If you’re wondering where all the money comes from, it comes from the central bank, which exchanges its debt instruments, called Federal Reserve Notes, for the government’s debt instruments. If this sounds like hocus pocus, it’s because it is hocus pocus. From David Stockman at stockmanscontracorner.com via lewrockwell.com:
You would think that knuckleheads like Senate GOP Leader Mitch McConnell would finally wake up. Last night the biggest spender since LBJ and FDR combined laid-out Part 3 of a $6 trillion in 100 days spending spree – which comes on top of the Donald’s $4 trillion fiscal bacchanalia last year. Yet the bond vigilantes barely wiggled their small toe.
Indeed, at 1.65%, the 10-year UST is still buried deep below the running inflation rate, which rate itself is on the verge of liftoff.
Still, today’s negative 50 basis point real yield on the benchmark UST is only the culmination of a 30-year campaign by the Greenspan Fed and his heirs and assigns to destroy honest price discovery in the bond pits on the misbegotten theory that cheap debt fosters growth, prosperity and wealth.
No, what it actually does, among countless other ills, is unshackle the politicians to bury future generations in unspeakable debts.
Thus, if the real spread on the 10-year (purple area) was even +200 basis points, as it was at the turn of the century, the 10-year UST would now be yielding 4.25%. At that level, even Easy Janet (Yellen) would not have blessed Sleepy Joe’s $6 trillion spend-a-thon and centrists like Senator Manchin would have been a lot more than merely “uneasy” upon its presentation to the Congress.
33-Year Destruction of Honest Bond Prices by the Fed: 10-Year UST Yield Minus Inflation