What most people don't understand is that there is a MASSIVE re-pricing of risk under way.
The market is telling us that there is no such thing a a risk-free asset...it is now a mere illusion.
One goal of this blog is to explain to people who don't have degrees in Economics, Accounting, or Finance, what the hell is going on in the world of economics.
I fear I am unable to do this about the current debate in congress.
The only thing I can tell you is that U.S. Treasury Bonds represent what has been considered the only risk-free asset in the world. That era is over.
Everything is changing. The financial world as we know it will never be the same.
Lock in every interest rate you can. If you have any variable loans or credit..pay it off...immediately if possible.
The era of government miss-priced risk is over.
I am not sure what will evolve, I only know everything is about to change.
Our Government tried to "save" the economy by capitalizing profits and socializing losses. This may have worked had we entered a period of growth where tax receipts could keep up with the increased liabilities Government took on.
The hoped for growth did not materialize...and now the Government is Lehman Brothers, unless we have a massive tax increase on the rich combined with radical cuts in entitlements, either of which may cause political instability.
I have disagreed with Dick Bove in the past, but now he is right on:
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