Why the bond bubble will be the final bubble

When I was a kid, maybe 6 years old, my mom got me these giant balloons. I mean huge…huge balloons. It took me maybe 30 minutes to blow the biggest one up. I remember I was sitting in the living room and the balloon was on my legs which were up on the coffee table. I was sitting on a blue couch with flowers in Kendall, Florida. All the sudden I heard the loudest balloon explosion of my life to this day. It reverberated in my ears, and my balloon was gone. I was too stunned by the noise to react.

On March 10, 2000, the Nasdaq bubble popped at 5132.52. That was the highest it ever got, and it’s never even gotten near coming back. The cause of the Nasdaq bubble was the Federal Reserve under Alan Greenspan.

The Fed fueled the Nasdaq bubble by buying government debt for cash it invented out of nothing. That cash was stored in big banks like Goldman Sachs, which then used that cash to buy tech stocks.

Sometime in December 2007, the housing bubble popped. The cause of the housing bubble was the Federal Reserve under Ben Bernanke.

The Fed fueled the Housing bubble by buying government debt for cash it invented out of nothing. That cash was used to subsidize mortgage loans for people who could not afford them. These people used that cash to buy mortgages, which then crashed when these same people defaulted on said mortgages.

Sometime in 2012 or 2013, the debt bubble will burst. The debt bubble was the cause, the actual fuel used for both the Nasdaq bubble and the housing bubble. Without the Fed’s ability to buy government debt with money they invented, neither of those bubbles would have happened.

But each time the bubbles popped, government used its own debt to reinflate the economy. Stimulus, subsidies, what have you. Treasury yields are the lowest in history. The price of bonds is the highest in history. This bubble is not just one bubble – it is a combination of every single bubble since the Fed was born in 1913. It is the bubble that has caused every other bubble we’ve ever had, the bubble that engulfs other bubbles and gets bigger every time a smaller bubble pops.

When this blows, the world’s eardrums will shatter. And this time they won’t be able to use debt to reinflate it.


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