Fed gets small, realignment begins

Doug French

Source: Mises Canada
by Doug French

“In economics we learn, more supply with static demand equals lower prices. Not so with the U.S. Treasury market and hungry central banks. ‘The supply of publicly-held Federal debt soared from $2.4 trillion to $14 trillion between 1988 and 2017, but prices did not fall; they marched steadily higher — causing yields to steadily decline toward the zero bound,’ [David] Stockman writes (and emphasizes). Politicians, not strong in economics anyway, figured they could keep doing this forever. Not hardly. ‘So the real meaning of B-Dud’s bomb is that the law of supply and demand will soon be back in operation in the government bond pits. The long central bank financed holiday is over,’ says Stockman. So when B-Dud and Yellen start getting small, traders will be way ahead of them and the idea of a nice, smooth increase in rates managed by the PhD Fed army is fantasy.” (04/05/17)

https://www.mises.ca/fed-gets-small-realignment-begins/