Peter Schiff puts forth an excellent argument on not only why the U.S. Treasury bond market is in a bubble, but why that U.S Treasury bond bubble is about to burst. When will the bond bubble burst? We of course can't tell, but the conditions are set for it to happen in the not too distant future.
The underlying cause is the current buyers of US Treasury bonds are primarily speculators. What has brought that about?
According to a recent Federal Reserve announcement, the Fed says it's committed to buying long term Treasury Bonds. What that tells you is other people or governments are getting out of the U.S. dollar and looking at other places to put their money. If that wasn't the case, the Fed wouldn't have made that announcement, as it would have been meaningless if money was flowing in to buy up U.S. debt.
In response to that announcement, speculators are now the ones buying the bonds for the purpose of selling them to the announced spending spree of the Fed. No one is in the market for holding US bonds until maturity now; at least no one that understands even a little bit of what's really going on.
To buy those bonds the Fed will have to print more money to make the acquisitions. Consequently, the more the Fed buys, the less the bonds will be worth. The reason is the more the Federal Reserve prints money, the more the dollar drops and collapses in value.
U.S. Treasury bonds are now a ponzi scheme, because the thing underpinning the success of the US bonds is the dependence on people to continue buying them. If people, funds and countries stop buying bonds, as they are now starting to do, eventually the last buyer comes in and the seller is left with no options but to hold them.
So when people stop loaning money through buying these bonds, the bubble will burst. Schiff believes the bubble is already here, and it's not that far away until the pain comes.
Schiff adds that the Obama stimulus package is a disaster, and will only make things much worse, as the same principle involving the upcoming bond bubble bursting will come about from the continuing debasing of the U.S. dollar by the endless printing of money.
So the illusion that the U.S. dollar is a haven for investors is already starting to burst and collapse, and the bond market bubble about to burst. The collapse of U.S. Treasury bonds isn't going to happen overnight, it'll be gradual and subtle, and we'll have to watch things closely so we're not lulled into thinking they're safe and will hold their value. They definitely aren't going to hold their value in the ongoing U.S Treasury fund bubble.
While it's quite possible the air could come out of bonds very quickly, in all likelihood, it'll be a slow, deflating process rather than a quick burst of the US bond market.
The U.S. dollar is no place to be at this time, and the house and senate are about to pass over $800 billion more in bailouts which will continue to deflate the U.S. dollar and U.S. Treasury bonds.
The bond bubble will burst and will collapse along with the U.S. dollar. If I was invested in the dollar, I would get out of it as quickly as I could, as once things start to collapse and slide, it'll be like a slow avalanche continually building up momentum until it overtakes anyone on the mountain. Investing in the U.S. Treasury bond market and U.S. dollar are that mountain, and if you continue to ride it you'll find yourself and your money suddenly covered with the snow of a weak dollar and stuck with a bond you thought would be of value in the years ahead.
There's no doubt there's an ongoing bubble in the U.S. Treasury funds market, and nothing will change the disaster about to happen to those holding the bonds in the end. It looks like for the most part it'll be the U.S. government who has foolishly announced it'll buy up the bonds. That has released the plethora of speculators buying Treasuries so they can then resale them to the government at a profit. Don't get caught up in that game.
One final and big piece of the Treasury bond collapse is it's also similar to the forced liquidation which drove down the prices of some commodities like gold, which obviously is the investment of choice in times like these.
Because bonds are one of the easiest to unload investments, being so liquid, we'll start to see, and have already seen, some countries slowing down their investment in the bond, and probably will start to unload them to get access to more cash. When that happens, it's hard to tell how devasted the collapsing bond market will become.
As Peter Schiff says, the US Treasury bond market is in a bubble which is about to burst, don't get caught holding bonds or U.S. dollars when it happens. We don't know when the U.S. bond market will collapse, but we know the conditions are ripe for it to happen. It's not a question of whether the Treasury bonds will collapse, it's only a question of when and how quickly they'll collapse.