Tuesday, December 22, 2015

I dont think Yellen made a mistake , she knows she had to raise rates because she knows that most American pension funds were modeled on an interest rate of about 6 to 8% which they have been unable to achieve for the last ten years. This would have forced pension funds to take more riskier positions. It is also compulsory for pension funds to have a % in government bonds. If these pension funds come under pressure and they have to liquidate, this could put government bonds under pressure. Most European Nations are bankrupt so if their bonds become under pressure we are looking at a very large problem GLOBALLY. There is 200 trillion in the bond market and for the large movers whom might be looking for a bid on 500 billion of bonds and not receive a bid would cause panic.  Differentials in spreads between the USA and Europe because of negative interests rates will cause large capital inflows into the USA, this will cause equity and asset inflation in the USA which will necessitate even higher interest rates, which will cause the USA dollar to soar, That means all of those countries that borrowed in USA dollars at cheap interest rates will find it harder to make payments, USA rising, there currency in decline.  Then you have to look at the west, socialism has only been born from WWII, we had the population explosion (the bubble) and now we are all coming up to retirement, which has not been funded because politicians thought that we would reproduce at the same rate but we didn't, I come from a family of seven and I have two children, which does not even replace the population. Western nations are in decline. Japan demographics are terrible and so is Germany. If you think Merkel is a nice lady letting in 800 thousand refugees from Syria.... think again. She needs these people to pay taxes to pay for her older generations pensions.
Get ready for a very bumpy ride...

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