Sunday 3, July 2022

Rudy has been recycling his greatest hits on Substack

You can read his latest compilation here. Bill Fleckenstein has been talking about the time when the bond market takes away the printing press. The bond market has been weak, and one of the biggest holders of bonds is the Fed. As I repeatedly say, in various ways, the huge problem for the Fed (and other central banks) is how to get inflation down without creating a recession and destroying their own balance sheets. The Fed is better positioned than many (the SNB has been buying US equities for years), but it does have a vast holding of assorted bonds. There are not many options available to it. If tightening is too great and we head towards recession, the US govt. will probably start appointing new governors. If tightening is too weak, or the Fed does a 180 degree pivot, bonds will crash making the bank insolvent (and not only the central bank).