The Fed is Insane – Part 1

The chart above shows the yield on 30 year treasury bonds. As you can see, it is in a major bull run and yields have run from 3.6% to 4.6%.

Did you think that China was the largest owner of US government debt? They were.

But now the Fed has bought so many US treasuries that they are now the largest owner of treasuries. The massive federal budget deficit is not being financed by the Chinese but by the Fed. It has stepped up and is buying every treasury security they can buy. They are currently in the midst of a massive $600 billion quantitative easing.

Remember that the price of bonds goes down if the yield goes up. That means that the Fed is losing money on their whole portfolio! They are losing massive amounts of money. Probably tens of billions of dollars. Soon to be hundreds of billions of dollars.

Having said that, I’m sure that they will not mark to market their portfolio! Remember that they are privately owned and don’t want to damage the profitability of their owners, the major US banks.

But just think what a scam this is! The US treasure spends trillions of dollars that it doesn’t have. The Fed buys this debt so the government can continue to spend like drunken sailors.

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8 Responses to The Fed is Insane – Part 1

  1. Chris says:

    I don’t think the Fed is insane, quite the opposite. I think we are insane for allowing our government to continue this fraudulent system that profits the powerful elite foregn bankers and their affiliates here at the expense of taxpayers and our future. I think they plan to crash the economy and take full advantage of that as well.

  2. Tony Chalupnik says:

    Courtney:

    So when is the hyperinflation going to hit the US?
    I see big gains in commodities but they still seem to correct back.

    Silver and Gold?

    I look forward to your blogs,

    Tony

    • courtneyds says:

      The Fed has created the conditions for hyperinflation but the spark is not there yet. The key indicator that I am looking at is called the Money Multiplier. Right now, the Money Multiplier is below 1.00 which means that people are saving and not spending and also that inflation cannot come back.

  3. Petra Schoning says:

    You’ve taught me that money or power is the reason behind seemingly illogical decisions. How does the Fed gain in the long run with this approach? How will they make more money? I imagine the reason is not more power, as they already have that!!!

  4. Petra Schoning says:

    I imagine it has to do with gaining money via interest??? But isn’t what is bad for the country also bad for the Fed in the long run???

  5. Kurt Schoedel says:

    The question is: How do we make money off of this?

    We must think opportunistically about these things.

    A falling camel attracts many knives. How do we make money off of the knives?

  6. DC Chaim says:

    Hiya Courtney – thanks always for your amazing insights! What happens when Hyperinflation DOES KICK IN? Is Hyperinflation threatening to us stock investors in that it create a boring stock market for us? Thanks!

    • courtneyds says:

      Thank you for the kind words!
      The initial phase of hyperinflation is very bullish for the stock market. But eventually the hyperinflation destroys the capital base of a country and the stock market tanks, at least in real time.
      Thanks!

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