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US Treasuries: the Mother of All Bubbles?

Speaking on a recent CNBC broadcast, Peter Schiff, president of Euro-Capital, said, “The bond market is the mother of all bubbles right now.  When it bursts the losses will dwarf the combined losses of the stock market bubble and the real estate bubble.”

Marc Faber, author of the Gloom Boom and Doom Report, on the same program, threw in his respected position on US treasuries:  “Even the short term for treasuries is uncertain. If I look ten years ahead, where do I want my money? Certainly not in US treasuries.”

In a program earlier in the week, Barry Ritholtz said that treasuries resemble dot com stocks of the late 1990s.  Richard Russell, editor of Dow Theory Letters, has expressed his concerns that treasuries are in or are entering a bubble.

One of the tell-tale signs of a bubble is widespread belief that that the investments in the bubble are sure things.  We need go no further back than the housing bubble when nearly everyone thought that road to riches lay in buying houses and more houses.  Today, you cannot find an investment banker that does not believe that treasuries are sure things.

I am not in the Treasury market and have no feel for it.  I will take the words of the above mentioned experts that Treasuries and other government bonds are in a bubble.  But, bubble or no bubble, I, like Marc Faber, do not want to own government debt obligations.

In the interview, Schiff also said, “The problem is there is no way for the government to pay this money back, apart from through horrendous tax increases, which could never be accomplished. Or else the government has to tell people on Medicare or Social Security that they cannot get their cheques as the government is not able to pay its interest. And it is not just paying interest – it is also not being able to roll over short term debt; they will have to retire the principal. So there will be massive inflation.”

Basically, Schiff is saying the dollar (more accurately, the Federal Reserve note we call the dollar) will be destroyed as the government prints to meet its obligations.

For decades, I have been saying that whenever a country delinks its currency from gold or silver— makes the currency no longer redeemable—politicians will print that currency until it becomes worthless.  See The Sad History of Paper Money for more on this position.

For more on the treasuries bubble, read US Treasuries now the ‘mother of all bubbles,’ a blog post on Citywire, a UK website.  The post has links to other posts and videos that explore the topic in more depth.

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