in stock prices from late May until about two weeks ago was this heightened optimism that maybe interest rates are at that high. That gave you a relief rally. Now reality is setting in - if we've seen the worst on interest rates then we've seen the best on earnings.
Now, 'the fiscal cliff' is a name that the media came up with, but some of us have been saying for years, 'You have got to stop the out of control federal spending, or you will end up at this point.' We're there.
Italians have always had a high savings rate. They love putting their money into their own government bonds - even more than in houses, stocks and gold. The higher rates climb, the happier they are to invest. So if austerity plans drive rates up, it's music to Italian ears.
When the U.K. or U.S. government issues bonds to fund a deficit, the buyers are not solely in the U.K. or the U.S. - they're in Asia, Europe, Latin America and the Middle East. Investment banks provide direct access to these buyers.
The real challenge was to model all the interest rates simultaneously, so you could value something that depended not only on the three-month interest rate, but on other interest rates as well.
There are no secrets anymore. The governments, the Chinese, the Americans, the Japanese, the Russians, just the governments alone can move right into anybody's mind, any computer, anything, and pick out the information.
The fact is, if our primary legislative goals are to repeal and replace the health spending bill; to end the bailouts; cut spending; and shrink the size and scope of government, the only way to do all these things it is to put someone in the White House who won't veto any of these things.
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