The Building of a Treasury Bubble

As Washington spends as if there are no negative implications to deficits, treasuries continue to be supported by a public weary of putting money on Wall Street. Our public debt, increasing as never before, is easily supported today by a strong dollar and treasuries that yield near zero. Currently, Fed chairman Bernanke claims that he is not concerned about inflation because the dollar is strong and inflation is flat.


What regulators are forgetting, however, is that once they manage to get Wall Street and Main Street to click again, money will not chase low treasury yields. As such, the recovery of the stock market will quickly pull money out of treasury bonds and necessitate the rapid increase in interest rates. As increased rates chase the market in a vane attempt to pull dollars back in support our enormous debt, inflation will certainly follow. Bottom line, tips and gold are an essential component to any portfolio going forward.

Photo credit: http://farm2.static.flickr.com/