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Insanity on the Potomac, U.S. Treasury Bond Investors Recoiling in Horror!

Interest-Rates / US Bonds Dec 19, 2010 - 06:43 AM GMT

By: Martin_D_Weiss


Best Financial Markets Analysis ArticleGiven the insanity on the Potomac last week, I cannot imagine a time when a clear vision of the future would be more crucial.

At 1600 Pennsylvania Avenue, President Obama signed a new fiscal package, which …

  • is virtually designed to add $858 billion to the federal deficit …
  • is likely to cost much MORE if events do not pan out as planned, and worst of all …
  • is not tied with any plan for long-term fiscal restraint.

Simply put, our leaders figure they can deal with the deficit “later.”

Sound familiar? It should. Because it’s the same exact rationale we heard after passage of the $800-billion TARP bill to save the banks in 2008 … and still again after passage of another $820-billion law to stimulate the economy in 2009.

In both cases, they said it was the LAST major government action to save the day. It wasn’t.

In both cases they said they’d deal with the resulting deficit later. They did nothing of the kind.

So what do you call it when otherwise intelligent people repeat the same action while expecting a different result?


But that’s not all. Just a few days earlier, at 20th and Constitution, the Federal Reserve’s Open Market Committee met with the apparent goal of matching the lunacy.

Despite screams of outrage from governments and investors worldwide, the Fed absolutely committed to creating hundreds of billions — and perhaps trillions — of paper dollars out of thin air.

The 3-Way Collusion Is Obvious …

Congress passes a groundbreaking bill to gut the budget.

The president promptly signs it into law.

And the Fed prints the paper money to finance the folly.

But there’s a problem: America’s creditors aren’t buying it. In fact, ever since the Fed first announced its intent to print up another $600 billion (QE2), supposedly with the goal of LOWERING long-term interests rates, those same rates have been rising.

Just a couple months ago — in early October — the yield on the benchmark 10-year Treasury note rested at 2.41%. Last week, it blew through the 3% level and looked for all the world as if it could reach 4%!

It’s clearly not working.

The Fed’s solution? Do more; hope for different results.

More insanity!

All over Europe, governments are cutting spending like there’s no tomorrow. They know that voters will take to the streets in outrage. But they know they have no choice. If they don’t lower their deficits, bond investors will abandon them. Their governments could collapse like a house of cards.

Meanwhile, here in the U.S., despite deficits rivaling those of many of the worst in Europe, our leaders have just added hundreds of billions MORE dollars!

Moody’s has a number to measure this insanity. It warns that the new law will raise the government’s debt-to-GDP ratio to a staggering 73%! Along with Fitch it has warned — again — that it may have to lower the U.S. government’s credit rating.

What do you call it when our leaders ignore the warnings of rating agencies that are known for being overly optimistic about future financial challenges?

Still more insanity!

Needless to say, all of these events will have a profound impact on every dollar you have saved, invested and socked away for retirement in 2011.

So be sure to stick with the strategies we have set forth here. Despite any twists and turns in the economy, they remain fully on track.

Good luck and God bless!


This investment news is brought to you by Money and Markets. Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit

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