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Letter to Bernanke: What Happens When the Bond Bubble Bursts?


Bonds can only go so high, and Federal Reserve Chairman Ben Bernanke is reaching his bubble-blowing limits.

Dear Mr. Bernanke,

It's been a long time since I last wrote you. Based upon the lack of response, I'll assume you didn't like what I had to say. What's wrong with asking about the difference between your bubble-blowing money-printing monetary policies and those of Alan Greenspan? I mean, can't anyone "print money out of thin air" and pump it into financial assets like stocks and bonds? I'm just saying... what's so intelligent and creative about doing that? I also asked in my last letter how long this money printing scheme could go on before inflation rips through the US economy?

Well Mr. Bernanke, it appears you have convinced speculators of your success with "quantitative easing" and "Operation Twist." The stock market is fast approaching the highs seen in the good old days that your predecessor created. Congratulations, you can print trillions of dollars buying overvalued U.S. government bonds pumping equities higher and higher. I'm impressed. But not with the fact that you know how to create a giant global Ponzi scheme. No, no...I'm impressed that central banks are letting you get away with it. Poor Portugal, Italy, Ireland, Greece, and Spain; if only these "PIIGS" could print their way out of a global crisis into a false recovery like you have done. Of course Wall Street insiders know you are providing Europe all the greenbacks needed to kick the can further down the road. We all know your plan is to get the stock market to new all-time highs creating the illusion of recovery and prosperity. How sad it will be for America when inflation rips out of control from your reckless policies.

I'm not an economist so I need to ask you just a few more questions to really understand what is going on inside your head. Do you really think a Ponzi scheme, where the Treasury issues bonds and the Federal Reserve buys those bonds, can last without collapsing the US dollar? Do you think that repeating the bubble-blowing mistakes of Alan Greenspan is a good long-term monetary policy? Isn't this just more of the same: short-term gain for long-term pain? And are you planning to buy every piece of US debt on the planet that comes for sale once central banks wise up and really unload bonds at all-time highs? That time will be your fork in the road -- the moment of truth. Will you take the path toward super inflation or the path toward free markets?

Mr. Bernanke, bonds can only go so high, so you're reaching your bubble-blowing limits. Soon the greatest bubble since dot-com, global real estate, and commodities will blow your giant Ponzi scheme to pieces. And I'm afraid history will judge you just like Alan 'bubble-blowing' Greenspan. But I'm more afraid of what our economy and our exploding government debt will look like when the bond bubble bursts and US interest rates roar higher.


Ron Coby

PS: I've attached a chart of 30-year bonds showing my Grail Timing indicator on a compression sell set-up. This tells us a downside Geyser in US bonds is close at hand. Buying bonds this high doesn't seem like a very intelligent thing for the Federal Reserve Chairman to be doing right now.

Click to enlarge
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