The great federal-debt Ponzi scheme


The discrepancy between raging inflation and soggy Treasury bond yields remains a cognitive dissonance in financial markets.

There’s a simple explanation (and “Inflation is transitory” is NOT a full credit answer): The Federal Reserve and the commercial banks that depend on the Fed are virtually the only buyers of US government debt.

As long as the Fed is willing (and the market allows it) to buy arbitrarily large amounts of government debt, the price of US government debt is whatever the Fed says it is. It’s like the pump part of a pump-and-dump scheme in the stock market, except without the benefit of an exit strategy.

Charles Ponzi in 1920. Photo: Wikipedia

This Ponzi game can continue until inflation rises to the point where investors flee the Treasury market, yields soar and the economy falls back into recession. If the Fed and Treasury are willing to stake the credit of the United States of America…

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