The stock market is still purging some of its recent insanity this morning, but the real action has been in bonds. Fitch may have gotten everyone’s attention with its downgrade of US credit, but it has already turned into mainstream articles now pointing out what the financial media had been silent on. Today’s news is about real dangers showing up in the US Treasury market, which are massive as I called out in my “Deeper Dive” earlier this week.
Prior to Fitch ringing the alarm bell this week, everyone was asleep at their financial media posts, paying no attention to how bad the deficit-debt-interest fire tornado has become. One story in today’s news presents a fitting image of what I wrote about debt creating its own weather. A volcano in Iceland is shown creating its own weather, as the heat that is rising from the lava whips up into a tornado that sweeps the mountain’s flanks. Shown in the picture above, it’s a spooky looking video to watch. That is what US debt is now doing to its own interest rates, something I had forecast a couple of months back would start to happen once the debt ceiling was raised.
While Fitch is getting plenty of criticism from the White House, the Treasury, and big bond market players, including JPMorgan’s CEO Jamie Dimon — just as S&P did back in 2011 with the nation’s first credit downgrade — it seems to me the critics are all talking their book. JPMorgan, for example, is the nation’s largest primary bond dealer. They are holding a massive amount of bonds they don’t want to see lose value; yet, losing value they are as Dimon tries to stop the plunge in pricing. And, of course, the US government, including the Treasury, doesn’t want to admit its massive deficits and credit shenanigans (on both sides of the aisle) are roiling credit markets.
That is all part of the problem. The people that actually get listened to because of their fabulous wealth and massive banks, are the ones most likely talking up what they have to sell, and none of them want to face the reality that Fisk has just gotten people to wake up to. It’s a much needed wake-up call, and if Fitch hadn’t started banging a few pots and pans, the whole nation would still be sleeping its way to catastrophe. It takes someone big like Fitch, actually finally doing its job, instead of waiting to downgrade credit until credit problems have already changed the market — which they are certainly about to do even without Fitch’s alarm …
—David Haggith