Why the US won't see hyperinflation
May 13, 2009 1:16 AM Subscribe
posted by Mutant (24 comments total)
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The Bulls vs. Bears? The incessant back and forth between equity market longs
is well known to most retail investors via a variety of distribution channels; financial television, the print media, online news. But the really big market battle, one with the potential to impact the entire US economy, happens, as is usual in finance, just out of sight of retail eyes ...
Not seen since the 80's, Bond Vigilantes
is a phrase applied to institutional class investors
who purchase government treasuries to satisfy their long dated obligations
. Cognizant of the risks of inflation
, they actively demand compensation in real terms
for their investments. In recent weeks they have caused a UK government bond auction to fail
, and have driven US bond yields higher.
But even as Bond Vigilantes drive interest rates higher
, the US Treasury is actively purchasing securities in the open market
. This is, by any measure, an epic battle, one taking place almost sight unseen and one with very high stakes: can Ben Bernanke and the yet unseen US economic recovery tolerate higher bond yields?
Speaking of the power of Bond Vigilantes to compel honesty in government spending, Clinton policy advisor James Carville, was famously quoted: "I used to think if there was reincarnation, I wanted to come back as the president or the Pope or a .400 hitter. But now I want to come back as the bond market. You can intimidate everybody"