QUESTION: Marty, Ever because the debacle in London with the long-term debt, there have been whispers in NYC about how the demand for long-term is drying up. When this turns into crucial, is that when the entire thing comes crashing down?
KW
ANSWER: That was the true gist of Yellen’s speech again in October of 2022. In fact, the US press won’t ever elaborate on this drawback till it smacks them within the face. Yellen publicly admitted that the Treasury requested the first sellers of US authorities debt for his or her views on the deserves and limitations of a buyback program. The Treasury Borrowing Advisory Committee, made up of market contributors, extremely really useful contemplating the transfer as a result of the demand for long-term was declining.
Yellen herself publicly acknowledged the decline in buying and selling quantity in 20-year bonds, which they reintroduced in 2020 because of COVID. Quoting from her direct feedback:
“The 20-year Treasury is an space, a difficulty the place there’s been much less liquidity — however we haven”t made any choices about it.”
Even the Securities Business and Monetary Markets Affiliation got here out and publicly additionally said final October that there had been episodes of illiquidity. This was the identical drawback that created the Disaster within the Lengthy-term British gilt market.
Establishments don’t wish to purchase the long-term within the face of (1) rising rates of interest to struggle inflation, and (2) limitless handing of cash to Ukraine that can NEVER come again for Ukraine is a black gap and dependable sources are deeply involved that Ukraine will lose and exist no extra.
The escalation in debt on the horizon with World Struggle III is past the capability of the Main Sellers to purchase. They’re strained now with the debt growth for socialism, then Ukraine, and add Struggle, this method is cracking NOW! The Main Sellers can’t purchase extra debt than their steadiness sheets enable. The “whispers” working round have been on the road. The press has not articulated this for (1) it above their pay grade to understand, and (2) they can’t dare report the reality.
