The Treasury and Federal Reserve Are Baking an Inflationary Cake of the Millenium

As reported in Michael Hartnett’s “The Flow Show” – Dove means never having to say you’re sorry, the Treasury has been aggressively issuing very short duration Treasuries – mainly T-bills.  This activity brought the average maturity down to 5 years.  Issuance activity can be seen in the chart below:


By lowering the maturity of the Treasury debts, our regulators are planning to manage the extraordinary size of our balance sheet.  In the next step, the Fed will lower short-term interest rates and let longer rates rise.  As short-term rates fall, these low rates will largely match the payments and maturities of the Treasury’s debt obligations – enabling the Treasury to afford its debt problem.

Hartnett’s Flow Show provides this chart to show the extent by which annual interest expense for the Treasury is surging:


The resulting upward sloping yield curve from the Fed’s rate manipulations, where short rates are low and long rates are high, would be welcome in normal times; however, we face an ongoing inflation crisis where this would be fuel on the fire.  

Lowering short term financing costs in the midst of an inflationary period, where that inflation was induced by extraordinary deficit spending, would increase lending and undoubtedly trigger heightened inflation and potentially uncontrollable inflation.  This unstable circumstance results from the vast amount of money being pushed into the economy via Government spending that would then expand under the money multiplier inherent in banking.

Our Treasury and Fed no longer work to manage inflation and the economy.  They now solely look to protect their legacy by focusing on the short-term circumstance and sacrificing the long term.  It seems they accept President Trump will win – and want to leave bags of shit at his doorstep to fertilize the trees that money grows on.

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