US long term Treasuries now risky investment as inflation probability skyrockets
Sam Adelton
Feb. 4, 2008

When the world’s only super power plans to fight economic depression by distributing $600 or so checks to its citizens increasing budget deficit, it is sad. The sudden lowering of short term rates by Fed, the stimulus package and other means of injecting artificial liquidity in the market is wrong. It will create inflationary pressures, the yield on long end of the Treasury will rise and the economic depressions intensify.

US long term Treasuries is now risky investment as inflation probability skyrockets. The gold price tells it all. The spike in gold price represents the inflation expectation. The real weakness of US economy is clear in the market devaluation of US Dollar.

The stop gap measures that Bush took in 2001-2002 are the root cause of this financial meltdown. The real problem started when Ronald Reagan started spending ruthlessly and created the big mess of the budget deficit. Clintons enjoyed from private borrowing and the economy prospered on borrowed time. Bush faced the mess Bill Clinton left. But his answer to the entire problem was a band aid – tax cut for the rich and lowering standard of borrowing.

US Treasuries (the long end) faces the higher inflation – perhaps hyperinflation with depressed economy. The shirt term can go zero while long term rates can go as high as 10%.

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