Courtesy of Mish.
The number of truths, half-truths, and blatantly false perceptions regarding US treasuries all strewn together is quite typical in mainstream media analysis, and also non-mainstream media analysis.
For example, please consider Will the Last Person to Leave the Treasury Market Please Turn Out the Lights? by Michael Pento as presented on Yahoo!Finance.
Here are some statements Pento presents with my comments.
Pento: In truth, [treasury] yields currently do not at all reflect the credit, currency or inflation risks associated with owning Treasuries. If the Fed were not buying $45 billion each month of our government bonds, investors both foreign and domestic would require a much higher rate of return.
Mish: Correct, depending on the definition of “much”.
Pento: Investors have to be concerned about the record $17 trillion government debt (107% of GDP), which is growing $750 billion this year alone.
Mish: Correct
Pento: Foreign investors have to factor into their calculation the potential wealth-destroying effects of owning debt backed by a weakening U.S. dollar.
Mish: Somewhat correct but also misleading as well as incomplete. Foreign “investors” do have to factor in a weakening dollar but primarily vs. their own currency. The US alone is not printing like mad. Currency risks are everywhere you look. More importantly, foreign central banks do not have to factor in weakening dollar calculations (and indeed they don’t for mathematical reasons explained below).
Pento: Due to its foolish embracement of Abenomics, Japan will also have to fear a collapse of its debt market from rising inflation in the near future, just as we do in here.
Mish: Correct but Backwards. On the current Abenomics path, Japan faces a far bigger risk of currency collapse than the US. Japan is the big story and faces a bigger as well as quicker collapse than the US.
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