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US Fed’s foolhardiness is of more concern than deflation

Such forced buying and related low yields suggest the US Treasuries market is now a bubble. And bubbles always burst. The Fed is committed to buying long-term US government debt itself in huge quantities. But, as America’s liabilities rise and the printing presses keep rolling, the dollar must surely keep falling. And as it does, the argument for holding US Treasuries collapses.

The danger looms that, pretty soon, the only net buyer of US Treasuries could be the Fed itself. Very serious questions would then be asked about America’s ability to service its debt. Foreign creditors could start calling in the money they’re owed by the States.

This scenario is alarming, but far from impossible. And the reason the world is flirting with this danger is because the Fed needs to fight deflation.

But the Fed’s argument doesn’t stack up. US inflation – as measured by the pre-Clinton methodology, before the politicians started messing with the numbers – stands at 4.5pc.

Deflation is being used as an excuse for the US authorities to print money like crazy, attempting to bury their mistakes and bail out their Wall Street friends.

This reality is crystal-clear. The fact other economists aren’t shouting it from the roof tops is both an outrage and a farce.

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