How To Kill The Bond Market.

It's easier than you think: all you have to do is adopt MMT and print money like it's going out of style. That infusion of artificially created liquidity -- liquidity that is not now and will never be paid for in budgets -- has the effect of inflating the economy and with each cash infusion from The Fed, we slowly move from a deflationary scenario to an inflationary one.

Economic crisis by its very nature is normally deflationary -- people lose jobs or end up with a severely reduced income, cut back on spending and try to ride their way through the financial crisis. Personal spending which makes up 70% of the American GDP grinds almost to a halt and economic circumstances continue to worsen.

However, as phoney money printing becomes the normal course of the day, that increasingly sparks inflation leading to a steady increase in prices and business input costs for material and other goods. Meanwhile, bond rates dive and head toward negative interest rates. That means that for every bond you buy, your principle is drained by the corresponding negative interest rate. In other words, you hold bonds to lose money, to watch your capital slowly but efficiently drain away over time. And the more inflation increases, the quicker your bonds are on the path to zero.

By now, most of you are already aware that the Ten-Year Treasury has been below one percent for quite some time. In fact, the current nominal rate is 0.60% and that is likely to go lower. However, in terms of real yields after inflation, the Five, Seven and Ten-Year Treasuries are already in negative rate territory. Treasuries are sovereign debt denominated in the American currency. U.S. government issued bonds, if you prefer. Now, to the current reality: worldwide, there is out there 17 Trillion in sovereign debt that has a negative interest rate. As a result, no one, not institutions nor individuals, is willing to purchase those bonds so as a result, the national central bank, ECB or The Fed become the buyer of last resort and that garbage ends up on their balance sheet.

That's in the context of the world's overall disastrous government debt, which was already at 71 Trillion before the onset of The Greatest Recession. QE To Infinity and similar other national fiat currency infusions have already added another 5 Trillion and there's no indication that manufactured cash injections will end any time soon.

Nominal negative rates are a question of time. Japan has had them since 2016 and little economic growth has occurred since then. But The Fed inevitably will create economic conditions that will go there: in the words of Rita Mae Brown:

"Insanity is doing the same thing over and over again, but expecting different results."

Somebody had better clue The Fed in fast, before the Bond Market dies.