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by bradleyjg
1047 days ago
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The real issue is the potential for positive feedback cycles. E.g. The government spends more money on the latest bipartisan bread and circuses bill, treasury rates increase as buyers demand more to hold ever increasing amounts of debt, private interest rates follow treasury rates up, some private borrowers are unable to service their debts at the higher rates and declare bankruptcy, private sector interest rates increase as perceived default risk goes up some private borrowers are unable to service their debts at the higher rates and declare bankruptcy, private sector interest rates increase as perceived default risk goes up Etc. The last time this looked like it was going to happen the Fed stepped in and bought “fallen angel” private sector bonds. This was an extraordinary intervention. They’ll probably try again next time it starts to happen. But they may just be building up a bigger crisis. Since the start of the “extraordinary measures” era in the early oughts they’ve never had to worry about inflation as a countervailing consideration. Now they do. |
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