I am going to talk a bit about Antal Fekete´s speculation theory related to the bond market.
In my opinion, Fekete is the one of the greatest experts about the world economic situation and gold analysis.
Antal Fekete Great Depression
Fekete´s vision is contrary to Keynesian and Friednamite theories about the causes of the Great Depression in the United States.
Keynes blamed the cut restrictions by the government and Friedman the inefficient monetary policy of the FED. Too much buying during the bullish phase of the twenties, and too much restriction during the thirties.
Fekete thinks that both visions are wrong.
As for him, the money created by the FED does not necessarily have to go the commodities markets, as desired by Keynesian thought. That money will go where speculators find the best use: speculation in the bond market.
Antal Fekete bond speculation
With all that money entering the bond market, the consequence is a never-ending bull market in bonds and lower interest rates. Speculators go to that market to make riskless profits.
The Keynesians do not think about the long-term consequences of permanent fiscal deficits.
It is possible that through deficits, the present demand of goods can be increased. But, does it not have consequences in the long-term?
Perhaps, those who made the deficits are dead (like Keynes very well knew), but their children will not.
Fekete vs Keynes
Keynes was the maximum proponent of the hedonist and nihilistic theories of capital consumption that are so popular today. There is no much room for children and future plans in this current society.
Keynes was right when he unconsciously predicted the end of capitalistic society: “in the long run we are all dead”.
How right he was!
Antal Fekete speculators
A little problem I see with Fekete´s vision is about whom those speculators are.
He says that a group of individual speculators are the main contributors to the bull market in bond prices and the bear market in interest rates.
Those speculators, being infinitely nimbler in the management of money (which is true), will buy the bonds knowing in advance to dump them once the FED goes to the market to buy them.
Since they know the FED will be a permanent buyer of bonds (it should be valid for any other big bond market in the World). As a consequence, a riskless bull market in bond prices takes place and those speculators profit accordingly.
In general, the analysis is correct.
There is a bull market in bonds and there are speculators who take advantage of it.
The problem I see is that maybe it is not that small group of “speculators” the main cause of the fall in interest rates. In my opinion, the increasing size of the bond market, along with the fall of interest rates, is not consequence of a small number of speculators.
Those professional speculators do not take the bond prices towards infinite. There are actually two groups of speculators:
- A massive group: We can consider them the tiding wave that carries the bond market to heaven. That group is essentially “the public”, the masses or “the people”, whatever you want to call it. Those who have been voting social democracy for 200 years.
- A small group of professional speculators, who knowing the fundamental process of society ride the bull market in bonds following the trend and taking “riskless” profits.
The rise of the Tower of Babel of global debt cannot be seen as a process whereas a small group of speculators is the engine of it. Those speculators exist; there is no doubt about it. But, the fundamental fact by which the world has entered the waters of infinite debt belongs to a deeper nature.
Antal Fekete zero interest rates
The fundamental reason that leads the world to the bottom pit of zero interest rates and infinite debt is the system that is in charge of the destiny of the developed world: democracy.
The problem of democracy is that as a political system it leads to long-term capital consumption, no matter where and when that system takes place.
The consumption of capital should be seen as a very ample phenomenon, which in fact surpasses by far the petty concerns of capital markets.
But, that is another story.
What we are talking here is the capital markets.
The United States bond market, along with its creature, the dollar, is the base of the international monetary system. Besides, the bond market symbolizes the growing of the statist creature as a consequence of the democratic processes.
The long march to infinite debt must be seen as a logical process of capital consumption consequence of the implantation of mass democracy.
The masses cannot stop mortgaging themselves to heaven.
It is not those wicked speculators who guarantee that the bond market grows to the sky. It is the absolute long-term guarantee that the number of fiscal deficits under democracy will be much bigger than the surpluses (which are very rare events under a universal suffrage regime).
The gigantic American (and World) bond markets finances the frenetic activities of the American Treasury.
The Treasury responds to the demands of the public and the political forces that are in charge: eternal rising of political demands and rights, which are financed by never-ending fiscal deficits and increasing debt.
Bond prices and democracy
In other words, it is the dynamic forces of society that push the bond market prices to infinity.
Those speculators that bid up the prices are Governments of other countries, pension and hedge funds, banks and almost every big financial institution of The World. All those forces send the bond prices to the sky.
Some professional speculators, knowing about the dynamics of that bull market in bonds, and the fact that it will last seemingly “forever”, are insignificant when compared to the massive force that moves the bond market.
It is clear that the bull market in bonds has been an easy ride for nimble and old foxes of speculation. But, it does not mean that they are the ones that are responsible for the rise in bond prices. They just ride the trend, a trend built by the irresistible force of the masses.
The Government could just incarcerate those speculators, but that would not stop the future collapse of the bond market, neither would it stop the on-going bull market.
It is not the speculators the ones responsible for the value of the Zimbabwean Dolar, neither they are responsible for the value of the Venezuelan Bolivar.
It is the governments, and ultimately the egalitarian forces responsible of the masses that send lead to dire consequences.
The same “public”, that send the debt to infinite levels, will run away frantically when the system built by their desires, collapses.
The problem is that it will be too late by then.
The masses will never recover their previous levels of life because they gave away all their inherited capital without noticing.
In that sense, the gigantic American debt and bond market bubbles – much bigger than the stock market one – is a symptom of a more profound, but subjective bubble: the bubble of democracy and egalitarian values. And, you do not get out of a bubble like that with a sudden awakening of the masses asking for it to end. That sort of bubble has been resolved in another and more primordial way throughout history: through the end of a civilization; in this case, the Western Civilization.
Thanks for reading and sharing