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Byzantine 2y ago

1. people start to allocate a few percentage points less to bonds

2. governments and corporations which run deficits need to issue more bonds to fund themselves

3. interest rates need to be higher on the bonds to attract more buyers

4. previously issued bonds decline in value since new bonds are being issued at higher rates

5. portfolios on bonds decline even more as interest rates increase

6. people allocate even less of their portfolio to bonds

7. interest rates on new bonds must be higher

8. bond portfolios decline even more

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Discussion

James A Lewis 2y ago

Found money will drive out fiat. May take a couple decades, but I am sure it's happening.

a source familiar with the matter 2y ago

Yes

and the rising rates pull money from banks, forcing the banks to sell the old bonds to fund withdrawals, which puts more pressure to lower bond prices & raise yields, creating bank losses & creating more withdrawal pressure

Stephan Rinbaum 2y ago

See "1980's". Rates rose to as high as 14% on US Treasury debt, the Fed Funds rate went as high as 20%,

The markets survived then, but the USG balance sheet was far different. The deficit was only 34% of GDP. Even so, the recovery included the biggest one-day market crash in history, a savings and loan crisis that closed hundreds of small banks and a recession even after both of the other events.

The deficit is now 123% of GDP. If we're lucky, the recovery will be only four times more difficult than it was in the 80's. If we're not, there won't be a recovery.