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Helicopter Ben said so
many dumbfounding things the other night on 60 Minutes that we wouldn’t know where
to begin if we were to go after him. His ostensible interviewer, Scott Pelley, was clearly out of his depth, so it looks like
we’ll have to wait until Bernanke faces Rep. Ron Paul on Capitol Hill
before we get a clearer picture of the issues the Fed chairman would have us
believe he is managing. During the
CBS
segment that aired Sunday night, the Fed chief denied
printing money, but Pelley failed to press him on
this whopping technicality. Bernanke also said he could throttle
inflation in an instant if it becomes necessary. That absurdity, too,
sailed right over Pelley’s head – either that, or he simply didn’t care about
the economy-killing implications of the banker’s implied
“solution” – i.e., higher interest rates.
 
On that score we have
some potentially very bad news — not only for the Fed chairman, but for
all debtors. Take a look at the chart above and you’ll see why.
The price of the 30-Year Treasury Bond future has been falling hard for two
months, with a corresponding increase in yields. The interest rate on
the long Bond was 3.73% when the slide began; now it’s around 4.43%
— a rise of nearly 20%. Rick’s
Picks expects the March T-Bond to keep falling, presumably to a
“Hidden Pivot” support at 120 10/32. At that point, yields will
have risen to about 4.60%. Things could get really ugly, however, if the support
fails, since that has the potential to send the futures plummeting all the
way to 117 22/32. At that price, the long-term interest rate would be
around 4.82%. Spread this asphyxiating rate over public borrowing,
adjustable mortgages and revolving credit, and the extra tab would run into
the hundreds of billions of dollars for taxpayers, homeowners and
consumers.
When
Expectations Change
But that’s where
Bernanke’s problems would just be starting, since he is, after all, in
the business of managing expectations. With long-term rates creeping toward
5%, that number would become magnetic as lenders start to see it as all but a
foregone conclusion. The dollar would initially turn strong as interest rates
broke their administrative shackles to ascend toward market levels.
This trend might conceivably continue for some months – perhaps for as
long as a year – until it became apparent that higher borrowing costs
were pushing the U.S. Treasury toward the breaking point. No one can predict what
will happen if perceptions mutate into panic. More immediately,
however, the markets could develop a mind of their own, laying siege to the
Fed’s doomed effort to hold real interest rates down through trickery,
lies and deception.
Rick Ackerman
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Rick Ackerman is the editor of Rick’s Picks, a
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