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Federal Reserve Chairman Ben Bernanke is on the way out the door, but the consequences of the bond bubble that he has helped to create will stay with us for a very, very long time. During Bernanke's tenure, interest rates on U.S. Treasuries have fallen to record lows.
This has enabled the U.S. government to pile up an extraordinary amount of debt. During his tenure we have also seen mortgage rates fall to record lows. All of this has helped to spur economic activity in the short-term, but what happens when interest rates start going back to normal? If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will suddenly be paying out a trillion dollars a year just in interest on the national debt. And remember, there have been times in the past when the average rate of interest on U.S. government debt has been much higher than that.
In addition, when the U.S. government starts having to pay more to borrow money so will everyone else. What will that do to home sales and car sales? And of course we all remember what happened to adjustable rate mortgages when interest rates started to rise just prior to the last recession. We have gotten ourselves into a position where the U.S. economy simply cannot afford for interest rates to go up. We have become addicted to the cheap money made available by a grossly distorted financial system, and we have Ben Bernanke to thank for that.
The Federal Reserve is at the very heart of the economic problems that we are facing in America, and this time is certainly no exception.
But is it a fundamentally sound path? Keeping interest rates pressed to the floor and wildly printing money may be producing some positive results in the short-term, but the crazy bubble that this is creating will burst at some point.
In fact, the director of financial stability for the Bank of England, Andy Haldane, recently admitted that the central bankers have "intentionally blown the biggest government bond bubble in history" and he warned about what might happen once it ends...
Why someone can't come up with a long term plan that actually works is beyond me.
Originally posted by beezzer
reply to post by sarahlm
It's funny you should mention this.
Recently, my company asked me to participate in a 401k plan. I told them I would as soon as the Fed stopped pumping billions every month into the market.
Only then would I or anyone else be able to see the true system and not the artificial one the government parades.
(they looked at me funny )
Originally posted by jibajaba
Bailout of the bonds - if you are holding them.
I would like to see JFK's E/O 11110 enforced - but that just me.
The Dow Jones industrial average tumbled more than 200 points, or 1.4%, Wednesday afternoon after Bernanke took questions from the media about the Fed's exit strategy. The S&P 500 also dropped 1.4% and the Nasdaq sank 1.1%. Stocks had been in the red all day, but were barely below the breakeven line before the Fed chairman began speaking.