The Biggest And Baddest Bubble Ever (Dec 2011)

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Source: Forbes – The Biggest And Baddest Bubble Ever

Notable excerpts:

The U.S. may be going broke, but perversely, people want dollars and U.S. Treasury debt. It’s the only thing they can count on.

According to Bloomberg, “The U.S. government received record demand for its bonds in 2011, pushing longer-maturity Treasuries to their best performance since 1995 in a sign that President Barack Obama may have little difficulty financing a fourth consecutive year of $1 trillion budget deficits.

The spreading sovereign debt crisis in Europe and slower global growth are driving investors to the safety of US assets, helping to contain borrowing costs and making it cheaper as a percentage of gross domestic product to finance deficits than when the nation last had budget surpluses.

It would seem that there is insatiable demand for U.S. debt.   Heard that one before? In 1999 there was an insatiable demand for stocks. Remember, there were 70 million baby boomers preparing for retirement. What choice did they have? They had to buy stocks, right? Wrong, stocks went down in January 2000. In real terms, they’re considerably lower now, depending on how you adjust for inflation.

Then, in 2005, remember the insatiable demand for housing? More immigrants. More families getting richer. Everyone wanted to get on the housing ‘escalator’ before it was too late. But in 2007 it turned out that investors were already satiated. They had enough housing and housing debt.

Now U.S. government bonds are in a bubble, with the highest prices and lowest yields in more than a century.

Bubbles are always dangerous and a bubble in the world’s reserve asset — U.S. dollar-denominated debt — is the most dangerous ever.

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One thought on “The Biggest And Baddest Bubble Ever (Dec 2011)

  1. Pingback: Exter’s Pyramid | livinginabubbleblog

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