Frighteningly, like the rush into tech stocks, then the rush into real estate, and then the rush into commodities, the rush into U.S. government bonds has created a Treasury bubble. In a cruel twist of economic fate, passage of an aggressive Obama administration stimulus plan could further inflate that bubble – before popping it.
The United States of America is an expensive household to run. In order to pay the nation’s bills, the U.S. government levies taxes. When expenditures exceed tax revenue, the government has to borrow money. The United States borrows money by ordering the Treasury Department to sell government IOUs to investors in the form of Treasury bills, notes and bonds, known as “Treasuries.”
How much does the government owe? As of Friday, according to TreasuryDirect.gov, total U.S. public debt stood at $10,620,397,126,433.54 ($10.62 trillion) – and counting.
The Case for Treasuries
Investors throughout the world – including those here in the United States – buy Treasuries because they pay interest and, moreover, because they are backed by the full faith and credit of the United States. What underlies the faith that investors have in repayment is the knowledge that the U.S. government has the power to levy taxes to raise money to pay back creditors. In addition to its taxing authority, the government can literally print money and pay back investors with dollars fresh off the U.S. Federal Reserve’s printing presses.
Because investors in the United States and around the world have been fearful of the collapsing residential and commercial real estate markets, declining equity markets, and potentially insolvent banks, they have had a tremendous appetite for safe U.S. Treasuries. The extraordinary flow of money into Treasuries caused their prices to rise. When prices rise on fixed-income investments like Treasuries, their yields fall.
In some cases, the demand for safe Treasuries drove yields on short-term bills down to zero; in fact, for a brief few days last November, yields were actually negative, meaning investors were paying the government for the right to own those Treasury securities.
At the end of the first week of January, the three-month T-bill yielded 0.08%; the two-year note yielded 0.87%; the 10-year note yielded 2.4%; and the 30-year bond returned a miniscule 2.82%, Barron’s reported.
It’s a good thing that there’s been a huge demand for U.S. Treasuries, because the United States has been spending billions – if not trillions – bailing out banks and acting as the investor of last resort during the ongoing credit crisis.
Troubled Assets, Troubled Times
Last October, as part of the so-called Troubled Assets Relief Program (TARP), Congress allocated $700 billion to buy “troubled assets” from banks that were losing money. Those institutions were truly troubled: They were unable to sell non-performing assets, were taking huge write-offs and, as a result, were not making new loans.
The initial TARP outlays – about $350 billion – went to suffering banks, in a few cases so they could buy lipstick and pretty themselves up before courting other wallowing institutions. Merged companies still declared massive losses and – as a result – bank-lending declined. In fact, 10 of the 13 largest beneficiaries of bailout money received $148 billion and saw outstanding loan balances drop by $46 billion, The Wall Street Journal reported on Monday.
None of the TARP bailout money actually went to buying troubled assets from floundering banks, earning the Treasury Department a stern rebuke from a congressional watchdog. Instead, most of the capital given to banks went onto their balance sheets as a capital asset and most of those institutions bought the highest-yielding government and agency paper they could find.
For instance, of the $45 billion Citigroup Inc. (C) received from the Treasury Department, $10 billion was invested in short-term commercial paper issued by Fannie Mae (FNM), said a person familiar with the situation.
The other $350 billion that Congress authorized from the original bailout package was released last week, without any clear plan as to where it should go.
A snapshot of where taxpayer money has already gone reveals that what’s been spent and lent is a little more than the headline news services report. According to a Bloomberg analysis incorporating data from the Treasury Department and Federal Deposit Insurance Corp. (FDIC) and interviews with regulatory officials and others:
- $300 billion has been spent on Fannie Mae, Freddie Mac (FRE), American International Group Inc. (AIG) and Bear Stearns Cos. (now part of JP Morgan Chase & Co. (JPM).
- $300 billion on Citigroup.
- $700 billion on TARP – though not on what TARP was intended for.
- $800 billion on Fed-directed asset-backed debt-purchase programs.
- $1.4 trillion on FDIC bank guarantees.
- $2.3 trillion on Fed commercial paper programs.
- And $2.2 trillion on other Fed lending and government commitments.
That totals a little bit more than $8.5 trillion.
Stop the Presses?
As if it isn’t frightening enough that the Treasury is selling huge amounts of cheap debt to investors to bail out bloated, insolvent banks and inefficient industries, the Federal Reserve is printing money to buy commercial paper and illiquid assets from just about everybody to facilitate lending in almost every corner of the economy – and is then carrying these “assets” on its balance sheet.
Isn’t that how the credit crisis got started, with banks holding illiquid “troubled assets” on their balance sheets?
Since nothing the Treasury or Fed has done has alleviated the credit crisis in any meaningful way, and the economy is threatening to reprise the Great Depression, the newly installed Barack Obama administration is being forced to formulate another “new” stimulus plan.
With an “introductory” price of a mere $825 billion, there should be little doubt that the ultimate plan – once all the bells, whistles and pork have been added – will actually cost taxpayers several trillion dollars.
And government borrowing is already off to a flying start this year. Last year, the Treasury Department sold $892 billion of notes. According to Goldman Sachs Group Inc. (GS), one of the 17 primary dealers that buys Treasury debt directly from the government, the United States is expected to borrow a record $2.5 trillion in the current fiscal year.
This week’s Treasury calendar is set to top all previous records of debt issuance. After selling $8 billion of Treasury Inflated Protected Securities (TIPS), last Monday, the Treasury Department last Tuesday sold $40 billion of two-year notes, the largest two-year auction in history. Then on Wednesday, in another record-setting auction, the Treasury sold $30 billion of five-year notes. So far, the supply has been absorbed, but like the song says, “If it keeps on raining, the levee’s gonna break.”
A Blueprint for a Burst Treasury Bubble
In something like a cruel joke, because all the banks are still holding the bad assets that the original $700 billion Troubled Assets Relief Program was supposed to buy, the new “Plan B” may include going back to “Plan A,” this time around forcing the government to actually buy those bad assets.
The same problems exist with the old plan, and no matter how it’s attempted, it will require a lot of money. In addition to this new Plan B, the new stimulus package will require additional outlays for infrastructure investment, as well as for the additional stimulus plans that are still to come.
Here’s where the aforementioned cruel twist of economic fate comes into play. The government will spend trillions of dollars of additional taxpayer money that hasn’t even been collected, yet. Even so, the Treasury Department will have to issue more debt. That means the Federal Reserve will have to print and spend more “worthless” paper money in order to pump liquidity into the failed U.S. credit system.
In spite of all that, of course, the stimulus package should eventually revive the U.S. economy.
And when it does…the hugely inflated bubble in Treasuries will burst.
Investors poured money into safe-haven Treasuries and accepted yields so low that in any normal market they would be unacceptable. When the investing horizon looks more promising, investors will dump their low-yielding Treasuries and venture back into the markets for real estate, the domestic equities, international stocks, corporate bonds, junk bonds, emerging economies, and all the other usual investment nooks and crannies that offer greater return potential.
The cruelest twist of economic fate would be that the Treasury Department will eventually have to raise interest rates to generate demand for the debt they have to continue to issue. And higher interest rates are the last thing our struggling economy needs.
While the Treasury has been issuing huge quantities of debt and the Fed has been printing money, the credit crisis and recession have reduced tax revenue across the board. As the recession deepens and unemployment rises, there are fewer taxpayers contributing to the income tax base. Furthermore, as fewer goods and services are produced and consumed, there will be less sales tax and other tax receipts for the states and federal government to collect. As we all know, if there is less revenue coming in, we’ll have to issue more debt to make up for the shortfall.
In addition to bailouts and projected stimulus spending, the administration’s package includes tax breaks for businesses and, eventually, promised tax reductions for the U.S. middle class. While lower taxes, theoretically and historically, have a stimulative effect over time, in the short run, there will be still less government revenue at a time of increasing government expenditures. Investors will come to fear that, without an expanding tax base, the government will have to continually roll over its debt or will print still more money to pay off creditors.
If it appears as if we’re in a vicious cycle that’s spinning out of control, it’s because we are.
Boosting debt even as we print more money will have a devastating effect on the U.S. dollar. While a devalued dollar makes U.S. manufactured goods and services cheaper overseas, it also makes the goods and services we import more expensive, as it takes more dollars to buy the same amount of imported products – especially oil.
The United States is a net importer and runs a huge current account deficit with its trading partners abroad. At some point if the dollar falls too low or collapses, the government will have to raise interest rates to support the dollar. If interest rates in the U.S. market rise relative to other countries, investors buy dollars and deposit them with U.S. institutions for higher yields. But, again, higher interest rates are exactly what the United States must avoid as it works to stimulate domestic production and consumption.
The problem with huge deficit spending and with printing money to pay for anything – particularly “troubled assets” – is that more money floating around in the system eventually spells inflation. If there’s more money in the system and there are fewer goods and services being produced, when the demand for those goods and services inevitably returns, the prices will be bid up.
That’s inflation.
While the present concern for policymakers is how to combat deflation’s detrimental effects, overspending on a new stimulus plan could cause the bursting of the Treasury bond bubble, and create immediate consequences that can only complicate recovery plans.
The trillion dollar question is this: Can a stimulus plan address the credit crisis, fund recovery spending, reinvigorate confidence, lay the groundwork for revenue enhancement and not throw taxpayer money down a black hole?
The answer is yes. There is a much quicker and safer way out of the credit crisis that takes us forward toward an economic recovery. The problem is that no one wants to hear it because no one wants to swallow the politically devastating harsh medicine that’s necessary to cure the plague we’ve infected ourselves with. As usual, there are too many vested interests protecting the same old turf.
Throwing good taxpayer money after badly wasted taxpayer money will not fix anything. But throwing out overly leveraged, overly greedy, overly dependent banks and bankers is a good start.
[Editor's Note: Uncertainty will continue to be the watchword for at least the first part of the New Year. Little wonder, as the global financial crisis continues to whipsaw the U.S. financial markets in a manner that hasn't been seen since the Great Depression. It's almost enough to make you surrender.
But what if you knew, ahead of time, what marketplace changes to expect? Then you'd be in the driver's seat - right? You'd know what to anticipate, could craft a profit strategy to follow, and could then just sit back, watching and waiting - and finally profiting from - the very marketplace events you anticipated.
R. Shah Gilani - a retired hedge fund manager and a nationally known expert on the U.S. credit crisis - has predicted five key financial crisis "aftershocks" that he says will create substantial profit opportunities for investors who know just what these aftershocks are, and how to play them. In the Trigger Event Strategist, Gilani uses these so-called "trigger events," as gateways to massive profits. To find out all about these five financial-crisis aftershocks, and about the trigger-event profit strategy they feed into, check out our latest report.]
News and Related Story Links:
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Money Morning:
Credit Crisis Expert Shah Gilani Details Financial Crisis Investment Strategies on Free Video. -
Money Morning Deregulation Series:
An Open Letter to President-Elect Barack Obama: How a Regulatory Makeover Can Fix the Financial Crisis. -
The Wall Street Journal:
WSJ: Banks Lending Less Under TARP. -
Bureau of the Public Debt:
Web Site. -
Wikipedia:
Current account deficit. -
TreasuryDirect.gov:
Web Site. -
Wikipedia:
Troubled Assets Relief Program. -
Money Morning Investigative Report on the Bank Bailouts (Part VI):
Congressional Watchdog Criticizes Treasury for Failing to Track $350 Billion in Bank Bailout Money. -
Money Morning Investigative Report on the Bank Bailouts (Part V):
U.S. Banks Refuse to Detail How They’re Spending Federal Bailout Money. -
Money Morning Investigative Report on the Bank Bailouts (Part IV):
Banks That Got $188 Billion in Bailout Money This Year Paid Out $1.6 Billion to Top Execs Last Year. -
Money Morning Investigative Report on the Bank Bailouts (Part III):
Billions in U.S. Bank Rescue Funds are Fueling Buyouts Worldwide – Instead of Lending at Home. - Money Morning Investigative Report on the Bank Bailouts (Part II):
Billions in Bank Rescue Funds are Fueling Buyout Deals, and not the Increase in Loans That Would Help Ease the Financial Crisis. -
Money Morning Investigative Report on the Bank Bailouts (Part I):
Foreign Bondholders – and not the U.S. Mortgage Market – Drove the Fannie/Freddie Bailout. - Money Morning News Analysis:
-
Money Morning Credit Crisis Investigation:
Dear Hank: Here’s How to End the Credit Crisis at No Cost to Taxpayers. -
Money Morning Deregulation Series (Part I of III):
How Deregulation Eviscerated the Banking Sector Safety Net and Spawned the U.S. Financial Crisis. -
Money Morning Deregulation Series Sidebar (Part IA):
How Wall Street Manufactures Financial Services Products. -
Money Morning Deregulation Series Sidebar (Part IB):
How Subprime Borrowing Fueled the Credit Crisis. -
Money Morning Deregulation Series (Part II of III):
Only Tighter Regulation Will Stem this Crisis of Confidence.
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This story is a credible hypothesis. The other scary story told around is the petrodollar scam, effectively run by the US Government. http://www.scribd.com/doc/7552683/Petrodollar-Warfare-and-Collapse-of-Us-Dollar-Imperialismspecial-Report
William R Clarke paints the picture just as sombre as Shah Gilani here. Look at where the US Treasury fit into both these stories and be scared.
Intelligent analysis as always, Shah. Thanks.
To Adam Potgieter above: Please keep your conspiracy theories to yourself.
[...] Shah Gilani Money Morning addthis_pub = ‘jutiagroup’; addthis_logo = ‘http://www.jutiagroup.com/favicon.ico’; addthis_brand [...]
Yes, it is a credible hypothosis. It’s only a hypothosis until it is proved then the frog will be cooked. Always follow the money trail. Who’s the boss of the money? A guy interviewed on the radio said, “the government doesn’t just create money out of thin air they borrow it from the private sector.” We are conditioned to think that means the tax paying public or treasury investors worldwide. Is it? The private sector lender from which we borrow is the Fed because they are the issuer. (The Fed is the one who creates it out of thin air, but they aren’t the government). Bill Bonner’s book “Mobs, Markets and Messiahs” pointed out that the “job of a central banker is not to protect the currency but to control its destruction.” The Fed, like all central banks, are members of World Bank. World Bank is a functionary of the UN. The UN’s purpose is world peace. Member nations who have the money to conduct war tend to do so and will continue to have that ability unless they go broke. If they go broke then, the theory is, there will be peace. At least the shooting stops. Its the US who’s ruining their own currency and the Fed is letting/facilitating them because peace is paramount. All this has to happen. No, I personally don’t think peace will come from this source but that’s the UN goal.
[...] What are the consequences – read this article - Obama’s New Stimulus Plan May Be the Needle That Pops the Treasury-Bond Bubble. [...]
Ladies and gentlemen:
“Nobody wants to hear” your message. That’s what you say. But you do not reveal, what your message is. Can you tell me?
Yours cordially,
Manfred Nitsch
retired professor of economics
Freie Universitaet Berlin
Dear Mr. Gilani:
I admire your efforts to articulate the Treasury-Bond bubble in your article: “Obama’s New Stimulus Plan May Be the Needle That Pops the Treasury-Bond Bubble.”
I agree with you that the Treasury-Bond bubble is developing will grow in magnitude and will [someday] burst. However, we may not see the bubble burst for many years to come… if ever. And Obama’s New Stimulus Plan will certainly not be the needle that pops the bubble. Here’s why…
First, your analysis of Treasury-Bond Bubble is well thought and detailed. However, your analysis approaches the subject issue as a two dimensional model like… action and reaction… supply and demand… price and quantity… money supply and interest rates… and interest rates and Bond bubble. In summary, what your analysis is saying: “The injection of trillions of dollars in the US economy, by the FED, will eventually cause inflation and that in turn will force FED to raise the interest rates causing the Treasury-Bond Bubble burst.”
Unfortunately it is not that simple and it’s not just you, but most everyone approaches the “supply and demand” as a two dimensional economic model. The two dimensional approach to analysis seemed to have worked fine in the past because, even though the third dimension [demand destruction] existed in the past, its impact was not huge [because of population growth, immigration and rise in living standards from much lower levels] and it was not realized for a long period of time due to slow consumer reaction to changes. And when the impact of this third dimension [demand destruction] was realized, it had arrived slowly and since its impact was not felt immediately… it was, therefore, considered as the result rather than the cause in the economic models. In summary let me explain…
There is a third dimension [demand destruction] that needs to be considered in any economic model in this day and age… the age of instant communications and the Internet. This third dimension is the “permanent demand destruction” from today’s informed consumer… the buyer of products and services who is also motivated [now] with the desire to store money, in one form or the other, for the future. When you enter the permanent demand destruction in to the equation, your argument of money supply… inflation… higher interest rates… Bond bubble burst scenario will not hold in the near future. In my humble opinion, this time it will play-out differently from the conventional wisdom…
Permanent Consumer Demand Destruction for Products and Services:
When you permanently destroy huge demand [by the consumer], the supply side [businesses] make adjustment to their business model by cutting production, cutting CAPX, cutting operating cost and letting employees go. In this scenario when there is less demand from consumers [and businesses] for both cash and credit… the risk of Bond bubble bust is delayed if not mitigated altogether. The argument in favor of consumer driven demand destruction is as follows…
The consumer of today recognizes that the trillions of dollars poured into the US [from all over the world] and that is what supported their credit binge to spend and spend. The [almost] free money pushed the consumers to rush into buying products and services they did not really need, rush into tech stocks, then the rush into real estate, then the rush into commodities, and then rush into U.S. government bonds. Over the years all of these asset classes [except the U.S. Government Bonds for now] have blown-up in the consumers face. Not only that, the financial machinery that funneled trillions of dollars of the free worlds savings [from across the globe] into the US financial system has now blown-up as well and the money velocity has come to a screeching halt. Banks are over leveraged, they don’t trust each others financial health and they are not lending.
Consumers are not borrowing either; they are downsizing and cutting cost…
• Banks are not lending to qualified consumers… but that could change;
• Consumers has little or no equity to borrow against… not going to change anytime soon;
• Days of free money are gone forever… because the savers from all over the world are now wise to the financial shenanigans of American financial wizards and are not looking to send their life savings to America any time soon;
• Consumers are now motivated, by the blow-up of almost all asset classes in their faces, to start saving money for their future commitments and retirement… going from negative savings to almost over 6% now;
• Consumers finally realize that they don’t really need three of everything [homes, cars, jewelry, minks/furs, TVs, cell phones, computers, and electronic gadgets].
• Consumers finally realize that they don’t need to buy a Hummer or new model car every other year;
• Consumer finally realizes the rising cost of energy for driving, heating and cooling… the present drop in cost is temporary we all know;
• Consumer finally realizes that the increasing cost of real estate taxes even though their homes are 40% less in value to-day… taxes always go up and not down;
• Consumers finally realize that they don’t need to re-model every five years and buy new appliances every three years;
• Consumers finally realize eating home can save them thousands of dollars over the course of the year;
• Consumers are loosing jobs left and right in all sectors of our economy… there are no safe heaven… not even in the health and consumer goods;
• Consumers are de-leveraging en-masse and there are no asset classes worth investing [speculating] at this time… and perhaps for a long time.
The studies indicate that by the end of year 2008, there will be over 1 billion Internet users. That means, most all of the educated population of the world, will be globally connected by the Internet. And the boundaries of time and space will disappear. People will gather in public forums of their common interests to network and share information. These people will be the consumers, investors, vendors, partners, friends, enemies, management, or employees of the public companies. In a public forum like this, that allows us to maintain our anonymity, there will be no place to hide for the incompetent or the unscrupulous.
Add to this Internet phenomenon the instant communications afforded by the TV, and its producer’s desire to provoke debates on issues, that in the end, when all is said and done, informs and educates the public at large. What you have is a well informed, wiser and more responsible consumer that is all set to “destroy demand” for the un-necessary, unscrupulous and the irrelevant.
Permanent Businesses Credit Demand Destruction:
Businesses now see this consumer demand destruction as a clear reality and are adjusting their business models accordingly by cutting production, cutting CAPX, cutting operating costs, de-leveraging finances and letting employees go. And as such, eventually, after the initial denial period to accept demand destruction, there will be less demand for cash and credit from these businesses.
On surface it seems that if these businesses could borrow money earlier, like in the August/September time frame, they might have postponed downsizing and waited a little longer before letting employees go. However, that window of opportunity is gone and the reality of wide spread “demand destruction’ has become a reality. The reality of demand destruction is apparent in thousands of employees being laid-off by bellwether companies like Microsoft, Google, JP Morgan and the like.
Granted, that in due time the wealthy consumers and businesses will come back into the credit markets to borrow so they can speculate in products, plants, production, stocks, commodities and real estate. But that time is years away, when there are clear signs of stability and growth in any of the known asset classes for investment.
Permanent Destruction of Asset Values at the Financial Institutions:
To this witches brew, let’s add the cause of our current credit crises and see what it means for the free supply of money in our financial system. I’m sure you and I both have our own set of facts, analysis and opinions. But the core fact that no one denies is: “the leverage used at financial institutions world-wide and lack of regulatory oversight was the main cause for this global credit crises.”
The regulatory oversight, or lack of it, will be debated and some day there will be rules and regulations in-place to prevent future systemic met-down and risks. In the meantime, however, either because of banking laws or because of banks own desire to mitigate risks in this financial environment, the banks and financial institutions out there are busy trying desperately to de-leverage. This means banks [and financial institutions] will first try to shore-up their equity/debt ratios before lending out the money received from TARP and other FED bailouts. There is, by the last estimates, over $3 trillion dollar in systemic losses in the US alone. The money losses did not change hands… it just vanished in thin air. What’s left behind, however, is the un-acceptable levels of leverage, risk and vastly impaired equity/debt ratios at US financial institutions.
In summary, before we see inflation we will first see deflation due to permanent demand destruction for products, services, and credit. If we are lucky and the trillions of dollars in FED money does work, in the best case scenario, we may see stagnation and not reach full-fledged deflation. That is our hope!
Inflation in the short term does not seem possible in view of huge permanent demand destruction for products, services and credit. The 10 year note is currently trading at 2.67% yield. That doesn’t sound any inflation bells in my congregation.
Anant Goel
the thought process and the understanding is the best i’ve seen on the internet including dr.doom untill you got to the dollar. your assumption that the dollar will devalue doesn’t take into consideration that the rest of the world lags us and we must recover before they do so our dollar will remain strong untill we have recovered a while before the world which will give us a head start on raising interest rates which will keep the dollar strong. you did a little dance around the dollar to get back to inflation is comiing and it is but not till the world reaches bottom.
dear m?. goel,
i agree with the demand destruction concept – babyboomers will not buy more harley’s or attend as many football weekends or nascar races. mr. gilani did not carry his thought process through the macro part but then he is trying to sell fear and how to get rich. mr scott if not for conspiracy theorists, soap box prognosticators, snake oil salesmen, and me there wouldn’t be enough people on the internet for google and if m?. goel is correct google is in trouble, isn’t their stock down a lot….
[...] Obama’s New Stimulus Plan May Be the Needle That Pops the Treasury-Bond Bubble [...]
I receive a number of investment letters and one things seem to be consistent…that the US$ is likely to weaken with all the money the US government will be printing when the stimulus plan kicks in.
The Canadian dollar has been at par with the USD in the past two years but has slid to around .80USD recently.
If one were to invest say $80,000 in any investment denominated in CDN$ and what all the US pundits are forecasting for the US$ happens, the math is simple…when the US$ falls to parity once again(or beyond) that investment is now worth $100,000US$ or more once the Canadian $ is once again worth as much or more than the USD. With no appreciation in the underlying investment that implies a gain of 25% to the US investor.
I have many years experience selling real estate in the resort municipality of Whistler..North America’s #1 ski resort (see Ski magazine and Skiing….both US publications). This is not some fantasy….over the past 5 years we saw the Canadian dollar go from .64USd to over 1.00USD and back down to where it is now at around .80USD. We have many American visitors and real estate owners in our resort who have taken the ride. Some savvy investors bought low and sold high and made returns exceeding 50% in a time where prices have not been rising..ie when the dollar went from .64 to .96 that meant a 50% gain.
Think this is not a great time to invest in real estate?…think again.
Whistler is a unique resort and will be hosting the 2010 Winter Olympics. It will be viewed on approx 3 billion tv sets around the world. Money normally cannot buy that kind of publicity and we are just one year away from that reality. All venues have been completed and we have been hosting World Cup Nordic events since last winter. The rinks for figure skating and hockey have been built as has the sliding centre for luge, skelton and bobsled events.
We are seeing European, Asian and US athletes here in anticipation of next winter.
If the Park City 2002 Winter Games is any example we will see a strong real estate market going forward. Within two years after those games the volume of real estate sales in Park City doubled.
I know, I know…I sound like the president of the Chamber of Commerce. The truth is we see legions of US visitors from Washington, Oregon, California, Chicago, Texas, Florida, Alaska and many others.
After Prince Phillip and his sons visited us a few years back visits from the UK soared so just imagine what 2010 will do for us.
One of our legacies will be a new $600-800,000,000 highway from Vancouver to Whistler. Construction is going on apace and is due to complete by the end of next summer.
As well, the New York investment firm who owns our ski operations has just spent $52million on a spectacular new lift which soars from one mountain to the other. It is the highest and longest unsupported span in the world..at one point you are over 1400 feet above the valley below…in a word…amazing!
Just a thought, but let me sum up by saying that if you bought a $800,000USD home pre-Olympics and the dollar does go to parity you will realize a 25% gain of $200,000USD. I won’t even conjecture about the likely rise in real estate values by 2012.
Sincerely,
Ed Styffe
Whistler, British Columbia
Canada
You know, I sit back and watch this scenario unfolding like it was something that wasn’t predictable. I saw this collapse coming about the time of our last real serious Canadian recession in 1990. I saw Canadians conservatively begin to cut back for a few years and governments real in spending. However I watched as the US economy coniued to form one vast bubble after another in tech stocks, equities and finally real estate. Never really allowing the country to purge itself of errors and weak businesses. Relying solely on appreciating assets to drive the economic engine. I mean for crying out loud a five year old could have told most people that when you have nothing of value to sell you can’t expect your wealth to increase.
Now in Canada we have accepted the new policy to spend ourselves happy again by running an 89 billiob dollar deficit over five years which when all is said in done will likely be three or four times that amount when true devaluation takes place of assets.
The pain we all have to go through was brought on by none other than ourselves and our lust for riches. Rather than help our fellow man we opted to shaft him. We spent money we did not have at a cost to everyone else and now we will reap the seeds we sowed and no amount of foolish government spending will stop it. We need to stop the mind set that wrong is right because quite simply they mean two different things.
I’m confused. I thought that production was supposed to shift from consumer goods (private sector) to infrastructure maintenance and repair (public sector) when the business cycle goes into recession. So why worry about the demand for treasury notes when all they have to do is crank up the printing presses? If all the new money goes into the hands of hungry people in need of consumer goods where’s the problem? Well duh…
[...] Money Morning: Obama’s New Stimulus Plan May Be the Needle That Pops the Treasury-Bond Bubble [...]
I would like a complete pack of stimulus bill and the bond investment