Doug Noland's Credit Bubble Report

It is Economic complete text. (Mr Noland is one of the most intellectual, fact driven writers of our time, IMHO)

"One of the challenges of analyzing Bubbles is appreciating that powerful forces inherently arise to perpetuate them longer than one would have initially believed analytically probable. The tech Bubble went to incredible extremes – and then “doubled.” Ditto for the mortgage/Wall Street finance Bubble. As an analyst, however, I’ve got to assume that the marketplace is today much keener to the problematic nature of Ponzi Finance Dynamics.

The key to the rapid implosion of the mortgage/Wall Street Bubble was the combination of its unwieldy scope and the disappearance of the GSE “backstop bid.” At $2.0 TN, arguably we’ve quickly reached ample “scope” in the market for “federal” obligations. As for the “backstop bid,” foreign central banks have for some years now been massive buyers of Treasuries and agencies during periods of unwieldy global dollar flows. And with more comments out of China today, there is even greater support for the view that foreign appetite for our debt instruments is waning in the face of the unprecedented inflation in their quantity. Moreover, market perceptions have Treasuries as bulletproof.

I know better than to try to predict the timing of problems developing in the Treasury and currency markets. But I do see all the makings for the next problematic leg of this financial crisis. As I have written before, our nation’s predicament becomes much more problematic when perceptions turn against the Treasury/agency marketplace."

Friends, it's not if but when this BOND/TREASURY BUBBLE bursts, could be the mother of all bubbles.

D