No. of Recommendations: 18
The smart money guys today are increasingly mentioning devaluation of the US dollar at some point as a result of US deficit issues. Most say this will not be a problem until the US starts having problems selling Treasury bonds. These guys and girls say it is hard to say when the tipping point has been reached.
I don't believe the smart money guys.
IMO, the US will never have a problem selling bonds, at least not in any reasonable time frame. Each month the government cuts a bunch of checks. Checks for everything from payroll to Medicare, to Raytheon for some more Javelin missiles, to install EV chargers, what have you. What the government doesn't do is ask the Treasury to sell some bonds first so the checks will clear. Instead the government simply writes the checks regardless if funds are available. Then everyone deposits their checks in the bank. Now there is all this money sloshing around in bank accounts, the banks need something to do with it, and so they buy bonds because that's the best, safest return they can get. In other words, deficit spending drives the demand for bonds, not vice versa.
I don't see any risk of the demand for Treasury bonds drying up for those reasons. Deficit spending can create inflation however, and that's a risk. But CPI inflation is currently about 3% and dropping, which is on the low side of inflation during my lifetime. So I don't see signs of devaluation there. And the 10-year Treasury is at about 4.2% currently, which very expensive compared to most periods since WWII.
If the smart money guys are correct, then the bond markets are wildly mispriced. Big opportunities if that's the case, but I don't think it is.
