Tuesday, December 30, 2014

Longer Term Bearish View On Treasuries

In order to amortize the current public debt of $13 trillion over 30 years, the federal government would first have to permanently stop incurring budget deficits, and then the principal repayments would be about $433 billion a year.

Just balancing the budget is pretty unlikely, and to reduce spending by that much (taxing more will be self-defeating) and begin amortizing seems practically impossible.

Many people have observed this already, of course, but they were too early. Even Japanese government bonds are still increasing in value! I believe that the key insight is the astonishing demand for "safe" stores of value created by aging populations. Highly deflationary.

Realistically, this demand is going to grow, and they will borrow more at lower rates, digging the hole deeper.

We will watch for a chance to trade our "safe" treasuries for "risky" precious metals and oil, and lower rates and higher prices, respectively.

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