‘The bubble either inflates or bursts…’ – Doug Noland

Credit Bubble Bulletin/Doug Noland/1-9-2020

“For years now, my beginning of the year ‘Issues’ pieces have featured a key Credit Bubble maxim: ‘The Bubble either further inflates or bursts.’ While easier to dismiss than ever, this dynamic has never been as germane. The Fed-induced Bubble is raging out of control. Monetary Disorder is acute and highly destabilizing. Sustainability must be questioned.  The system to begin 2021 in the throes of historic late-cycle “Terminal Phase Excess.” One cannot overstate the damage this ongoing epic Monetary Disorder will inflict upon financial, economic, social and political stability.”

USAGOLD note 1: The Fed finds itself once again between the proverbial rock and a hard place. When yields suddenly rise at a time when the central bank would just as soon keep them down, it doesn’t happen in a vacuum. Something else is happening. Back in March, no one really suspected that there was a major crisis brewing under the surface – one that would require significant Fed intervention. It was only later that the “Great Liquidity Crisis” surfaced as such. It’s “inflate or die,” as Richard Russell used to put it, or as Noland says, “the bubble either further inflates or busts.”

USAGOLD note 2: Is it merely a coincidence, then, that the chart on 10-year Treasury yields is beginning to look a lot like it did last March, or might there be something else going on? Time will tell, and Chappatta and Wien may be on to something (Please scroll to “Will Yellen and Powell launch MMT”)……We reproduce two charts immediately below. The first shows the price of gold with a sharp drop in early March as rates rose and the liquidity crisis first surfaced. As it has been this past week, the prevailing narrative was that risk assets were the future, and safe havens were no longer fashionable. Subsequently, as the severity of the crisis sunk in and it became apparent the Fed would be forced to print money to deter it, the metal began to work its way higher. Along with Noland’s synopsis above, these charts offer some food for thought coming off last week’s sharp declines in precious metals prices.

Gold Price
(one year)
line chart showing the price of gold over past 12 months with annotation noting the beginning of The Great Liquidity Crisis

Chart courtesy of TradingView.com • • • Click to enlarge

US Treasury 10-Year Bond Yields
(late 2019, present)
line chart showing bond yields over the past 12 months

Chart courtesy of TradingEconomics.com • • • Click to enlarge

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