Bond Sell-Off Heralds Business Consolidations And Hyperinflation
The small investor, the smaller business owners, and the family-owned/independent businesses are going to be the big losers, while private equity, from the leviathan banks class will gobble up assets
The global bond markets are facing another wave of sell-offs which have remained constant becoming the worst since 1949, according to Bank of America. The bond market, which has been a driver of the Western financial system, is sounding the alarm more than ever as this first-ever sell-off could have serious implications for the global economy and financial stability. The present article will focus on the relationship between Quantitative easing (QE) and its impact on the bond market and the ensuing sell-off.
The bond markets are experiencing another wave of selling, which indicates a growing risk for the Western economies. This will drive up the yields on the bonds and create more challenges for the stock markets around the world. The bond market, which is often seen as a reliable indicator of the economic outlook, is sending a clear warning of trouble ahead. The JP Morgan Leviathan issued a warning in April 2023, saying that US stock investors are too optimistic ignoring the risks, and that sentiment indicators show complacency, as the VIX volatility index is near record low and positioning has increased to above-average levels. The warning also said that there is no more safety net for the stock market, as the Federal Reserve has signaled that it will continue tapering its bond purchases.
The bond market and the debt market are closely related as they both involve the issuance and trading of debt instruments. First off, the bond market refers specifically to the market for buying and selling bonds, which are debt instruments issued by governments, municipalities, corporations, and other entities. Whereas, the debt market is a broader term that encompasses a range of debt instruments, including bonds, Treasury bills, notes, mortgages, and other forms of debt. So the bond market is a significant component of the broader debt market, but the debt market encompasses a wider range of debt instruments and trading activities. The bond market is often considered a key segment of the debt market due to the prominence of bonds in debt financing.
When a central bank implements quantitative easing, it typically involves purchasing government bonds and other financial assets in the market. This increases the demand for bonds, so central banks increase the demand for these securities in turn increasing demand tends to push bond prices higher.
As bond prices fall, their yields increase, and this is true for various types of interest rates, that is why not only will big market players feel these ravenous forces but the consumers will see higher costs for borrowing on credit cards, mortgages, and auto loans because of this shift, reducing their disposable income, as more of the households money will go towards paying off their debts.
That Uncanny 2008 Specter
The global economy has undergone a dramatic transformation since the onset of the 2008 financial crisis which got the US economy addicted to cheap Quantitative easing money printing and the subsequent pandemic-induced lockdowns. One of the key drivers of this change has been the unprecedented monetary stimulus implemented by major central banks, known as quantitative easing. QE involves creating new money and using it to buy government bonds and other assets, intending to artificially lower interest rates and boost economic activity. While in the short term QE created the illusion of progress and a rising stock market, in reality, the price signal was shattered and QE began distorting asset prices to oblivion, weakening the exchange rate, the economy as a whole, and increasing rampant inflation that's heading to hyperinflation.
One of the most visible impacts of QE on globalization has been the sharp rise in U.S. bond yields since March 2021. The U.S. bond market is the largest and most liquid in the world, and it serves as a benchmark for global interest rates and risk premia. The surge in U.S. bond yields reflects several factors, such as the prospects of a strong economic recovery, higher fiscal spending, rising inflation pressures, dedollarisation efforts by multiple world states, and reduced bond purchases by the Federal Reserve.
The US government and the Federal Reserve have implemented unprecedented fiscal and monetary stimulus effectively replacing the economy with QE money-printing and leaving the North American Union with no authentic recovery ever set in place since 2008. News of a new lockdown poses a clear and present danger to the US economic outlook, as it could paralyze the financial sector and while hammering the consumer citizens with debt and inflation. The US economy is facing significant challenges and risks as it tries to overcome the historic shock caused by its money printing addiction coupled with the pseudoscientific lockdowns which served only to aid the 1% consolidate the assets of the small and medium businesses as they lay bankrupt and sabotaged.
No Deal
The current sentiment of the markets is based on a false assumption that the Federal Reserve will lower the interest rates in response to the weakening economy. This explains why the markets react positively to negative economic indicators, as it interprets them as increasing the likelihood of a rate cut. The Federal Reserve has preconditioned the market to expect this, however, this expectation is misplaced and will not materialize this time.
Central banks are actually fostering inflation and channeling it to facilitate a massive transfer of wealth and power by pushing small and medium businesses into bankruptcy to be acquired and liquidated at low prices by the giant conglomerates consolidating their assets further towards the 1% of mega conglomerates and thus becoming the lenders and buyers of last resort, the ultimate power. By keeping interest rates artificially low and injecting liquidity into the financial system, the central banks are creating a distorted environment that favors the survival and expansion of the most indebted and inefficient firms, while squeezing out the profitability and competitiveness of the small and medium enterprises that are the backbone of the economy.
The small investor, the smaller business owners, and the family-owned or independent businesses are going to be the big losers, while private equity, from the leviathan banks, and billionaire status institutions with 'dark pool' liquidity, which have, more or less been planning for this level of mass consolidation and will come in and simply gobble up assets at much lower prices as a result of all the corrections.