Nearly all alternative media economists have gone public to state that it is both unlikely, and irrational for the Federal Reserve to raise interest rates now, and in the near future. And this despite the central bank’s recent jawboning on mainstream television of a potential rate hike as early as next month.
But the problem is that the Fed and other central banks have waited too long, and gone too far in their zero interest rate policies, and quantitative easing programs. And with the odds of a rate hike shooting up since the middle of May, debt default levels, especially for credit default swaps on the 10 year Treasury, are at their highest levels since the Fed raised rates a quarter point back in December.
The probability of a US default of its debt hit its highest since the Federal Reserve hiked rates in December, as indicated by the recent dynamics in sovereign credit-default swap (CDS) agreements, amidst expectations the central bank might raise borrowing costs further in the coming months. After the Fed turned increasingly hawkish on their policy outlook since late April, market volatility has increased, with stocks swinging between gains and losses, and US Treasuries sliding along with the dollar. Systemic risks stemming from the CDS transactions are rising amidst the unfavourable global financial environment, meaning not only the US, but its counterparts are also subject to greater turmoil in the coming months, as possible Fed hikes, Brexit concerns, US elections and faltering global growth are all interconnected factors, contributing to the recent spikes in US sovereign CDS spreads. - Sputnik News
To validate this assessment, former Pimco CEO and the man considered the ‘Bond King’, Bill Gross, suddenly went bearish on bonds just four days ago.
Bill Gross has recently come out and said that the “system itself is at risk” and that a “day of reckoning is coming”. Ominous words indeed, but sadly, the truth.
Putting his money where his mouth is, Bill Gross is defying all of his instincts as a bond investor and is revamping his $1.3 billion “Janus Global Unconstrained” Bond Fund. He is moving his fund into a position to sell insurance and credit risk.
There are many in the alternative media who believe that the Fed is now creating policies not to address monetary problems, but to try to protect the economy and stock markets through November to spin the election in favor of Hillary Clinton. This is because uncertainty from the presumptive Republican candidate Donald Trump may force the central bank into ending its five year mission to fuel stock and housing bubbles, and from siphoning wealth from the general economy into the hands of the 1%.
Several economists are seeing the summer of 2016 as a dangerous period where a financial, economic, or monetary collapse could take place from any number of pivot points. And if the actions now taking place in the bond markets are any indication, those fears could be coming much sooner than most analysts believe.
Kenneth Schortgen Jr is a writer for Secretsofthefed.com, Examiner.com,Roguemoney.net, and To the Death Media, and hosts the popular web blog, The Daily Economist. Ken can also be heard Wednesday afternoons giving an weekly economic report on the Angel Clark radio show.