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Powell has a debt problem

Courtesy of Read the Ticker

powell-has-a-debt-problemThe last time the US entertained debt this high (relative to GDP) was post World War 2.





The prior US high debt years were between 1936 and 1954, back then the public understood why the high debt existed (WW2) and why the public had to suffer high inflation to allow deflation of the debt to a manageable level. This question was not as political as it is today.   





Current US debt levels are the result of ‘end of empire’ spending, simply spending on steroids beyond one means. The FED needs inflation for the same reason as the post WW2 period to deflate away the debt.





The current political talk of ‘fight inflation’ will be short lived and the FED will be forced to accept higher inflation levels over the 2% (say between 4% to 6%). This change will be forced on them as the FEDs inflation fighting policies are currently breaking the credit and treasury markets (see via credit spreads and the Move Index).





The chart below shows a orange band (chart 3), this band represents a interest max of 3.25%. The US 10 year interest rate (black line) must not pass above if the FED wishes to avoid a crash in US debt and a run on the US dollar. After world war 2 the FED ensured this did not happen, back then they implemented yield curve control over the interest rate markets, even while high inflation (green line) periods persisted.    





The FED will be forced into some sort of yield curve control 2022+ and this will involve money printing and send the FED balance sheet to all time highs. 

 





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DOW






Of course if interest rates can not be contained under 3.25% then the FED is going to have find a new tool to avoid a world depression.





New tool




ha!







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Investing Quote…



..”One of the most helpful things that anybody can learn is to give up trying to catch the last eighth – or the first. These two are the most expensive eighths in the world. They have cost stock traders, taken together, enough millions of dollars to build a concrete highway across the continent.”..



Jesse Livermore





..”Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic… There is no training, classroom or otherwise, that can prepare for trading the last third of a move, whether it’s the end of a bull market or the end of a bear market.”…



Paul Tudor Jones





…“People somehow think you must buy at the bottom and sell at the top to be successful in the market. That’s nonsense! The idea is to buy when the probability is greatest that the market is going to advance”…



Martin Zweig (The inspiration behind a number of Martin Zweig’s methods came, from Jesse Livermore).





..”Stock market bubbles don’t grow out of thin air. They have a solid basis in reality, but reality as distorted by a misconception”..



George Soros





..”It Ain’t What You Don’t Know That Gets You Into Trouble. It’s What You Know for Sure That Just Ain’t So”..





Mark Twain







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