So, I’ve said it.
With Saudi Arabia in a diplomatic crisis with the US, Central banks all over the world entering into cross currency swap agreements with China, Europe’s stalling economies and a further increased demand in physical gold holdings we will see a decrease in foreign US treasuries demand in the coming months.
The FED will not allow that this decrease in demand, as an increase in interest rates of US treasuries will further lower expected GDP growth rates and ultimately destroy the fragile US economic recovery. This is because increasing mortgage lending rates will result in decreasing property prices and lower consumer spending. In the end will will see a Wealth Effect in reverse. To keep interest rates low the FED will likely increase QE and not taper in the coming half year.
It is not likely that the US government will cut spending’s and run a surplus within 2 years. Therefore the key question is, when will this increase in QE result in a spiral that we have seen so many times before in history?
PS. are the declining oil prices a silent diplomatic war between the US and Saudi Arabia? We all know that the governmental expenses of Saudi Arabia (keeping the population happy and pay for the 10.000+ princes) have increased so much that historic oil prices are likely to result in civil unrest.
Who owns the US debt?