Turning Hard Times Into Good Times

Alasdair Macleod, Patrick Highsmith and Michael Oliver return. The U.S. has three categories of buyers for U.S. Federal debt: the financial and non-financial private sector, foreigners, and the Fed. The banks in the financial sector have limited capacity to expand bank credit and American consumers are being encouraged to spend, not save. Except for a few governments, foreigners are already reducing their proportion of outstanding federal debt and there is every reason to believe that trend will likely accelerate as they suffer losses from plunging bond prices in an inflation-driven, rising-yield environment. With that, dollar hegemony will be threatened. That leaves the Fed. But the Fed recently committed to taper quantitative easing and it cannot be seen to directly monetize government debt. Meantime, the Biden Administration is pushing as hard as they can to spend endless trillions of more dollars in power-grabbing, give-away schemes, The Fed will be faced with a bad choice: protect financial asset values