Interesting, maybe we can inflate our way out of this crazy $30 trillion debt situation.
Bonds have a date and the government will need access to the bond market to finance stuff.
If the inflation is higher than the nominal rate on the bond, there would be fewer and fewer takers.
You cannot hold equities, or bonds which could lose value for such purposes.
If you buy a 10y treasury that yields 2%, and yields run to 4%, you'll lose a lot of money and be worse off than if you were in cash
At 7% that is still better deal than cash
Assume I have a 10y bond. I can buy it today for 2%. Or, I can sit in cash.
Next month the yield goes up to 3%. I buy it then with my cash. I made more money by holding cash rather than the bond.
Cashflowing assets are only a good inflation hedge after they've been valued using an appropriate discount rate for that inflation.
Both equities and bonds are not valued appropriately for the level of inflation we have, because market participants still believe in transitory. But that belief is being shaken. Personally, I would hold cash over bonds or equity right now.
So you can be stuck with 2% today, or wait a short amount of time and possibly get 3-4%
Bonds are mispriced right now. Of course, just my opinion.
Unless you're a U.S. (net) taxpayer, in which case you're paying yourself back and any interest you might get from the bond is purely illusory.
It's a good deal if you're not a U.S. taxpayer, though.
Whats remaining to be seen is how long this glut of inflationary pressures continues. At some point, it's much like a bubble - it is inevitable that things cannot continue that way forever.
However if it does sustain, the $15,000,000,000,000 in debt maturing in less than 5 years will be very hard to refinance at the same interest rates.
From the article:
> For the first four months of the 2022 fiscal year that started Oct. 1, the Treasury reported a deficit of $259 billion, a 65% decline from the year-earlier deficit of $736 billion.
At $120B a month basically the entire deficit is being printed away.
Though you're right that Fed is partially monetizing deficit spending, that money gets reabsorbed over time through coupon payments.
However, Fed typically will repurchase to keep balance sheet stable. Hopefully they actually do QT like they're saying to start reducing the balance sheet
If we get a few more bad CPI prints, expect rapid rise in longer term treasury yields.
Wouldn't be surprised to see 3% on the 10yr within a few months. Could go even higher if strong evidence of entrenched wage price spiral emerges
With the money they create out of thin air.
If you think Fed is creating money out of thin air, it's too far from reality and too politically coloured for me to convince you otherwise.
The Fed is creating money out of thin air (well, strictly speaking, it's managing, through target interest rates and other levers, the ability of member banks and other actors to do so, but that's the same thing, ultimately.)
That is the objective reality. And it's just conventional understanding of monetary policy, not MMT or End the Fed. (MMT points out the further fact that the Congress, by net taxing/spending decisions, also creates money out of thin air, or destroys it, and furthermore that that and it's money supply effects, not the mythical constraints of fiscal balance which are entirely applying concepts that only make sense in terms of a commodity currency whose underlying commodity supply is not ultimately controlled by the government at issue to a fiat currency to which they do not apply—which, really, is all basically conventional economics, but also conventionally ignored in a policy evaluation context because conventional economists don't like the policy conclusions it leads to; End the Fed I won't touch, because I’ve yet to see a clear, coherent, consistent argument in it beyond “Fed bad”.)
They do not take that money from someone else. They do not sell a product to get revenue. They mark up the accounts at the Fed and spend trillions of dollars that didn't previously exist on government bonds. The Treasury takes that money and spends it on govt programs.
Again, where do you think the Fed gets new cash to buy bonds with?
When normal banks give you loan, do the deposit holders also not "have" the money?
The banks create money, just not out of thin air: there's something of equal value exchanged in return