Richard Russell is the most successful of all financial newsletter editors. He has been at it for well over 50 years. His Dow Theory Letter is a classic.
In a recent interview, he warned that the decision of the Federal Reserve and Europe’s central bank to inflate in order to save the stock markets in a de-leveraging economic system will kill the bond markets.
He is convinced that central banks must inflate or die. So, they will inflate. But the next wave of inflation will dwarf what has preceded it. He said:
Along with rising inflation will be its cousin, higher interest rates. This will impact everything from commodity prices to the rising cost of financing the federal debt. Right now the federal debt is being rolled over at extremely low interest rates, but as rates climb, compounding will occur and the cost of rolling over the federal debt will become a critical problem.
He pointed out that 40% if the federal debt matures in less than a year. The borrowing costs will be prohibitive.
He says that the federal debt is a bubble market.
The first bubble to be crushed will be the ridiculous federal debt. The second crushed will be the US dollar. The compounding federal debt will act as a steam roller, rolling everything in its path. The island of safety will be pure wealth, better known as gold.
This is choice: “Just as compounding turned rising money supply into fortunes, compounding the rising interest rates will turn fortunes into shoestrings.”
Russell has seen a great deal over the past half century. His assessment should be taken seriously.